JPMorgan downgrades Chewy as macro headwinds curb growth

Investing.com -- JPMorgan downgraded Chewy to Neutral from Overweight in a note on Friday, citing persistent macroeconomic pressure on the online pet retailer's organic growth even as the company executes well on its own initiatives.

Analyst Doug Anmuth set a December 2027 price target of $24 for the stock, based on about seven times his 2028 adjusted EBITDA estimate of $1.2 billion.

Chewy shares fell about 9% after its results on Wednesday, against a 1% decline for the S&P 500, as organic growth stayed under pressure and discretionary and premium purchases remained soft in the second quarter.

Despite the weak category backdrop, Anmuth said Chewy continued to gain share, outpacing the broader pet market by two to three times, with healthy customer additions and retention.

Anmuth notes that recent acquisitions SmartPak and Modern Animal both beat expectations, and the company lifted its full-year sales outlook by about $40 million at the midpoint.

Second-quarter adjusted EBITDA margin of 6.8% topped guidance, though the analyst acknowledged the beat was almost entirely driven by about $15 million of timing-related and discrete gross-margin benefits, including a tariff refund. Underlying margins still benefited from sponsored ads, fulfillment efficiencies and AI-driven productivity.

Chewy expects AI initiatives to generate cost savings in the low tens of millions this year, scaling to about $50 million annually in fiscal 2027. It recently launched Cai, an AI assistant now "resolving ~30% of chats through self-service" for a select group of app users.

Anmuth remains positive on Chewy's market share gains, profitability and capital returns, including $200 million of buybacks in the quarter, but cited "muted organic growth" in moving to the sidelines.

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