Chewy (CHWY) Q4 FY25 earnings call: guidance and Q&A

Inquired about the future potential for A&M leverage, specifically if it could drop below 6%, and asked for more details on the Chewy Made strategy, its impetus, and financial impact (TAM expansion vs. NSPAC expansion).

Sumit Singh stated A&M leverage is expected to continue, with the long-term target of 10% EBITDA margin having roughly half coming from gross margin and the rest from SG&A and marketing. He noted current spending is reasonable at 6%-6.5%. For Chewy Made, he explained it aims for low to mid-teens penetration of net sales with 500 bps higher gross margin, filling assortment gaps in consumables (largest TAM at $50B-$60B) at both high and accessible price points, boosting margins.

“We believe private brands should be mid-teens level -- low to mid-teens level penetration of net sales for Chewy. At that scale, we expect private brands to be roughly 500 basis points higher gross margin than the base business.”

asked by Mark Stephen Mahaney · answered by Sumit Singh

Asked about key areas where AI can yield outsized efficiency gains in the cost structure and the philosophical balance between letting these gains drop to the bottom line versus reinvesting for growth.

Sumit Singh detailed AI applications in customer service (reducing handle times, improving self-service, agent experience), fulfillment (computer vision, script processing), and marketing (campaign/creative optimization). He highlighted the goal of delivering growth, 100 bps margin expansion, and converting at least 80% profitability into free cash flow, aiming for a trifecta of performance rather than focusing on just one metric.

“We want to grow revenue to be between high single-digit and low double-digit percentage points. The composition of that revenue will remain with net adds growing and NSPAC growing. We want to also deliver 100 basis points of margin expansion on an average and so you can see that this print sets us up for a high-quality durable performance, not just in '26, but also '27.”

asked by Eric Sheridan · answered by Sumit Singh

Asked about Chewy's latest views on Agentic Commerce as an incremental demand channel and how it will be implemented, and about the impact of fuel costs on the 2026 outlook.

Sumit Singh stated Chewy is insulated from disintermediation due to its service-rich, recurring model. He views Agentic Commerce as an opportunity to expand discovery and put Chewy in front of high-intent users, focusing on ensuring Chewy remains the trusted platform behind transactions. Chris Deppe noted that Chewy is relatively well insulated from fuel costs in the near term due to its Autoship scale and partner relationships, and the guidance stands.

“We think the right strategy is to be present wherever pet parents choose to engage, including emerging Agentic Commerce interfaces because those platforms in our opinion can expand discovery and put Chewy in front of a much larger pool of high-intent users.”

asked by Douglas Anmuth · answered by Sumit Singh

Inquired why Q1 FY26 revenue growth is expected to be lower than the full year, with reacceleration later, and asked about the impact of lapping one-time items from 2025 on the 100 bps EBITDA margin expansion in 2026.

Chris Deppe explained Q1 is the low point due to timing and lapping dynamics, with growth building through Q2 and Q3, driven by stable core model components (customer adds, retention, share gains). He clarified that the 100 bps EBITDA margin expansion in 2026 is primarily from leverage and business improvements, not material one-time impacts from 2025, as previous investments were low single-digit millions.

“Q1 is simply the lowest point to the growth profile for the year. And we move through the year, we do expect growth to build supported by continued share gains and consistent execution across the business.”

asked by David Bellinger · answered by Chris Deppe

Asked for an update on spending trends by newer customer cohorts and growth in mature cohorts, and for initial thoughts on Chewy+ penetration expectations for end of 2026.

Sumit Singh stated newer cohorts ('24 and '25) are stronger, in line with legacy cohorts, with high repeat purchase rates and NSPAC trending to the higher end of $150-$200 in the first year. He noted cohorts engaging with value-added services (app, health, CVC, fresh platform) are the fastest NSPAC compounders. For Chewy+, he confirmed 4% penetration in 2025, but declined to give 2026 targets, citing a test-and-learn phase to optimize incrementality, study retention, and evaluate program value proposition.

“Specifically Chewy+ exited at about 4% penetration for 2025. And the reason we're not giving you guidances for Chewy+ is because we want to retain the flexibility to ebb and flow the program to land the incrementality and the spend in the right order, right?”

asked by Steven Forbes · answered by Sumit Singh

Asked about SmartEquine's growth expectations for the year, its impact on Chewy's consumer base, and the puts and takes for gross margin, specifically sponsored ads and mix shift, and pacing.

Sumit Singh stated SmartEquine is expected to contribute ~$80M to FY26 top line, with a focus on stabilizing the business in 2026. He expects it to grow to a few hundred million at 35%-45% gross margin in the future. Chris Deppe noted gross margin will continue to expand in 2026, but at a more moderate pace than 2025, driven by premium mix and sponsored ads, with sponsored ads impact tapering slightly. SG&A leverage will contribute more to EBITDA margin expansion.

“This acquisition as we've sized it to about $80 million of top line in our forecast this year. And we like the business. It is a high-quality business of pet health nutraceuticals that essentially the category gross margins are really high. We expect to run this in the plus 35% gross margin ranges in the near future.”

asked by Anna Andreeva · answered by Sumit Singh

Asked about the current low single-digit industry growth relative to a normalized basis and if Chewy's share gains would accelerate with industry improvement. Also, inquired about 2026 expectations for the health category.

Sumit Singh confirmed that if the industry backdrop improves (normalized household formation 1-2%, pricing 1.5-2%, mid-single-digit overall growth), Chewy's share gains and other metrics would accelerate. He reiterated bullishness on the health category, describing it as high-growth, high-margin, and contributing to Chewy's ecosystem benefits, including CVC's NSPAC compounding.

“We would like to see that household formation return to the 1% to 2% level. We would like to see pricing return to roughly 1.5% to 2% normalized in an industry, and we'd like to see overall growth rates get into the mid-single-digit growth rates that essentially are in the forecast for long-term growth of the pet category. That's what we consider normalized.”

asked by Michael McGovern · answered by Sumit Singh