Chewy Q3 FY25 Earnings Preview: Strong Autoship, Fragile Sentiment After Two Big Drops

1. Market & Expectations

Chewy reports fiscal Q3 2025 results on Wednesday, December 10, before the U.S. market opens, with the stock coming into the print around $34.70. That leaves shares roughly mid-teens below the 52-week high near $48.60 and modestly above the 52-week low just under $30, a classic “pulled back but not washed out” setup.

Price action into the event is mixed: over roughly the last month the stock has climbed mid–single digits, but it’s still down mid– to high–teens versus three months ago, when optimism after prior prints pushed it into the low-$40s. Over the last year Chewy is up around low double digits, but that trailing performance hides big swings around earnings — a key part of this setup.

On the fundamentals side, Street expectations for Q3 are not low. Consensus points to:

Revenue a little above $3.0–3.1 billion, implying high single-digit year-over-year growth.
Adjusted EPS around $0.30, up sharply versus the prior year, and near the top of the company’s own recent guidance range.

Importantly, the EPS consensus has been revised higher by roughly 10% over the past month, as analysts grew more comfortable with Chewy’s margin trajectory and customer metrics. That means the bar has risen into the print rather than been walked down.

Recent earnings history has been fundamentally solid but price-reaction ugly:

Q4 FY24: Big beat on EPS and revenue, strong Autoship and customer metrics, and shares traded higher post-print.
Q1 FY25: Revenue and adjusted EPS both beat, but net income and margins disappointed vs lofty expectations; the stock fell roughly 10–12% in the first session after results.
Q2 FY25: Revenue beat, EPS matched, guidance nudged up — yet after a strong run into the event, shares dropped about 15–17% on the day as investors judged the report “not good enough.”
Q3 FY24: Chewy beat on both revenue and EPS with mid-single-digit growth; the stock reaction was essentially flat to slightly down.

Across roughly the last dozen reports, Chewy has traded lower immediately after earnings more often than higher, even when beats are common. The pattern is clear: the market is focused less on headline beats and more on margin quality, customer growth, and guidance versus elevated hopes.

At the sector level, Chewy sits at the intersection of online retail, pet spending, and growth at a reasonable price. Broader consumer-discretionary and internet commerce benchmarks have been up mid-single digits over the past year but choppy in recent months, with higher rates and mixed consumer data keeping investors selective rather than indiscriminately chasing beta. Within that backdrop, Chewy has benefited from its “staples-like” pet exposure but is also treated as a higher-beta internet stock that traders are willing to punish when expectations run ahead of fundamentals.

2. Business & Balance Sheet

Chewy is still fundamentally a recurring-revenue pet platform:

The Autoship subscription engine accounts for around 80%+ of net sales, providing highly visible, repeat consumables revenue.
Net sales per active customer have been grinding higher, reflecting wallet-share gains as users consolidate spend onto the platform.
Newer initiatives — Chewy Vet Care clinics, Chewy+ membership, pharmacy and insurance, and sponsored ads — add incremental growth and margin levers beyond core food and litter.

On trailing numbers, Chewy generated over $11.8 billion in FY24 sales, growing in the mid-single digits year on year, with gross margin around 29% and net margin just over 1%. Adjusted EBITDA margins have been improving into the mid-single-digit range, but this is still a thin-margin retail model where small changes in mix, freight, or promotions can swing earnings meaningfully.

Valuation is rich versus traditional retailers but more reasonable versus high-growth internet peers:

Trailing P/E is near 100x on the current snapshot, with forward P/E in the mid-40s.
Price-to-sales and EV/sales sit around 1.1–1.2x, reflecting a business that’s achieved real scale but still needs sustained growth and margin expansion to justify its multiple.
EV/EBITDA screens high (around 50x on trailing numbers), reinforcing that the equity story is about a multi-year margin and free-cash-flow ramp, not today’s earnings alone.

