Chewy (CHWY) is likely to lower the top end of its full-year sales outlook amid weakening trends in the pet store industry and increased fuel costs, Morgan Stanley said in a client note emailed Tuesday.
In March, Chewy said it expected sales to come in between $13.6 billion and $13.75 billion for fiscal 2026.
Morgan Stanley believes the pet macro has deteriorated, with companies flagging softening adoption trends and greater price sensitivity among existing pet parents. The brokerage's alternative data also suggests a deceleration in revenue growth at Chewy.
"With the macro softer than expected, we think it's prudent for (Chewy) to lower the high end of revenue guidance, although likely reiterating the low end," Morgan Stanley said. The brokerage estimates revenue for the full year at $13.61 billion, while the current consensus on FactSet is for $13.66 billion.
The online pet store company is scheduled to release its latest financial results next month.
Morgan Stanley believes Chewy had assumed a "roughly flat" year-over-year macro within its full-year guidance and "that now appears to be too optimistic." The magnitude of the weak industry trends on Chewy is "mitigated" given that roughly 85% of its sales are non-discretionary, the brokerage added.
High fuel costs and lower operating leverage are projected to be incremental headwinds of 30 basis points to Chewy's full-year earnings before interest, taxes, depreciation and amortization margin, according to Morgan Stanley. The company previously forecast the metric between 6.6% and 6.8% for the ongoing fiscal year.
Morgan Stanley lowered its price target on Chewy to $43 from $49 with an overweight rating on the stock.
