By Connor Hart

Expectations remain high ahead of Chewy's quarterly report on Wednesday, prompting analysts to worry that a selloff in shares of the online pet-product retailer is imminent.

The company is well positioned for a strong fourth quarter, analysts say, due to improving customer-traffic trends and recent marketing pushes. Chewy has also looked to cut costs, including a plan to lay off more than 650 workers at a Dallas fulfillment center in the coming months.

Still, its outlook may come in on the conservative side, owing to muted consumer confidence that should damp demand for spending on pet supplies.

Shares are up 5.1% in the past five days, as strong fourth-quarter expectations drive the recovery of a recent selloff. Analysts say that the stock, which has more than doubled in value over the past year, could still provide investors with value despite its expected incoming drop.

"With the recent selloff providing a compelling entry point, we may look to treat an expectations-led selloff on earnings as a buying opportunity," Morgan Stanley analysts said in a research note.

Chewy has a history of issuing conservative guidance, analysts said. Recent events have sparked a debate of just how cautious the company's initial views for the current year will be.

The company's healthy fourth-quarter trends have pushed up expectations among optimists. Wedbush analysts project the company to deliver 7% revenue growth in 2025--up from about 4% in 2024--citing Chewy's growing customer base, as well as investments in advertising that should accelerate gains in market share.

Morgan Stanley analysts took a more moderate stance, forecasting a 5% year-over-year top-line gain, in line with Wall Street's estimates and low enough to offer good odds that the company will exceed those results.

"Given the history of conservatism and the heightened near-term macro and consumer uncertainty, we expect the initial guide to be low enough to enable a clear beat and raise cadence," the analysts wrote.

A series of beats and raises won't be easy. Pet adoptions and shelterings declined through the holidays, signaling a pullback in new pet demand. At the same time, President Trump's economic policies and erratic approach to tariffs have hurt consumer confidence and curbed spending.

Chewy is less exposed to tariffs than most retailers, though, as about 85% of its sales are consumable- and healthcare-items largely sourced in the U.S., according to Baird analysts. The firm also estimates that nearly 80% of sales come from monthly Autoship customers, giving it "a sticky base of predictable, recurring revenue."

Still, consumers will likely face pressure in the near term, which could weigh on Chewy's first quarter. But the pet industry has proved resilient, analysts say, and commentary from other pet companies is largely positive as well, calling for the industry to stabilize in 2025.

"While we acknowledge emerging macro uncertainties, we still believe Chewy is set up for accelerating top-line growth . . . and another year of healthy margin expansion," Baird analysts write.

Write to Connor Hart at connor.hart@wsj.com

(END) Dow Jones Newswires

March 25, 2025 14:03 ET (18:03 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.