Key Takeaways Chewy membership is boosting engagement, as members shop more frequently and place larger, multi-item orders.Chewy users adopt Autoship more often, driving recurring orders and lifting customer retention and spending.Management expects Chewy to reach a mid-single-digit share of net sales by the end of fiscal 2025.Chewy, Inc.’s (CHWY) membership program, Chewy+, is emerging as a significant driver of customer engagement and recurring revenues. The program, which offers free shipping, 5% rewards ...

Core Insights - Chewy Inc.'s Autoship subscription program is a key driver of growth and customer loyalty, with Q2 fiscal 2025 Autoship sales reaching $2.58 billion, a year-over-year increase of 14.9%, representing 83% of total net sales [1][10] - The growth in Autoship is attributed to higher enrollment and improved retention, supported by a wide product assortment and a seamless digital shopping experience [2] - Chewy's active customer base grew to 20.9 million, a 4.5% increase year over year, with net sales per active customer rising 4.6% [3] Sales Performance - Chewy's net sales growth outperformed competitors like Central Garden & Pet Company and Petco Health and Wellness [6] - Central Garden & Pet reported a 4% decline in Q3 fiscal 2025 net sales to $961 million, while Petco's Q2 fiscal 2025 net sales decreased by 2.3% to $1.49 billion [7][8] Future Outlook - Chewy projects full-year 2025 net sales between $12.5 billion and $12.6 billion, indicating a year-over-year growth of approximately 7% to 8%, with Autoship playing a crucial role in this growth [5][10] - The company trades at a forward price-to-sales ratio of 1.18X, below the industry average of 2.23X, suggesting potential valuation upside [11] Earnings Estimates - The Zacks Consensus Estimate for Chewy's fiscal 2025 and 2026 earnings indicates year-over-year growth of 22.1% and 20.4%, respectively, with recent upward revisions in earnings estimates [12]

Core Viewpoint - Both Carnival and Chewy are experiencing revenue growth and present strong long-term investment opportunities in the consumer goods sector [1][2]. Group 1: Carnival - Carnival, the largest cruise operator, faced significant challenges during the pandemic, leading to a substantial increase in debt [4]. - The company has made progress by replacing older ships with fuel-efficient vessels, enhancing onboard spending strategies, and focusing on debt repayment, particularly variable-rate borrowings [4]. - Recent financial performance includes record revenue of $6.3 billion and customer deposits reaching $8.5 billion, with advanced bookings for next year matching record levels at higher fares [5]. - Carnival has exceeded financial targets in its turnaround plan, achieving the highest adjusted return on invested capital in over 20 years [6]. - Lower interest rates are expected to facilitate debt repayment and encourage consumer spending on cruises [7]. Group 2: Chewy - Chewy is a leading e-commerce platform for pet supplies, with a loyal customer base supported by its Autoship service, which accounts for 83% of overall sales [8]. - The company reported a sales increase of over 8% to $3.1 billion, with Autoship sales climbing 15% [9]. - Chewy has diversified its revenue by opening veterinary clinics, allowing it to introduce e-commerce services to new customers [10]. - The company maintains a strong financial position with no debt and over $590 million in cash [11]. - Chewy's loyal customer base, as evidenced by Autoship metrics, positions it well for long-term success despite competition [11]. Group 3: Investment Comparison - Both Carnival and Chewy are considered reasonably priced, with Carnival trading at 15 times forward earnings estimates and Chewy at 29 times [12]. - The high debt level of Carnival poses a risk, while Chewy's debt-free status is viewed favorably [14][15]. - If only one stock could be chosen, Chewy is preferred due to its lack of debt and strong customer loyalty [15].

Core Viewpoint - Chewy (NYSE: CHWY) remains a strong investment opportunity despite its stock price doubling since 2024, primarily due to the potential for rising profit margins driven by strategic initiatives [1]. Profit Margins - Chewy has achieved consistent profitability and cash generation over the past two years, currently reporting a 2% net profit margin and a 4% free cash flow margin (1.2% when including stock-based compensation). There is potential for further margin improvement as management focuses on higher-margin growth areas [2]. Key Growth Areas - **Autoship**: Chewy's Autoship subscription plans constitute 83% of total sales, providing predictable and steady revenue that can be further streamlined [3]. - **Chewy Vet Care**: The company aims to operate 20 Chewy Vet Care clinics by year-end, which will enhance its physical presence and tap into the higher margins typical of veterinary services [5]. - **Get Real**: The launch of a private-label healthy and fresh dog food product, Get Real, is expected to offer higher margins and align well with the Autoship subscription model [8]. - **Advertising**: The sponsored ads business is a significant contributor to Chewy's profitability, with management projecting that it could grow to represent 1% to 3% of total revenue [9]. - **Chewy+**: The new $49 annual membership program, Chewy+, has received positive feedback and already accounts for 3% of June sales, with potential for generating substantial high-margin membership fees [10]. Valuation - Chewy is currently trading at 29 times forward earnings, but with anticipated earnings growth, it is considered a top stock to consider [10].

