CHWY reported earnings on August 26 and the short-side response has been the clearest signal since: bears are walking away fast, with short interest down nearly 20% in a single week.
The short-covering move is the dominant story this week. Short interest fell from roughly 24 million shares to just over 20 million — now 8.95% of the free float, down from a peak above 31 million in late July. That is a drawdown of more than a third in under four weeks. Morgan Stanley's Lauren Schenk maintained her Overweight rating but cut her target from $42 to $37 the morning after the print, suggesting the quarter delivered enough to hold conviction but not enough to justify prior optimism. The borrow market tells its own version of that story: cost to borrow has edged up 10% on the week to 0.55%, but remains firmly in "low stress" territory. Availability is deep at 607% — well above shares currently borrowed — so there is no mechanical pressure forcing shorts to cover. The retreat is a choice, not a squeeze.
Options positioning is calm, which reinforces the read that this is an orderly rerating rather than a panic. The put/call ratio of 0.70 is barely above its 20-day average of 0.70, with a z-score of just 0.42. Neither side of the options market is pressing a strong directional bet. That muted response after a meaningful earnings move — the stock gained 7% on the week — is consistent with the market digesting rather than reacting. The ORTEX short score has eased to 54.7, down from 57.8 just a week ago, tracking the same direction as the SI unwind.
The Street picture is mixed but tilting constructive. Morgan Stanley kept its Overweight, RBC reiterated Outperform at $34, and Rosenblatt's fresh Neutral initiation at $25 — essentially flagging the current price as fair value from a standing start — provides a floor framing. The consensus mean target of around $30.50 sits about 24% above the current price of $24.69, though that figure is influenced by pre-earnings targets at some firms that have since been revised. Goldman Sachs, JPMorgan, and Barclays all cut targets in June following an earlier disappointment; the bulls in that group held their ratings. The 12-month forward earnings revision score ranks in the 87th percentile, which is the genuine standout in the factor data — the earnings trajectory has improved sharply even as the stock remains well off its highs.
The institutional ownership structure is unusual and worth noting. PetSmart and BC Partners together hold around 86% of shares outstanding, leaving a relatively thin public float. That structural feature amplifies the impact of any sentiment shift among institutional holders like BlackRock, which added roughly 974,000 shares through July. Canada Pension Plan added over 14 million shares through June — a material move that represents one of the more active bets on Chewy's recovery among the larger holders.
Insider activity adds a slight counterweight. CEO Sumit Singh sold around $1 million of stock on August 3 at $23.01, shortly before the week's rally. That follows a similar July 31 sale. The transactions are modest relative to his total position and carry low significance scores, but the timing — selling ahead of a 7% weekly gain — is the kind of pattern that gets noted in hindsight. The CFO also trimmed a small position on the same July 31 date.
With the next earnings event scheduled for September 9 — a unusually short gap after the August 26 print — the question heading into next week is whether the short-covering trend continues at this pace or stabilises now that the bulk of the earnings uncertainty has passed.
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