Chewy's Q2 2025 Earnings Call: Contradictions Emerge on Membership Strategy, Get Real Market Share, and Autoship Growth Sustainability

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 10, 2025

Financials Results

• Revenue: $3.1B, up 8.6% YOY; exceeded the high end of Q2 guidance
• EPS: $0.33 adjusted diluted EPS; adjusted net income up 34.8% YOY
• Gross Margin: 30.4%, up ~90 bps YOY and ~80 bps sequentially; Q2 expected to be 2025 high

Guidance:

• Q3 2025 net sales: $3.07B–$3.10B (7%–8% YOY).
• Q3 adjusted diluted EPS: $0.28–$0.33.
• FY2025 net sales: $12.5B–$12.6B (7%–8% YOY ex-53rd week); midpoint raised by $175M.
• FY2025 adjusted EBITDA margin: 5.4%–5.7%; ~60% of expansion from gross margin; Q2 is yearly gross margin high.
• Expect modest SG&A leverage in FY2025; 15% EBITDA flow-through at guidance midpoints.
• FCF conversion ~80% of adjusted EBITDA; CapEx at low end of 1.5%–2% of sales.
• FY2025 SBC ~ $315M; diluted shares ~430M; net interest income $25M–$30M; ETR 20%–22%.
• 8–10 new CVC practices in FY2025; Chewy+ to be mid-single-digit % of net sales by year-end.

Business Commentary:

* Revenue and Market Share Growth: - Chewy, Inc. reported net sales of $3.1 billion for Q2 2025, which exceeded the high end of guidance and showed nearly 9% year-over-year growth. - The company outperformed an industry backdrop of low to mid-single-digit growth, indicating a clear share gain outcome. - Growth was driven by strong performance in Autoship and hard goods, as well as the strength of the Chewy+ program.

• Autoship and Customer Engagement:
• Autoship customer sales reached $2.58 billion for Q2, representing 83% of total net sales, setting a new record high.
• Growth in Autoship customer sales outpaced overall top-line growth, increasing by nearly 15% in Q2.

• This was supported by increased engagement from existing customers and the attractiveness of the Autoship program.

• Chewy+ Membership Program:

• Chewy+ membership program saw 3% of Chewy's total monthly sales in July, indicating strong uptake since its launch.
• The program is demonstrating positive contribution profit per customer and higher frequency of ordering and product attachment.

• This growth is driven by the program's benefits, such as free shipping and 5% rewards, which are enhancing customer retention and spend.

• Operational Efficiency and Gross Margin Expansion:

• Gross margin reached 30.4% in Q2, expanding by nearly 80 basis points sequentially and 90 basis points year-over-year.
• Improvements were driven by favorable product mix into premium categories and increased sponsored ads business.
• This expansion supports the company's efforts to maintain profitability and invest in strategic growth initiatives.

Sentiment Analysis:

• Net sales grew 8.6% YOY to $3.1B, above guidance high end. Gross margin expanded ~90 bps YOY to 30.4%. Full-year sales outlook raised by $175M at midpoint; EBITDA margin outlook maintained at 5.4%–5.7%. Management expects SG&A leverage in 2H and continued gross margin expansion for 2025. Strong cash generation and $125M buybacks; liquidity ~$1.4B.

Q&A:

• Question from Douglas Anmuth (JPMorgan Chase & Co): What investments are needed in the back half/2026, and how are you promoting Chewy+ and Get Real?
  Response: Chewy will largely leverage existing customers and on-site/CRM for Chewy+ and Get Real, with minimal incremental marketing; Get Real targets high-NSPAC cohorts, is price-competitive, and CapEx capacity is in place through 2028.

• Question from Nathaniel Feather (Morgan Stanley): Can you frame the temporary SG&A costs and how leverage evolves in the back half?
  Response: SG&A should leverage in 2H as Houston FC ramps (~6 months); temporary costs include ~$3–5M inbound processing and ~$2–3M wages; overall SG&A expected to moderate and leverage in FY2025.

• Question from David Bellinger (Mizuho Securities USA LLC): Unpack Q2 gross margin drivers and how back-half investments affect margins and incremental EBITDA.
  Response: Gross margin gains stem from mix (health/premium, hard goods), Autoship penetration, and sponsored ads; Q2 is the annual high; incremental flow-through will be reinvested in Chewy+, Autoship, and selective pricing, all strategic and within control.

• Question from Rupesh Parikh (Oppenheimer & Co. Inc.): How big can Fresh & Frozen/Get Real be, and what are early customer characteristics?
  Response: Fresh/Frozen TAM ~$3–4B growing to $8–12B; early Get Real mix ~70% existing/30% new customers; expected NSPAC >$800 (toppers) and >$2,500 (full meals); capacity and 1-day network built to scale.

• Question from Shweta Khajuria (Wolfe Research, LLC): State of ads environment and macro; expectations for customer growth vs pricing and NSPAC trajectory.
  Response: Industry growth low to low-mid single digit; pet households flat to slightly up; Chewy growing 7%–8%; traffic +14% and app sessions +25%; sponsored ads progressing toward 1%–3% target; NSPAC trending ~4.5%–5.5%.

• Question from Michael Morton (Towers): Key differentiation vs giants and details on hard goods recovery (volume vs ASP).
  Response: Hard goods growth is primarily volume-driven; Chewy’s edge is an integrated ecosystem (food, supplies, health, services) including pharmacy/compounding, software, CVC, and Chewy+, driving retention and wallet share.

• Question from Dylan Carden (William Blair & Company L.L.C.): Why are cohort qualities improving and how sustainable is Autoship outperformance?
  Response: More customers are funneled into Autoship and Chewy+; improved Autoship gross adds and settlement lift retention; Chewy+ adds more categories per customer; sustained by growing online adoption.

• Question from Dylan Carden (William Blair & Company L.L.C.): Could Chewy+ become majority of business and impact margins?
  Response: Chewy+ is expected to be contribution-profit accretive and positive in gross profit dollars (rate dilutive); it accelerates wallet consolidation, similar to other major membership models.