Chewy, Inc. Q2 FY2026 earnings call

• Market Position & Growth: Chewy outperformed the broader pet category by two to three times despite a pressured consumer environment. Trends stabilized after Q1 deterioration, with no further worsening observed.
• Customer Metrics: Active customers grew 3.8% YoY to 21.7 million. The customer funnel remains healthy with strong retention and reactivation efforts.
• Product Segment Momentum: Chewy VetCare delivered triple-digit revenue growth. Fresh/frozen portfolios saw triple-digit unit growth. Equine, farm, and exotics business achieved seven consecutive quarters of mid-double-digit growth.
• AI Deployment: AI initiatives are scaling across customer experience (Kai chatbot), pharmacy, and vet care (Cali voice agent). Early results show ~30% self-service resolution rate. Expected to generate low tens of millions in savings in FY2026, scaling to ~$50 million annualized in FY2027.
• Acquisition Integration: Modern Animal performed ahead of expectations. SmartPak is strengthening core drivers. Both contribute positively, reinforcing confidence in Chewy’s ability to improve acquired assets through scale and operational discipline.

Total enterprise net sales reached $3.33 billion, representing 7.3% year-over-year growth. Excluding acquisitions, organic net sales increased 5.7%. Autoship sales grew 9.3% to $2.8 billion, accounting for 84.6% of total net sales. Net Sales Per Active Customer (NSPAC) was $602. Adjusted EBITDA was $227 million, with an adjusted EBITDA margin of 6.8%. The company ended the quarter with 21.7 million active customers.

• FY2026 Total Net Sales: Raised to $13.46–$13.57 billion (6.8–7.7% YoY growth).
• FY2026 Organic Net Sales: Narrowed range to 5.5–6.3% growth.
• FY2026 Adjusted EBITDA Margin: Raised low end by 10 basis points; new range is 6.7–6.8% (previously 6.6–6.8%).
• Q3 FY2026 Net Sales: Expected $3.323–$3.358 billion (6.6–7.7% reported YoY growth).
• Q3 FY2026 Adjusted EBITDA Margin: Expected 6.6–6.7% (~85 bps YoY expansion at midpoint).
• Q3 FY2026 EPS: Expected around $0.39.
• Full Year Non-Financials: SBC expense flat YoY; diluted shares ~410 million; net interest $10–$15 million; CapEx 1.5–2% of net sales; effective tax rate 24–26%.

• Consumer Pressure: Continued pressure on discretionary spending and premiumization, particularly affecting treat sales more than core food.
• Macroeconomic Factors: Dog adoption trends linked to household formation and macro stability; inflationary pressures from fuel/grocery costs impacting consumer mindset.
• Pricing Environment: Low pricing environment with no meaningful benefit expected in FY2026; potential headwinds from fuel costs (mid-single-digit impact).
• Integration Risks: Execution risks associated with integrating Modern Animal and SmartPak, though early results are positive.
• Agentic Surfaces: Potential headwind from AI-driven product discovery aggregators shifting traffic away from direct brand engagement.

Q: Stephen Forbes asked about the breakdown of discretionary vs. essential consumables and how treats are performing relative to core food given macro pressure. / A: Sumit Singh explained that consumers prioritize core food, meds, and supplements, while treats and toppers are viewed as discretionary. Treat sales slowed more sharply than core food due to moderation in discretionary purchases. He noted that consumers experiment with many treat types, and behavior varies regarding autoship adoption, but core essentials remain stable and healthy within the autoship model.

Q: Nathan Feather asked how management balances margin expansion with the need to reinvest to accelerate growth, specifically regarding levers like Chewy Plus and marketing spend. / A: Sumit Singh stated that Chewy can self-fund growth investments with attractive ROIs without compromising margins. Key levers include a redesigned Chewy Plus program launching soon, increased marketing investment in high-efficiency channels, brand building for the holidays, and new product launches to deepen engagement. Management aims to drive accelerated growth while maintaining disciplined margin expansion, viewing AI efficiencies as a buffer against cost pressures rather than just pure profit.

Q: Dylan Cardin asked about industry stabilization, specifically regarding pricing, dog/cat trends, and the impact of agentic AI surfaces on Chewy’s search dominance. / A: Sumit Singh noted that while dog adoptions are softening due to macro factors, cat trends are strengthening. Pricing is stable with no deflation or significant benefit, so it’s not a growth driver. Regarding AI agents, he views them as a net headwind for traditional search but emphasized Chewy’s leadership in product innovation and data infrastructure to capture demand directly on its own surfaces, ensuring they remain the destination for pet parents regardless of discovery channel shifts.

Q: Doug Anmuth asked for details on the confidence level of AI-driven cost savings ($50M by FY2027) and multi-year headroom in lowering cost-to-serve. / A: Sumit Singh expressed high confidence, citing rapid deployment of Kai (chat) and Cali (voice) agents which are already showing high take rates and structural productivity gains in customer service and pharmacy. Chris Deppe added that over 50% of volume flows through automated facilities, providing a robust roadmap to lower variable costs. They clarified that AI efficiencies will offset normal cost pressures (like wage inflation) and enable margin progression toward their long-term 10%+ EBITDA target, rather than simply adding to bottom-line savings.

Q: Benjamin Black asked for early takeaways from the Kai AI assistant and how the customer experience is evolving over the next 12-18 months. / A: Sumit Singh highlighted that Kai meets high service bars by handling top contact drivers like order status and autoship management with ~30% self-service resolution. It is designed for younger cohorts preferring self-help and integrates automated returns/refunds. The strategy involves expanding use cases via multi-agent orchestration to layer in recommendations and holistic solutions, leveraging first-party data to build a durable competitive advantage over third-party integrations competitors might use.