Chewy's Q1 2025 Earnings Call: Navigating Contradictions in Customer Growth, Marketing Strategies, and Margin Expectations

Customer growth and acquisition strategy, marketing and advertising strategy, customer acquisition and market share growth, marketing spend and efficiency, and gross margin expansion and operating expense leverage are the key contradictions discussed in Chewy's latest 2025Q1 earnings call.



Revenue and Active Customer Growth:
- Chewy, Inc. reported Q1 2025 net sales of $3.12 billion, exceeding the high end of their guidance range, and saw a 8% year-over-year increase.
- The active customer count reached 20.8 million, reflecting a 3.8% year-over-year growth.
- The growth was driven by strong participation from new and existing customers, favorable mix in core consumables and health and wellness categories, and the continued success of the Autoship program.

Autoship Program Expansion:
- Autoship customer sales were $2.56 billion, representing 82% of Q1 net sales, reaching a record high for the company.
- Growth in Autoship customer sales outpaced overall top-line growth by approximately 650 basis points, increasing by nearly 15% in the first quarter.
- This was attributed to the program's ability to enhance customer loyalty and provide high visibility and predictability in Chewy's business.

Gross Margin and Sponsored Ads Contribution:
- Gross margin for the quarter was 29.6%, with a normalized year-over-year expansion of 60 basis points.
- Sponsored ads were the largest driver of gross margin improvement year-over-year, combined with strong Autoship baseload and product mix shifts into margin-accretive categories.
- The success of the first-party platform migration and increased off-site advertising capabilities contributed to this growth.

Assembly of Strategic Initiatives:
- Chewy Vet Care (CVC) expanded to 11 locations across 4 states, with plans to open 8-10 new clinics in fiscal year 2025.
- The adoption of the Chewy+ membership program out of beta showed strong membership growth and increased customer engagement, with higher active sessions and order frequency.
- These strategic initiatives aim to drive broader ecosystem benefits and customer retention, contributing to Chewy's overall growth and customer loyalty.