Group 1 - Chewy's net sales increased by 8.6% year-over-year in the second quarter, surpassing the company's guidance range, driven by growth in the Autoship subscription and Chewy+ membership programs [1][2] - The Autoship program's net sales rose by approximately 15% during the quarter, representing 83% of Chewy's total net sales [2] - Over the past 12 months, Chewy's total net sales grew by 9.2% year-over-year, while Autoship customer sales increased by 14.9% [2] Group 2 - The Chewy+ program exceeded expectations, accounting for 3% of total monthly sales in July, with projections for mid-single-digit share of net sales by year-end [3] - Chewy+ members demonstrate higher net sales per active customer (NSPAC), increased profit per customer, and greater buying frequency compared to non-members [4] - The NSPAC for Chewy+ customers is accelerating, positively impacting Chewy's overall net sales [5][7] Group 3 - Chewy+ offers benefits similar to Amazon Prime and Costco membership, including free shipping, rewards, and exclusive offers [5][6] - The Autoship program allows customers to customize delivery frequency, save on eligible items, and gain priority access to popular products [6] - NSPAC is growing at 4.5% and is expected to increase between 4% to 5% in the second half of the year, driven by stronger Autoship and product mix [7]

Core Insights - Chewy's Autoship subscription program is a key driver of customer loyalty and growth, with sales reaching $2.56 billion in Q1 fiscal 2025, a 14.8% increase year over year, significantly outpacing overall revenue growth of 8.3% [1][9] - The share of Autoship in total net sales has risen to 82.2%, the highest in the company's history, indicating its increasing importance [1][4] Customer Engagement - Strong momentum in Autoship was driven by higher enrollment and improved retention of existing subscribers, supported by a broad product assortment and a seamless digital experience [2] - Chewy ended the quarter with 20.8 million active customers, a 3.8% year-over-year increase, with many new customers quickly enrolling in Autoship [3] Financial Performance - Autoship has grown from 66% of net sales at the time of the IPO to over 82% today, reflecting better conversion of new customers and stronger long-term engagement [4] - Chewy's fiscal 2025 sales outlook is projected at $12.3 billion to $12.45 billion, indicating a growth of 6% to 7%, assuming continued strength in Autoship [4] Competitive Landscape - Chewy's net sales have outperformed key competitors like Central Garden & Pet Company and Petco Health and Wellness [5] - Central Garden & Pet reported a 7.4% decline in net sales to $833.5 million, while Petco's net sales decreased by 2.3% to $1.49 billion [6][7] Valuation and Earnings Estimates - Chewy's shares have gained 13.4% year to date, outperforming the industry's growth of 7.6% [8] - The company trades at a forward price-to-sales ratio of 1.22X, below the industry average of 2.17X, with a Zacks Consensus Estimate for fiscal 2025 earnings indicating a year-over-year growth of 23.1% [10][11]

Core Insights - Chewy (CHWY) is a prominent player in the pet care industry, leveraging its strong e-commerce platform to cater to a growing number of pet owners. The stock is currently trading at a forward 12-month price-to-sales (P/S) multiple of 1.38X, which is below the industry average of 2.02X, raising questions about whether it is a buy, hold, or sell opportunity [1][21] Valuation Comparison - Chewy's valuation is attractive compared to peers such as Central Garden & Pet Company (CENT) at a forward 12-month P/S of 0.75, Petco Health and Wellness Company, Inc. (WOOF) at 0.15, and BARK, Inc. (BARK) at 0.33 [2] Stock Performance - Chewy's stock price has increased by 24.3% over the past three months, closing at $41.86, outperforming the industry's rise of 18.2% and the Retail - Wholesale sector's growth of 11.5% [3][5] - The stock is currently trading above its 50-day and 200-day moving averages of $41.53 and $35.26, indicating strong upward momentum and market confidence [9] Financial Performance - For the first quarter of fiscal 2025, Chewy reported net sales of $3.12 billion, an 8.3% year-over-year increase, exceeding guidance expectations [10] - The Autoship program generated record sales of $2.56 billion, accounting for 82% of total net sales and growing 14.8% year-over-year [11][13] - Chewy's active customer base grew to 20.8 million, a 3.8% year-over-year increase, with net sales per active customer rising by 3.7% to $583 [14] Growth Initiatives - Chewy's Vet Care business is expanding, with 11 clinics currently operating and plans to open 8-10 additional clinics in fiscal 2025 [15] - The Chewy+ membership program has successfully transitioned out of beta, showing increased customer engagement and order frequency [15] Future Outlook - For fiscal 2025, Chewy anticipates net sales between $12.3 billion and $12.5 billion, reflecting 6-7% year-over-year growth, with an adjusted EBITDA margin guidance of 5.4% to 5.7% [16] - The Zacks Consensus Estimate for EPS has seen upward revisions, with current estimates at $1.28 for the current year and $1.53 for the next year [17] Market Position - Chewy has demonstrated resilience through steady revenue growth and customer retention strategies, positioning itself as a high-growth, digitally native pet care leader [21]