02:57 PM EDT, 06/12/2025 (MT Newswires) -- Chewy's (CHWY) fiscal Q1 showed "nice" sales momentum, but key profitability metrics came in softer than expected, UBS Securities said Thursday in a research note.

Net sales rose 8.3% year over year to $3.12 billion, beating the $3.08 billion consensus. Adjusted EPS was $0.35, up from $0.31 a year earlier and ahead of the $0.33 estimate.

UBS highlighted the company's active customer count of 20.8 million, which exceeded its forecast of 20.6 million and the consensus estimate of 20.7 million. However, net sales per active customer rose just 3.7% to $583, missing estimates, partly due to a mix shift toward newer customers who typically spend less.

Chewy reaffirmed its full-year sales and profitability guidance, suggesting room for potential upside in the second half. But Q2 guidance implies a sequential deceleration, with sales expected between $3.06 billion and $3.09 billion, up 7.0% to 8.1% year over year, compared with 8.3% growth in Q1.

UBS flagged concerns about the company's path to margin expansion. Adjusted earnings before interest, taxes, depreciation, and amortization margin rose 50 basis points to 6.2%, in line with consensus, but gross margin declined slightly to 29.6%, falling short of expectations.

Selling, general, and administrative expenses also remained elevated, limiting operating leverage, according to the note.

Despite these concerns, the brokerage said Chewy is gaining share in a gradually digitizing pet supplies market and noted that newer customer cohorts appear to be of higher quality than pre-pandemic levels.

UBS has a neutral rating and a $46 price target on the stock.

Shares of Chewy were up 2.5% in recent trading.

Price: 41.77, Change: +1.01, Percent Change: +2.48