CHWY: Chewy+ Price Hike Will Test Margins And Membership Durability

Analysts have modestly trimmed their price target on Chewy, cutting fair value by about $0.22 per share as they balance slightly softer revenue growth expectations and a higher discount rate against improving profit margin forecasts and the long term upside they see from the successful Chewy+ membership price increase to $79.

Analyst Commentary

Bearish analysts acknowledge that the Chewy+ price increase to $79 underscores healthy early adoption of the membership program and a potentially meaningful incremental revenue stream into FY26. However, they remain cautious on how much of that upside is already reflected in consensus expectations, particularly given that gross margin forecasts for the back half of the year still appear elevated relative to their models.

Some note that while the higher membership fee could support improved unit economics over time, it also raises execution risk if renewal or sign-up growth slows, which could weigh on Chewy's long term subscriber growth narrative. This dynamic leaves limited room for disappointment in customer response to the new pricing, especially against a backdrop of a more demanding discount rate and macro uncertainty.

From a valuation standpoint, bearish analysts argue that the stock's risk reward profile is more balanced after the recent re-rating, with current price levels already baking in meaningful progress on profitability and continued traction from Chewy+. They caution that any stumble in margin delivery or slower than expected membership ramp could prompt further trimming of price targets, even if the long term strategy remains intact.

Bearish Takeaways

• Bearish analysts view current gross margin expectations as optimistic, warning that elevated Street forecasts for the next two quarters could set the stage for disappointment if cost efficiencies or membership monetization fall short.
• There is concern that the higher Chewy+ fee, while positive for unit economics, introduces greater execution risk around sign-ups and renewals, which could pressure long term customer growth assumptions embedded in valuation models.
• Some bearish analysts see the recent share price recovery as leaving less upside relative to their revised price targets, given the need for sustained margin expansion and consistent membership growth to justify premium multiples.
• Cautious sentiment centers on the possibility that slower macro driven demand or competitive responses could temper Chewy's top line trajectory, narrowing the margin for error on both revenue growth and profitability targets.

What's in the News

• Chewy narrowed its full year 2025 net sales outlook to between $12.58 billion and $12.6 billion, implying roughly 8% year over year growth when excluding the 53rd week in fiscal 2024 (company guidance).
• The company issued fourth quarter 2025 guidance calling for net sales between $3.24 billion and $3.26 billion, or about 7% to 8% year over year growth adjusted to exclude the 14th week in the prior year period (company guidance).
• Chewy announced a partnership with ororo Heated Apparel, adding the Koldpwoof Heated Dog Vest, its first heated dog apparel product, to Chewy.com and expanding its premium pet accessories lineup (company announcement).

Valuation Changes

• Fair Value was trimmed slightly, moving from $36.68 to $36.46 per share.
• The Discount Rate rose modestly, increasing from 8.14% to approximately 8.47%, reflecting a somewhat higher perceived risk profile.
• Revenue Growth was reduced slightly, with long-term annual growth assumptions easing from about 6.53% to roughly 6.02%.
• The Net Profit Margin improved modestly, moving from around 2.73% to approximately 3.09%, signaling better expected profitability.
• The Future P/E compressed from about 46.9x to roughly 42.1x, indicating a lower valuation multiple on forward earnings assumptions.