Chewy (CHWY): A High-Conviction Buy in 2026 as Subscription Growth, Margin Expansion, and Strategic Acquisitions Drive Value

The global pet care sector, a high-quality, underfollowed industry, is poised for sustained growth as pet ownership trends evolve and consumers increasingly treat their pets as family members. At the forefront of this transformation is Chewy (CHWY), a leader in pet e-commerce and subscription services. With a robust autoship program, strategic margin expansion initiatives, and a disciplined approach to acquisitions, Chewy is uniquely positioned to capitalize on the sector's long-term tailwinds. For investors seeking exposure to a high-conviction growth story in an underfollowed market, CHWY offers compelling upside potential.

1. Autoship: The Engine of Recurring Revenue and Customer Retention

Chewy's autoship subscription program remains the cornerstone of its business model, driving predictable revenue and deepening customer relationships. In Q3 2025, autoship sales surged 13.6% year-over-year to $2.61 billion, accounting for 83.9% of total net sales. This represents a significant acceleration from Q2 2025, when autoship sales grew 14.9% to $2.58 billion. The program's success is underpinned by a growing active customer base of 21.155 million, with autoship penetration consistently exceeding 80% of total sales.

The autoship model not only ensures recurring revenue but also enhances customer lifetime value. By combining autoship with loyalty programs like Chewy+ and health services, Chewy has boosted average order value and spending frequency. For instance, Q3 2025 saw net sales per active customer rise to $595, nearly matching estimates. This sticky revenue stream, coupled with strong retention rates, positions Chewy to outperform in a sector where customer loyalty is a key differentiator.

2. Margin Expansion: Operational Efficiency and Strategic Leverage

Chewy's margin expansion in 2025 underscores its ability to translate top-line growth into profitability. In Q3, gross margin expanded by 50 basis points to 29.8%, while adjusted EBITDA reached $180.9 million, surpassing analyst expectations. CEO Sumit Singh attributed this performance to autoship volume growth, improved marketing efficiency, and automation-driven fulfillment cost reductions.

The company's long-term margin strategy is equally compelling. Approximately half of future margin improvements are expected to stem from gross margin expansion, driven by automation investments and health services integration. For example, Chewy's expansion of Chewy Vet Care (CVC) clinics to 14 locations in 2025 and the acquisition of Smart Equine-a premium equine health brand-signal a shift toward higher-margin wellness offerings. These moves not only diversify revenue streams but also align with the sector's growing demand for preventive pet healthcare.

3. Strategic Acquisitions: Strengthening the Value Proposition

Chewy's acquisition of Smart Equine in 2025 exemplifies its disciplined approach to expanding into high-growth niches. By integrating Smart Equine's premium equine health products, Chewy is tapping into a lucrative segment of the pet care market, where consumers are willing to pay a premium for specialized wellness solutions. This acquisition is expected to enhance Chewy's margin profile while accelerating its presence in high-value categories.

Additionally, the company's focus on automation and fulfillment center efficiency is reducing operational costs and improving scalability. For instance, investments in AI-driven inventory management and robotics are streamlining order fulfillment, enabling Chewy to maintain competitive pricing while preserving margins. These strategic initiatives reinforce Chewy's ability to sustain growth even as the broader market faces macroeconomic headwinds.

4. Underfollowed Sector: A Goldmine for Long-Term Investors

The pet care sector, despite its $346.01 billion market size in 2025, remains underfollowed relative to its growth potential. Analysts project the market to expand to $369.91 billion in 2026, driven by pet humanization, rising disposable incomes, and demographic shifts. North America dominates the market, but the fastest-growing regions-such as Asia Pacific-are reshaping demand dynamics, with cat food emerging as a particularly lucrative segment.

Chewy's leadership in autoship and health services positions it to benefit from these trends. Unlike traditional pet retailers, Chewy's digital-first model and data-driven approach allow it to scale efficiently and respond rapidly to consumer preferences. As the sector attracts more institutional attention, Chewy's first-mover advantage in subscription services and its robust ecosystem of complementary offerings (e.g., Chewy+, CVC) could drive disproportionate value creation.

Conclusion: A High-Conviction Buy for 2026

Chewy's autoship program, margin expansion strategies, and strategic acquisitions create a virtuous cycle of growth and profitability. With autoship sales accounting for over 80% of revenue and gross margins expanding meaningfully, the company is demonstrating its ability to convert recurring revenue into durable earnings. Meanwhile, its foray into high-margin health services and premium wellness categories-bolstered by acquisitions like Smart Equine-ensures long-term differentiation in a sector poised for expansion.

For long-term investors, Chewy represents a rare combination of a high-quality business operating in an underfollowed industry. As the pet care market continues to humanize and commoditize, CHWY's ecosystem of subscription services, health offerings, and operational excellence will likely drive outsized returns. With a full-year 2025 revenue guidance of $12.58–$12.6 billion and an adjusted EBITDA margin outlook of 5.6–5.7%, Chewy's trajectory is one of disciplined, sustainable growth-a compelling case for a high-conviction buy in 2026.