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CHWY
Earnings call · Jul 2026 (Q2 FY27)

Chewy Q2 FY27 earnings call CHWY

Sep 9, 2026 Source

Executive summary

Chewy Q2 FY27 — Strong Profitability and Market Share Gains Amidst Stable Consumer Backdrop

Chewy delivered strong Q2 FY27 results, outperforming the broader pet market by 2-3x, driven by active customer growth and NSPAC expansion. The company continues to gain market share and expand profitability, with AI initiatives contributing to structural efficiencies. While the consumer backdrop remains pressured, it has stabilized, allowing Chewy to raise its full-year sales and adjusted EBITDA margin guidance, reflecting confidence in its execution and strategic growth platforms.

Highlights

5

  • Q2 total Enterprise net sales reached $3.33 billion, representing 7.3% year-over-year growth, at the high end of guidance.

  • Adjusted EBITDA margin reached 6.8%, exceeding expectations and implying over 100 basis points of year-over-year expansion at the midpoint for FY26.

  • Active customer count grew to 21.7 million, up 3.8% year-over-year, with 208,000 sequential net additions.

  • Autoship customer sales increased 9.3% year-over-year, representing 84.6% of total net sales.

  • AI-related initiatives are expected to generate low tens of millions of dollars of cost savings in FY26, scaling to approximately $50 million annually in FY27.

Concerns

4

  • Free cash flow for the quarter was $90 million, down from $106 million in the prior year period, entirely due to timing.

  • Gross margin is expected to decline modestly on a sequential basis in Q3, normalizing timing-related benefits from Q2.

  • Fuel is expected to represent a mid-single-digit million dollar headwind through the balance of the year.

  • Modern Animal acquisition represented a modest drag to adjusted EBITDA margin in the quarter.

Guidance & targets

CategoryTargetConfidence
Total Net Sales
$13.46 billion to $13.57 billion
high materiality
High
Organic Net Sales Growth
5.5% to 6.3%
high materiality
High
Adjusted EBITDA Margin
6.7% to 6.8%
high materiality
High
Adjusted EBITDA
$912 million
high materiality
High
Q3 FY26 Net Sales
$3.323 billion to $3.358 billion
medium materiality
High
Q3 FY26 Adjusted EBITDA Margin
6.6% to 6.7%
medium materiality
High
Q3 FY26 Adjusted Diluted EPS
around $0.39
medium materiality
High
Share-based Compensation Expense (incl. taxes)
broadly flat to last year
low materiality
Medium
Weighted Average Diluted Shares Outstanding
approximately 410 million shares
low materiality
High
Net Interest Expense
$10 million to $15 million
low materiality
High
Capital Expenditures
1.5% to 2% of net sales
low materiality
High
Effective Tax Rate
24% to 26%
low materiality
High
AI-related Cost Savings
approximately $50 million
medium materiality
High

CHWY operating KPIs by quarter

CHWY operating KPIs stated on its earnings calls, by fiscal quarter
KPI Feb 2026 Q4 FY26 May 2026 Q1 FY27This call Jul 2026 Q2 FY27Change vs prior quarter
Active customers
21.3M We continue to grow active customers ending the year with 21.3 million, increasing by approximately 4% year-over-year and net additions up by more than 810,000 year-over-year in fiscal 2025. Source transcript
21.5M We ended the quarter with 21.5 million active customers, up 3.6% year-over-year, while net sales per active customer or netback increased to $597 Autoship customer sales once again outpaced overall company growth increasing over 10% year-over-year and reaching 84.4% of total net sales in the quarter further reinforcing the predictability, durability and recurring nature of our revenue base. Source transcript
21.7M We ended the quarter with 21.7 million active customers, representing 3.8% year-over-year growth and 208,000 sequential net additions. Source transcript
+0.9%
Net active customer additions —
<200K Despite the consumer environment that weakened in the latter parts of the quarter, we delivered nearly 200,000 net customer additions, achieved solid top line growth and record profitability generated strong free cash flow and maintained consistent category share capture. Source transcript
208K We ended the quarter with 21.7 million active customers, representing 3.8% year-over-year growth and 208,000 sequential net additions. Source transcript
—

Operating figures the company states on every call, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

ProductTypeDetails
Kai (AI-powered assistant)launch
Cali (AI-powered voice capability)launch
Chewy Plus Programupdate

Deals & partnerships

Modern Animal Acquisition of a veterinary care business to expand Chewy Health ecosystem. $400 million

Acquisition completed during the quarter. Early results reinforce conviction in strategic combination with Chewy Vet Care.

SmartPack Acquisition of a business to strengthen core operating drivers and position for durable growth.

2026 is intended to be a foundational year for SmartPack. 43,000 unique customers from SmartPack are now reflected in Chewy's active customer count.

Risks & headwinds

Pressured Consumer Backdrop Balance of FY26

Broadly stabilized to Q1 trends, no further deterioration, but no meaningful recovery assumed for balance of FY26.

Mitigation:Focus on gaining share, growing and retaining customers, scaling health, and driving structural efficiencies. Outperforming broader pet category by 2-3x.

