Chewy stock has plunged over 70 percent in five years as pet owners cut back on spending and Morgan Stanley slashes its price target. Here is what the latest numbers mean for your wallet and the future of pet care subscriptions
Chewy's stock has experienced significant declines, closing down 11 percent after its latest earnings release and now trading nearly 72 percent below its five-year high. Morgan Stanley has reduced its price target for Chewy to $36, indicating that even optimistic analysts see mounting challenges for the leading pet supply subscription service.
Chewy reported net income of $80.5 million and diluted EPS of $0.20 for Q2 fiscal 2026, with a notable increase in stock-based compensation and one-time factors impacting EBITDA.
Financial reality check
Chewy's Q2 fiscal 2026 report showed net sales of $3.33 billion, representing a 7.3 percent increase year over year, according to an official SEC regulatory filing. However, excluding the impact of recent acquisitions-SmartPak and Modern Animal-organic growth slows to 5.7 percent, marking a clear deceleration from previous quarters. The company's EBITDA was boosted by $15 million in one-time items, and stock-based compensation rose 17 percent quarter over quarter, raising concerns about the sustainability of reported earnings.
Although Chewy raised its full-year revenue and EBITDA guidance, its underlying fundamentals remain largely unchanged. The company now projects fiscal 2026 sales between $13.46 and $13.57 billion, with an adjusted EBITDA margin of 6.7% to 6.8%, as noted in Chewy's earnings highlights. Morgan Stanley's report, "Managing Through the Treat-cession," contends that the 11 percent sell-off may have been excessive but emphasizes that investors are waiting for evidence of sustained, organic growth before reconsidering the stock's valuation. The average analyst price target is now $29, which remains below Morgan Stanley's revised target.
Pet spending hits a wall
According to the American Pet Products Association, pet spending surged during the pandemic, but that period of rapid growth has ended. With inflation pressuring household budgets, pet owners are opting for lower-cost brands, extending the time between purchases, or foregoing non-essential items. The trend of spontaneous pet adoptions has also slowed as families adjust to higher living expenses.
After Chewy released its Q2 2026 results, shares declined as investors reacted to revenue coming in near expectations and a noticeable slowdown in organic growth. Market summaries also noted that the company's earnings per share matched consensus estimates, reflecting cautious sentiment among analysts.
Healthcare bets and the Chewy+ gamble
Chewy is focusing on pet healthcare and services to drive future growth. The acquisitions of Modern Animal, a veterinary platform, and SmartPak, an equine health brand, are intended to create a higher-margin ecosystem that encourages customer retention. Veterinary clinics and healthcare services typically offer stronger customer relationships and higher profitability than standard pet food, but expanding these segments requires time and significant investment.
The upcoming launch of the redesigned Chewy+ membership program represents the next key test. Morgan Stanley identifies this initiative as the only near-term catalyst not reliant on broader economic improvement. If Chewy+ achieves substantial adoption in the second half of 2026, management may prioritize its expansion in 2027, potentially accepting lower margins in the short term to accelerate revenue growth.
Market outlook and investor risk
At approximately $21 per share, Chewy trades at about 8.5 times projected 2027 EBITDA, reflecting market skepticism regarding a rapid recovery. Morgan Stanley's optimistic scenario envisions a $55 share price if Chewy can achieve 8 percent revenue growth, scale its clinic operations, and expand margins to 13 percent. Conversely, the downside scenario projects a $14 share price if growth slows to 4 percent and competitive pressures increase. Currently, the market is pricing in continued underperformance rather than a turnaround.
For pet owners, the implication is clear: the period of easy, discretionary spending on pets has ended. Chewy's prospects depend on its ability to persuade customers to pay for premium services and remain within its ecosystem, even as household budgets tighten. Investors should look for clear evidence of organic growth before considering a renewed position. Until then, Chewy serves as a case study in the challenges of maintaining customer loyalty in a more constrained economic environment.
Data from the Bureau of Labor Statistics shows the Consumer Price Index for pet products rose 4.2 percent year over year as of July 2026, outpacing overall inflation. U.S. retail sales for pet supplies and services reached $136 billion in 2025, but growth has slowed significantly since the pandemic peak.
Pet healthcare is becoming a central area of competition for retailers and service providers. Unlike basic pet food, veterinary care and wellness services offer higher margins and recurring revenue streams, but require substantial investment in infrastructure and expertise. Companies that successfully integrate healthcare with retail and subscription models may gain a competitive advantage, but outcomes will depend on execution and consumers' willingness to pay for premium care in a cost-sensitive market.
