Chewy, Inc. Q2 FY2025 earnings call

Key Points

• Net sales exceeded guidance, with Autoship driving 83% of Q2 net sales and hard goods growing over 15%.
• Gross margin expanded, adjusted EBITDA and free cash flow were strong, with $125 million deployed to share repurchases.

Strategic Initiatives

• Chewy Vet Care (CVC): Outperforming, on track to open 8-10 new practices in FY2025.
• Chewy+: Paid membership program had 3% of July sales from members, showing strong incrementality in spend and NSPAC.
• Chewy Private Brands: Launched Get Real, a new private brand of healthy fresh dog food with strong customer reception.

Fulfillment and SG&A

• Houston fulfillment center ramping, SG&A deleveraging expected in FY2025 with temporary costs from inventory and wages.

Net sales grew nearly 9% year-over-year to $3.1 billion in Q2. Autoship customer sales were $2.58 billion, representing 83% of Q2 net sales. Hard goods business grew over 15% in Q2. Gross margin reached 30.4% in Q2, expanding 90 basis points year-over-year. Adjusted EBITDA was $183.3 million in Q2, a 5.9% margin, up 80 basis points year-over-year. Free cash flow was $105.9 million in Q2. Ended Q2 with 20.9 million active customers, 4.5% year-over-year growth. New customer NSPAC for Q2 2025 cohort strengthened, and total Chewy NSPAC reached $591, 4.6% year-over-year growth.

Net Sales

• Q3 2025 net sales expected $3.07-$3.1 billion (7-8% growth). Full-year 2025 net sales guidance raised to $12.5-$12.6 billion (7-8% growth).

Profitability

• Maintaining adjusted EBITDA margin outlook 5.4%-5.7%, expecting ~60% of margin expansion from gross margin. Q3 adjusted diluted EPS expected $0.28-$0.33. Full-year 2025 share-based compensation ~$315 million, effective tax rate 20%-22%.

• Uncertainties in industry trends, competitive pressures, and tariff impacts. - Temporary SG&A costs from inventory and wages. - Risks related to execution of strategic initiatives like Chewy+ and Get Real.

Q: Doug Anmuth asks about investments in back half and promotion of new offerings like Chewy+ and Get Real A: Sumit Singh explains Chewy+ is promoted to existing members with minimal external marketing, focusing on on-site experiences. Get Real is positioned as a premium product with good customer response, leveraging curated experiences and high CRM.

Q: Nathaniel Feather asks about SG&A deleverage and leverage path A: Sumit Singh discusses the ramp of Houston fulfillment center taking 6 months to deliver leverage, temporary costs from inventory and wages, but expects SG&A leverage in H2 2025.

Q: David Bellinger asks about gross margin drivers and OpEx investments A: Sumit Singh mentions gross margin drivers include product mix, auto ship penetration, and sponsored ads. OpEx investments are in growth initiatives like Chewy+ and Get Real, with SG&A costs within control.

Q: Rupesh Parikh asks about Get Real's potential and initial customers A: Sumit Singh states the TAM for fresh frozen pet food is growing, Get Real has 70% existing customers and 30% new, with high NSPAC potential.

Q: Shweta Khajuria asks about advertising environment and macro impacts A: Sumit Singh mentions pet household formation stable, industry growth low to mid-single digit, NSPAC growing, and strong ad metrics with competitive intensity.

Q: Michael Morton asks about differentiation and hard goods recovery A: Sumit Singh highlights Chewy's differentiation in combining e-commerce scale with personalized service, health TAM growth, and hard goods recovery driven by in-stock levels and brand onboarding.

Q: Dylan Carden asks about cohort quality and AutoShip growth A: Sumit Singh explains cohort quality improves via programs like Chewy+ and AutoShip, with improved settlement rates and net retention, expecting AutoShip growth to continue.