Pressure on Discretionary Attachment and Premiumization Q2 FY26 and ongoing

Materialized broadly in line with expectations, affecting both consumables (treat sales slowed more sharply than core food) and hard goods categories.

Mitigation:Customer cohort maturation, increasing engagement across health and pharmacy, broader cross-category adoption. Improved assortment and merchandising in hard goods.

Fuel Headwind Through the balance of FY26

Mid-single-digit million dollar headwind.

Mitigation:Absorbing incremental headwind while continuing to deliver expanded gross margins.

Modern Animal Acquisition Drag on EBITDA Margin Q2 FY26

Modest drag to adjusted EBITDA margin.

Mitigation:Expected as part of the acquisition; integration is progressing, and the business is performing ahead of initial expectations.

What to watch in Q3 FY27

Chewy Plus Redesign Impact

Q3 FY26
Current Program redesign expected shortly
Target Strengthened consumer value proposition and compelling product market fit

Why it matters

The success of the redesigned Chewy Plus program is key to driving deeper customer engagement, increasing attachment across categories, and compounding NSPAC.

We remain enthusiastic about Chewy Plus and we expect to introduce a refreshed program design very shortly into the market. You heard me talk about aligning and arriving at a strong product market fit.

Q&A highlights

Can you quantify the percentage of treats within consumables and comment on the impact of Modern Animal on net adds and customer conversion to Autoship?

Management noted that treats and toppers are considered discretionary consumables, with consumers prioritizing core food and meds. They did not quantify the exact penetration of treats but explained the dynamic behavior of customers. For Modern Animal, they expect roughly 40-50% of its 100,000 customers to be net new to Chewy, but this is not yet included in current guidance. They anticipate high Autoship conversion for Modern Animal customers post-integration.

“We expect roughly 40% of that or in the 40% to 50% range to be net new to Chewy. We're continuing the integration. So once we are ready to sort of disclose that, we will build that in presently, when we are giving you forecasting, it is not including the Modern Animal net adds.”

asked by Steven Forbes · answered by Sumit Singh

2 min read 7 chapters

Detailed narrative

Pet Market Trends and Chewy's Outperformance

The pet market's pressured consumer backdrop has broadly stabilized to Q1 trends, with no further deterioration. Chewy continues to outperform the broader pet category by roughly 2 to 3 times, driven by active customer growth, NSPAC expansion, and ongoing market share gains. The company's outlook does not assume a meaningful consumer recovery for the balance of the fiscal year, focusing instead on controllable factors like share gains and customer retention.

Strategic Growth Platforms Momentum

Chewy Vet Care continues to scale, delivering triple-digit revenue growth in Q2, with strong customer satisfaction and attractive unit economics. The fresh and frozen portfolio is significantly outpacing the broader category with triple-digit unit growth. The Pharma and Exotic business achieved its seventh consecutive quarter of mid-double-digit year-over-year sales growth, demonstrating broad growth opportunities beyond core pet food.

Integration of Acquisitions and Performance

Modern Animal and SmartPack performed ahead of expectations in Q2, reinforcing conviction in their strategic value. Modern Animal's integration is progressing well, contributing to greater scale and complementary capabilities. SmartPack's early progress is encouraging, strengthening core operating drivers for durable growth. These acquisitions are collectively contributing above prior outlook levels and are expected to drive future growth.

AI Strategy and Financial Impact

Chewy's AI strategy is progressing from development to scaled deployment, focusing on improving customer experience, increasing team member productivity, and lowering cost to serve. The company launched Kai, an AI-powered assistant, resolving approximately 30% of chats through self-service. AI-enabled tools are also deployed in customer care, pharmacy, and Vet Care, contributing to low tens of millions in cost savings for FY26, scaling to $50 million annually in FY27.

Gross Margin Drivers and Outlook

Q2 gross margin was 30.4%, flat year-over-year and up 30 basis points sequentially. This was supported by sponsored ads growth and disciplined promotions, though approximately $10 million of upside came from timing-related benefits like tariff refunds and shifted rebates. While Q3 gross margin is expected to modestly decline sequentially due to normalization, full-year gross margin expansion is still anticipated, albeit at a more moderate pace than FY25.

SG&A Leverage and Operating Efficiencies

Non-GAAP SG&A leveraged by 70 basis points year-over-year to 18.4% of net sales, driven by improved fulfillment center utilization, lower variable cost to serve, disciplined headcount management, and productivity gains. Automated facilities and AI-enabled tools are key contributors to reducing variable costs. SG&A leverage is expected to remain consistent in the second half of the year.

Capital Allocation and Share Repurchases

Chewy maintains a capital allocation framework focused on strategic investments, a conservative balance sheet, and returning excess capital to shareholders. The company completed the acquisition of Modern Animal for $400 million, raised $600 million via a term loan, and deployed $200 million towards share repurchases, buying back 9.9 million shares. Repurchases are considered an attractive use of capital given the perceived undervaluation of shares.

AI-generated summary of the company's earnings call. Not investment advice.