The balance sheet is serviceable but not fortress-like. Chewy carries meaningful lease and debt obligations relative to its thin margins, but cash generation has improved, and free cash flow in recent quarters has been solid. This is not a distressed story; it’s a question of whether the company can continue compounding mid-single-digit to high-single-digit revenue growth while lifting margins into a more “platform-like” range.

For this quarter specifically, the fundamental watch-list is:

Active customers: whether growth re-accelerates meaningfully above low single digits or stalls.
Net sales per active customer (NSPAC): signals for trade-down vs premiumization and cross-sell.
Autoship penetration: staying high is crucial to the recurring-revenue narrative.
Gross margin: any wobble here tends to get punished quickly.
Opex discipline and free cash flow: investors now expect durable FCF, not just one-off beats.

Chewy’s guidance heading into FY25 called for mid-single-digit to high-single-digit sales growth and steady to modestly improving margins. The stock’s recent volatility shows that even small deviations from that path — or just “fine but not exciting” guidance — can trigger outsized reactions when positioning is crowded.

3. Options, Positioning & Sentiment

Event expiry and implied move

The options chain snapshot is taken late in the U.S. session on Tuesday, December 9, the day before the Q3 report, with the stock around $34.70.

The earnings event expiry is the Friday, December 12 contracts, which fully capture the Wednesday morning report and the first two regular sessions afterward.
At the $34.50 strike for that expiry, the at-the-money straddle mid is about $3.35 (call mid plus put mid).
That implies an earnings move of roughly 9.7% up or down versus the pre-event stock price.
In dollar terms, the options market is pricing a post-earnings trading range of about $31 to $38 by the end of the week.

Comparing that to recent behavior:

Q1 and Q2 FY25 both saw double-digit percentage drops in the immediate aftermath of earnings.
Q3 FY24 and some earlier quarters were closer to flat to mid-single-digit moves.
Across roughly the last dozen reports, Chewy has seen large (>8–10%) earnings moves often enough that a ~9–10% implied move is very plausible — not obviously cheap, but not wildly expensive either.

Term structure and event vol

The term structure around the event shows a classic front-loaded earnings vol spike:

The 12/12 event expiry trades around 130%+ at-the-money implied volatility.
The following week (12/19) is closer to 80% implied, and expiries further out into early 2026 step down into the high-40s to mid-50s.
Realized volatility on the underlying has been much lower: roughly the mid-30s annualized over 10–30 days and near high-40s annualized over 90 days.

In other words:

Short-dated event options are charging a very high premium versus everyday realized volatility.
But that premium is roughly in line with how violently the stock has actually moved around recent earnings, where double-digit gaps have been common.

Skew and open interest

On the event expiry:

Implied vol is very symmetric between calls and puts at each strike — no obvious “panic bid” for downside protection or manic upside chasing in IV terms.
Open interest tells a more nuanced story:
- Heavy put open interest clusters in the $30–32 strikes, consistent with downside hedges and speculative bearish positioning.
- Substantial call open interest builds above the market in the $35–40 range, especially at $35, $38, and $40, consistent with traders targeting a squeeze or snap-back if the company finally delivers a “clean beat” plus strong guidance.
Overall, the options board looks two-sided and active, with no single obvious directional crowding but a willingness to pay up for tails on both sides.

Short interest, analyst stance, and sentiment

Away from the options:

Short interest sits around the mid-single digits as a percentage of float, with roughly 1.5–2 days to cover — elevated enough to matter in a surprise upside scenario, but not a classic squeeze powder keg.
Analyst ratings are skewed positive: the average recommendation is between Buy and Strong Buy, and the average 12-month target in the mid-$40s implies roughly 30% upside from the mid-$30s share price.
Estimate revisions have turned positive into this print, with consensus EPS nudged higher in the last 30 days, and Chewy carries solid growth and momentum style scores at major research shops.
On news and social channels, the tone is bullish-but-skeptical:
- Many notes frame recent selloffs as “sell the news” overreactions after fundamentally good reports.
- There’s also lingering awareness of Chewy’s past meme-adjacent status (via Roaring Kitty’s prior stake and the GameStop connection), but the current conversation is far more about margins, Autoship durability, and Vet Care expansion than about pure meme dynamics.

