Is 2026 the Turning Point for Chewy Stock?

Chewy's recent third-quarter 2025 results have reignited investor optimism, and for good reason. The company delivered a masterclass in operational execution, with revenue growth, margin expansion, and customer retention metrics that suggest it's not just surviving in the competitive pet care sector but thriving. But the real question is: Does this performance justify a bullish stance heading into 2026? Let's break it down.

First, the numbers. Chewy reported Q3 net sales of $3.12 billion, an 8.3% year-over-year increase, driven by its Autoship program, which generated $2.61 billion in sales-accounting for 84% of total revenue. This recurring revenue model is a goldmine, as it ensures steady cash flow and customer stickiness. Even better, gross margins expanded by 50 basis points to 29.8%, while adjusted EBITDA surged 30% to $181 million, with margins hitting 5.8%-a 100-basis-point improvement year-over-year. These aren't just one-time wins; they reflect structural improvements in cost management and pricing power.

What's truly exciting, though, is how management is deploying these gains. CEO Sumit Singh has made it clear that 2026 will be a year of strategic reinvestment. The company is doubling down on high-margin verticals like Chewy Plus membership and Chewy Vet Care, which not only diversify revenue streams but also deepen customer relationships. These initiatives are already paying off: Active customers hit 21.2 million, up 5% YoY, with net sales per customer rising to $595-a near 5% increase according to Q3 earnings data. If Chewy can continue to monetize its loyal base while expanding into adjacent services, its growth trajectory could outpace the already robust low-single-digit expansion of the broader pet industry as reported in the Q3 earnings call.

The guidance for 2025 and beyond only reinforces this narrative. Chewy is sticking to its full-year 2025 net sales forecast of $12.58 billion to $12.6 billion, with adjusted EBITDA margins expected to hit 5.6% to 5.7% . For Q4, management is projecting $3.24 billion to $3.26 billion in sales, with adjusted diluted EPS between $0.24 and $0.27 . These numbers aren't just conservative-they're a testament to the company's confidence in its operational levers. With a cash balance of $675 million and free cash flow of $176 million in Q3 alone , Chewy has the firepower to fund these initiatives without overleveraging.

But let's not get ahead of ourselves. The pet care market is crowded, and competitors like Amazon and local retailers are always lurking. However, Chewy's focus on automation, fulfillment center upgrades, and marketing efficiency gives it a durable edge . These investments aren't just about cost-cutting-they're about creating a network effect where scale begets profitability. If 2026 is the year these projects mature, the stock could see a meaningful re-rating.

That said, risks remain. A slowdown in discretionary spending or a misstep in scaling new services could dampen momentum. But given the company's track record of turning lemons into lemonade-remember the post-pandemic slump?-these concerns feel more like speed bumps than dealbreakers.

In conclusion, 2026 could indeed be the turning point for Chewy. The combination of a resilient business model, margin-friendly investments, and a clear line of sight to growth makes this stock a compelling case for investors willing to bet on execution. If management delivers on its promises, the market won't just nod-it'll cheer.