Chewy Stock Slides After JPMorgan Downgrade on Consumer Spending Concerns

Shares of Chewy, Inc. (NYSE:CHWY) fell 3.3% on Friday after JPMorgan downgraded the stock to Neutral from Overweight and slashed its price target. The firm cited ongoing macroeconomic challenges that continue to weigh on the company's organic growth.

JPMorgan's Rationale

JPMorgan analyst Doug Anmuth lowered the firm's price target on Chewy to $24.00 from a previous $29.00. In a note to clients, Anmuth observed that while the consumer environment has not worsened since the first quarter, it has also failed to meaningfully recover.

This stagnation is creating sustained pressure on discretionary spending and the trend of "premiumization," where pet owners opt for higher-priced goods. The downgrade follows a recent 9% drop in Chewy's shares after its latest earnings report, which highlighted similar growth concerns.

Bright Spots in a Tough Market

Despite the challenging backdrop, JPMorgan noted that Chewy continues to execute well in several key areas. The company is gaining significant market share, with its performance outpacing the broader pet category by approximately 2 to 3 times in the second quarter.

Other positive indicators highlighted by the firm include:

Ad

• Healthy customer additions, retention, and reactivation rates.
• Recent acquisitions, SmartPak and Modern Animal, performing ahead of expectations.
• A net addition of 208,000 active customers in the second quarter.

Reflecting these gains, Chewy increased its full-year net sales outlook by approximately $40 million at the midpoint. However, the company's guidance does not assume a significant consumer recovery in the current fiscal year.

Margin Beat Driven by One-Offs

Chewy's second-quarter adjusted EBITDA margin of 6.8% exceeded its own guidance, but JPMorgan pointed out that the beat was almost entirely due to temporary factors. The upside was driven by approximately $15 million in timing-related and discrete benefits.

These one-off gains included roughly $10 million from tariff refunds and rebates, along with another $5 million from factors like gift-card breakage, inventory adjustments, and vendor-funded merchandising activity. This suggests underlying operational margins were less robust than the headline figure indicated.