Chewy Inc Earnings - Q2 2025 Analysis & Highlights
Key Takeaways
Chewy Inc's Q2 2025 earnings call highlighted strong financial performance, strategic growth initiatives, and a focus on market share gains amidst evolving industry dynamics. Key themes included revenue growth, gross margin expansion, strategic investments in Chewy+ and private brands, and a positive outlook for the remainder of the year.
Key Financial Results
Q2 net sales grew by nearly 9% year-over-year to $3.1 billion, exceeding the high-end of the guidance range.
Autoship customer sales reached a new record high, representing 83% of Q2 net sales at $2.58 billion.
Gross margin reached 30.4%, expanding by nearly 80 and 90 basis points on a sequential and year-over-year basis, respectively.
Adjusted EBITDA was $183.3 million, representing a 5.9% margin and a year-over-year increase of over 80 basis points.
Free cash flow generated was nearly $106 million in the quarter.
Adjusted net income was $141.1 million, representing a 34.8% increase year-over-year.
Adjusted diluted earnings per share was $0.33, within the provided guidance range.
Business Segment Results
Hardgoods business grew over 15% in the second quarter, primarily on structural volume growth.
Chewy+ program saw roughly 3% of Chewy's total monthly sales in July.
Capital Allocation
Approximately $125 million was deployed towards share repurchases in the quarter.
Repurchased approximately 3 million shares.
Remaining capacity under the existing program for future repurchases is $359.8 million.
Cash and cash equivalents of approximately $592 million.
Overall liquidity position of approximately $1.4 billion.
Expects to convert approximately 80% of adjusted EBITDA to free cash flow for full year 2025.
CapEx will be at the low end of the previously stated range of 1.5% to 2% of net sales for full year 2025.
Industry Trends and Dynamics
The pet industry is experiencing low-to-mid single-digit growth.
Fresh and frozen segment represents a fast-growing TAM fueled by trends of humanization and premiumization impact.
Consumers believe that their pets deserve fresh and nutritious food, leading to longevity and an overall higher quality of life for their beloved pets.
Pet households are expected to be broadly flat to slightly up in 2025.
Competitive Landscape
Chewy is well-positioned to mitigate tariff-related pressures due to a higher mix of consumables and health, and proactive investments in onshoring incremental discretionary inventory.
Chewy aims to deliver a superior customer experience by selectively evaluating pricing while protecting product margins.
Competitive intensity in advertising remains high.
Macroeconomic Environment
The second half of 2025 is expected to be dynamic given the evolving macro environment.
Many retailers are preparing to pass tariff-related costs on to customers.
Growth Opportunities and Strategies
Strength of the Autoship program in categories such as consumables and health anchored Q2 net sales performance.
A rapidly strengthening Chewy+ program exceeded expectations in the second quarter.
Chewy Vet Care (CVC) network continues to outperform relative to expectations in terms of demand generation and driving broader ecosystem benefits.
Launching Get Real, a new Chewy exclusive private brand of healthy, fresh dog food.
Scaling to a national footprint for fresh food offering by leveraging the existing fulfillment center topology.
Investing behind the expansion of programs like Chewy+ and private brands.
New customer NSPAC for the Q2 2025 cohort strengthened quarter-over-quarter and is trending mid-single digits higher on a year-over-year basis relative to the comparable Q2 2024 cohort.
Continued to expand customer share of wallet in the quarter with NSPAC reaching $591, representing 4.6% year-over-year growth.
Financial Guidance and Outlook
Expect third quarter 2025 net sales of between $3.07 billion and $3.1 billion, or approximately 7% to 8% year-over-year growth.
Raising and narrowing full year 2025 net sales outlook to between $12.5 billion and $12.6 billion, or approximately 7% to 8% year-over-year growth when adjusted to exclude the impact of the 53rd week in fiscal year 2024.
Maintaining full year 2025 adjusted EBITDA margin outlook of 5.4% to 5.7%.
Expects to deliver approximately 15% adjusted EBITDA flow-through for the year.
Expects approximately 60% of adjusted EBITDA margin expansion to be driven by improvements in gross margin.
Expects Q3 adjusted diluted earnings per share in the range of $0.28 to $0.33.
Share-based compensation expense, including related taxes of approximately $315 million.
Weighted average diluted shares outstanding of approximately 430 million.
2025 net interest income other approximately $25 million to 30 million.
Effective tax rate to be between 20% to 22% for 2025.