Net-net, positioning and sentiment say: investors generally like the business and see upside longer-term, but they’re nervous about another “great quarter, bad reaction” outcome and are willing to buy protection.

4. Guidance, Direction & Confidence

Direction & magnitude call

Putting the pieces together, my base call for this event is:

Earnings outcome: Slight fundamental beat on revenue and adjusted EPS versus consensus, with KPIs (Autoship, NSPAC, active customers) generally healthy.
Guidance: Roughly in line with prior frameworks — incremental positivity, but not enough to reset the narrative after two painful drawdowns.
Stock reaction: Another “good but not good enough” quarter, with the market fading the print rather than chasing it.

Directional call:

I expect Chewy to gap down on earnings, with a move of roughly 8% lower versus Tuesday’s close, landing toward the lower half of the options-implied range.

That corresponds to:

Direction: Down.
Magnitude: About 8% (i.e., a mid-to-high single-digit downside gap), versus an options-implied move of about 9–10%.

Factor weights (why this call)

Approximate factor weights in this call (summing to ~1.0):

Fundamentals & estimate revisions – 0.30
Positive: revenue growth remains high-single-digit, EPS and margins are trending in the right direction, and estimates have been revised up into the print. That argues against a fundamental disaster.
Options & positioning – 0.30
Heavy, two-sided positioning plus a rich but not insane implied move, after two recent double-digit down reactions, keeps me focused on path-dependency and dealer flows. The board does not scream one-sided fear or euphoria, but it does say that many players are braced for another big move.
Valuation – 0.15
At nearly 100x trailing earnings and ~1.2x sales, Chewy is still priced as a premium, durable grower. That leaves limited room for disappointment on margins or guidance — especially after a prior year of big gains.
Price action, sector & macro – 0.15
The stock is off its highs but not cheap on a chart, and broader internet/consumer names have been whippy around macro headlines. That puts more weight on any excuse to take profits.
Sentiment & alt data – 0.10
Analyst tone is constructive, social chatter leans opportunistic, and several pieces frame recent drops as overreactions. That bullish lean actually increases downside risk if the company merely hits a slightly elevated bar instead of clearing it decisively.

Overall confidence in “down” as the gap direction is moderate (about 60%): fundamentals are too solid to justify outright panic as the base case, but the combination of rich valuation, recent negative reactions, and a still-high bar on guidance tilts the risk/reward toward another post-earnings fade.

Scenario map

Bull case (≈ 25% probability): “Reset the narrative”

What happens:
Revenue growth comes in meaningfully above consensus, active customers and NSPAC surprise to the upside, gross margin expands more than expected, and management raises full-year guidance enough to signal confidence into 2026. Vet Care, advertising, and higher-value categories are highlighted as accelerating drivers.
Market reaction:
The print is strong enough to force shorts to cover and bring in fresh longs. The stock gaps up 10–15%, trades toward or into the upper half of the $38+ side of the options-implied range, and can even press into the low $40s on follow-through.
What would push us here:
A clear beat on both revenue and margins plus meaningfully upgraded guidance, especially on long-term margin targets or free-cash-flow conversion.

Base case (≈ 50–55% probability): “Good quarter, unforgiving tape”

What happens:
Chewy posts a small beat on revenue and adjusted EPS. Customer metrics are fine, Autoship stays strong, but margin expansion is only incremental and commentary on 2026 is cautious or vague. Guidance is roughly in line with prior commentary and with consensus that has crept up into the print.
Market reaction:
With the stock still valued richly and memories of recent selloffs fresh, investors use the event to take profits and reduce risk. The shares gap down in the mid–single- to high–single-digit range (around 6–10%), likely ending the first session around $31–33, toward the lower half of the straddle-implied range.
What keeps us here:
The absence of an obvious thesis-breaker, but also no real “new bull catalyst” to offset elevated expectations and active positioning.

