Chewy, Inc. Q2 2026 Earnings Call Summary

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Management attributed the 7.3% revenue growth to outperforming the broader pet category by 2x to 3x, despite a consumer backdrop that has stabilized but not yet recovered.

Performance was bolstered by triple-digit revenue growth in Chewy Vet Care and triple-digit unit growth in the fresh and frozen portfolio, demonstrating successful diversification beyond core consumables.

Autoship customer sales reached 84.6% of total net sales, which management views as a critical foundation for revenue predictability and durable market share gains.

Profitability expansion was driven by a shift toward high-margin health categories, the scaling of the sponsored ads portfolio, and structural variable cost reductions through automation.

Management noted that while core food and medication spending remains normal, consumers are treating items like treats and toppers as discretionary, leading to slower growth in those specific sub-categories.

The integration of Modern Animal and SmartPak is progressing ahead of internal expectations, providing greater scale and differentiated telehealth capabilities to the broader health ecosystem.

Fiscal 2026 guidance assumes the consumer environment remains at current levels without a meaningful recovery, focusing instead on controllable factors like customer retention and health scaling.

Management plans to launch a redesigned Chewy Plus program in Q3, evolving the design to include integrated health benefits aimed at deepening customer engagement and wallet share.

AI-related initiatives are projected to generate low-tens of millions in cost savings for fiscal 2026, scaling to approximately $50 million on an annualized basis by fiscal 2027.

Advertising and marketing spend will increase in the second half of the year, specifically weighted toward Q3, to build brand awareness ahead of the holiday season and set a strong foundation for 2027.

The company expects to maintain a free cash flow conversion rate of approximately 80% for the full year, despite timing-related fluctuations in the second quarter.

Q2 adjusted EBITDA margin of 6.8% included approximately $15 million in discrete and timing-related benefits, such as tariff refunds and gift card breakage, which are not indicative of the underlying run rate.

Fuel costs are expected to remain a mid-single-digit million-dollar headwind through the balance of the fiscal year.

The acquisition of Modern Animal for $400 million was completed during the quarter, which currently represents a modest drag on adjusted EBITDA margin as integration continues.

Management identified a shift in pet ownership trends, noting that dog formation is currently pressured by macro factors like household formation, while cat-related categories show relative strength.