JPMorgan Downgrades Chewy to Neutral, Cuts Target to $24

JPMorgan downgraded Chewy Inc. (NYSE:CHWY) to Neutral from Overweight and lowered its price target to $24.00 from $29.00, citing persistent macroeconomic headwinds affecting discretionary spending in the pet retail sector despite strong operational execution.

"We are downgrading CHWY to Neutral as macro headwinds limit multiple expansion, even as Chewy executes well and gains share," said Doug Anmuth, analyst at JPMorgan, in a note regarding the rating change, according to an Investing.com report.

The new $24 price target has a December 2027 horizon, derived from approximately seven times the analyst's 2028 adjusted EBITDA estimate of $1.2 billion. Chewy shares fell about 9% following its second-quarter earnings report, underperforming the broader market as the S&P 500 declined by 1% over the same period, according to the Investing.com coverage.

Earnings Margins and Timing Benefits

Chewy reported a second-quarter adjusted EBITDA margin of 6.8%, exceeding company guidance. According to an Investing.com market update, that margin performance was driven almost entirely by approximately $15 million in timing-related and discrete gross margin benefits, which included a tariff refund.

While these discrete items lifted near-term profitability metrics, analysts note they do not reflect recurring operational run-rate improvements. The distinction highlights the underlying pressure on core retail margins as consumer discretionary budgets tighten across the pet care category.

AI Initiatives and Customer Service Automation

Amid macroeconomic pressures, Chewy is expanding its technology infrastructure to improve operational efficiency. The company recently launched Cai, an artificial intelligence assistant designed to handle customer inquiries.

According to the Investing.com report, Cai is resolving roughly 30% of customer support chats through self-service for a select group of app users, pointing to potential long-term cost reductions in customer service operations as the tool scales.