Bear case (≈ 20–25% probability): “Margins or guidance crack”

What happens:
Revenue is in line to slightly light, and/or margins compress more than expected (freight, promotions, mix). Management either guides more cautiously on growth/margins or leans heavily on external macro/tariff risks. Any wobble in active customers or Autoship penetration would add fuel.
Market reaction:
After two prior big drops, a clear sign that the margin or growth story is stalling could trigger another double-digit downside move, potentially 12–18% lower, with the stock breaking below the options-implied range and retesting or undercutting the high-$20s.
What would shift us into this bucket:
A combination of top-line softness plus margin deterioration and a lower-than-expected guide, especially if management reframes 2026 as a heavier investment year.

5. Trade Framework (Not Advice)

This section is illustrative only, meant to help think about how the options market is pricing the event versus your own view. Position sizing, risk limits, and whether to trade at all are individual decisions.

1) Base-case bearish: short-delta put spread into event

For traders aligned with the “modest downside gap” base case but wary of tail risk:

Structure idea: Buy a near-the-money put around $35 on the 12/12 expiry, and sell a lower-strike put (for example in the $30–31 range) in the same expiry.
Rationale:
- The long put benefits if Chewy gaps down into the low-$30s as implied by the base scenario.
- The short lower-strike put helps offset the rich event-vol premium, capping downside but making the structure cheaper than a naked put.
Risk:
- Max loss is the net premium paid; max gain is capped at the width of the spread minus that premium.
- A sharp move higher or a very small move in either direction could see the spread expire worthless; this is still a directional, short-term bet.

2) Upside hedge / contrarian bet: call spread for a reset quarter

If you own stock, or if you think the Street is too pessimistic about another bad reaction, a limited-risk upside call spread can express that:

Structure idea: Buy a slightly out-of-the-money call (for example around $36–37 on 12/12) and sell a higher-strike call (for example in the low-$40s).
Rationale:
- You’re targeting a bull-case scenario where the stock jumps into the upper half of the implied range or retests the low-$40s.
- The short higher call helps reduce cost while focusing exposure on a “strong beat and guide” outcome.
Risk:
- Max loss is the net premium; upside is capped at the spread width.
- If the stock merely drifts or gaps down, the structure can quickly lose most of its value.

3) Vol-seeking structure: defined-risk long strangle

For traders who care more about magnitude than direction and believe the true move will exceed the ~10% implied, but still want risk capped:

Structure idea: Buy an out-of-the-money call and put around the event expiry (for example, a call a few dollars above spot and a put a few dollars below) as a defined-risk long strangle, potentially financed partly by selling further-out-of-the-money options in a broken-wing configuration.
Rationale:
- You benefit if Chewy delivers another large double-digit move in either direction, exceeding the implied range.
- Using further OTM shorts can reduce upfront premium while keeping worst-case loss knowable.
Risk:
- Event vol is already very expensive; if the realized move stays close to the implied ±10% band, a long-vol structure can lose money even with a sizable move.
- Complex multi-leg structures add execution and path dependency; they’re best left to traders comfortable with greeks and position management.

Across all of these, the main takeaway from the options board is that the market is already paying up for fireworks. Directional structures should be sized assuming you can be wrong on both direction and magnitude, and premium sellers should be especially cautious given Chewy’s history of surprise moves.

6. TL;DR

Chewy heads into Wednesday’s pre-market Q3 FY25 print with solid fundamentals, upgraded estimates, and a rich valuation, after two painful post-earnings selloffs in a row.
The options market is pricing about a ±10% move, consistent with recent history of double-digit gaps, with vol extremely elevated on the front expiry but stepping down quickly further out.
Positioning and sentiment are bullish but jittery: analysts mostly like the name, short interest is moderate, and both upside and downside tails are actively traded.
My base case is “good quarter, unforgiving tape” — a small beat and in-line guidance that fails to fully reset the narrative, leading to a downside gap of roughly 8%, toward the lower half of the implied range.
Upside surprises are very possible if Chewy delivers a cleaner acceleration in growth and margins plus stronger guidance, but with the bar elevated and recent reactions skewing negative, the risk-reward around this print leans modestly bearish on the gap.

Earnings Prediction