Chewy (NYSE:CHWY) Q3 2026 Earnings Call December 10, 2025 08:00 AM ET Speaker6Hello and welcome to the Chewy third quarter 2025 earnings call. My name is Emily, and I'll be coordinating your call today. After the presentation, you'll have the opportunity to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad. I will now hand over to our host, Natalie Nowak, to begin. Please go ahead.Speaker7Thank you for joining us on the call today to discuss our thir ...

Financial Data and Key Metrics Changes - Q2 net sales grew by nearly 9% year over year to $3.1 billion, exceeding the high end of guidance range [5][17] - Gross margin reached 30.4%, expanding by nearly 90 basis points year over year [7][17] - Adjusted net income was $141.1 million, representing a 34.8% increase year-over-year [18] - Adjusted EBITDA was $183.3 million, with a margin of 5.9%, reflecting an 80 basis points year-over-year margin expansion [8][19] - Free cash flow for Q2 was nearly $106 million [8][19] Business Line Data and Key Metrics Changes - Autoship customer sales reached $2.58 billion, representing 83% of Q2 net sales and growing nearly 15% year over year [5][6] - Hardgoods business grew over 15% in Q2, driven by structural volume growth [6] - Active customers increased to 20.9 million, reflecting 4.5% year-over-year growth [7] Market Data and Key Metrics Changes - The overall industry is experiencing low to mid-single-digit growth, while Chewy is gaining market share [5][21] - NESPAC (Net Effective Sales Per Active Customer) reached $591, representing 4.6% year-over-year growth [7] Company Strategy and Development Direction - Chewy is focused on expanding its Chewy+ membership program and private brands, including the launch of a new fresh dog food line called Get Real [9][12] - The company plans to open 8 to 10 new Chewy Vet Care practices in fiscal year 2025 [9] - Chewy aims to mitigate tariff-related costs and invest in growth initiatives while maintaining a strong customer experience [15][22] Management's Comments on Operating Environment and Future Outlook - Management expects the second half of 2025 to be dynamic, with a focus on growth despite potential inflationary pressures [15] - The company anticipates continued share gains in the U.S. market and a strong long-term outlook [15][22] - Management remains optimistic about the performance of the Chewy+ program and its contribution to net sales [10][74] Other Important Information - The company repurchased approximately 3 million shares for about $125 million in Q2 [19] - Chewy ended the quarter with approximately $592 million in cash and cash equivalents, remaining debt-free [20] Q&A Session Summary Question: Can you talk more about the investments required in the back half and into 2026? - Management indicated that investments will focus on enhancing customer discoverability and increasing participation in Chewy+ without significant external marketing spend [26] Question: How should we think about the leverage path into the back half? - Management expects SG&A leverage to improve in the back half of the year, driven by the ramp-up of fulfillment centers and structural growth [34][39] Question: Can you unpack the Q2 gross margin improvement? - Management attributed gross margin expansion to product mix, increasing Autoship penetration, and a rational promotional environment [43] Question: What are your expectations regarding net household formations? - Management expects pet households to remain stable or slightly increase, with Chewy continuing to gain market share [61] Question: How is Chewy positioned against retail giants? - Management emphasized Chewy's unique value proposition, combining e-commerce efficiency with personalized service, allowing for continued market share growth [72][74] Question: Can you elaborate on the quality of cohorts improving year-over-year? - Management noted that improved customer engagement through programs like Autoship and Chewy+ is leading to higher NESPAC and retention rates [78]

Financial Data and Key Metrics Changes - Q2 net sales grew by nearly 9% year over year to $3.1 billion, exceeding the high end of guidance range [5][17] - Gross margin reached 30.4%, expanding by nearly 80 and 90 basis points sequentially and year-over-year, respectively [6][17] - Adjusted net income for Q2 was $141.1 million, representing a 34.8% increase year over year [18] - Free cash flow for Q2 was nearly $106 million, with a robust liquidity position of approximately $1.4 billion [7][20] Business Line Data and Key Metrics Changes - Autoship customer sales reached $2.58 billion, representing 83% of Q2 net sales and a nearly 15% increase [5][6] - Hardgoods business grew over 15% in Q2, driven by structural volume growth [5] - Chewy Plus program showed strong growth, with approximately 3% of total monthly sales attributed to members [9][10] Market Data and Key Metrics Changes - Active customers increased to 20.9 million, reflecting a 4.5% year-over-year growth [6] - NESPAC (Net Effective Sales Per Active Customer) reached $591, representing a 4.6% year-over-year growth [6] - The overall industry growth is in the low to mid-single digits, while Chewy is growing at a 7% to 8% rate [61] Company Strategy and Development Direction - Chewy is focusing on expanding its Chewy Plus membership and private brands, with a new product line "Get Real" launched in August [10][12] - The company plans to open 8 to 10 new Chewy Vet Care practices in fiscal year 2025 [8] - Chewy aims to mitigate tariff-related costs and invest in growth initiatives to enhance market share [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in Chewy's ability to navigate macroeconomic pressures and continue gaining market share [15][21] - The second half of 2025 is expected to be dynamic, with plans to invest in growth while maintaining profitability [15][21] - Management anticipates continued gross margin expansion and a strong performance from the Chewy Plus program [21][22] Other Important Information - The company repurchased approximately 3 million shares for about $125 million in Q2 [19] - Chewy remains debt-free with a strong cash position, allowing for strategic investments [20] Q&A Session All Questions and Answers Question: Can you talk more about the investments required in the back half and into 2026? - Management indicated that investments will focus on enhancing customer discoverability and increasing awareness of new offerings like Chewy Plus and Get Real, primarily through existing customer engagement rather than external marketing [25][26] Question: How should we think about the leverage path into the back half? - Management expects SG&A leverage to improve in the back half of the year, driven by the ramp-up of fulfillment centers and structural growth [34][39] Question: Can you unpack the Q2 gross margin improvement and the drivers for Q3 and Q4? - Management noted that gross margin expansion is driven by product mix, increasing Autoship penetration, and a rational promotional environment, with expectations for continued growth [42][44] Question: How big do you think the fresh and frozen business can go over time? - Management estimates the total addressable market for the fresh and frozen category to grow from $3 billion to $4 billion currently to between $8 billion and $12 billion in the coming years [51][52] Question: What are your expectations regarding the advertising environment? - Management reported high competitive intensity in the advertising market but noted strong metrics in net traffic and mobile app engagement [57][62] Question: What are the competitive advantages Chewy has over retail giants? - Management emphasized Chewy's unique value proposition that combines e-commerce efficiency with personalized service, allowing for a strong position in the pet care market [67][70]