Chewy Inc Earnings - Q3 2025 Analysis & Highlights
Key Takeaways
Chewy Inc's Q3 2025 earnings call highlighted strong financial performance, driven by unit volume growth and Autoship programs, with a focus on expanding health offerings and improving customer engagement through Chewy+. The company is confident in its long-term growth strategy and margin expansion, aiming for a 10% adjusted EBITDA margin.
Key Financial Results:
Q3 net sales grew over 8% year-over-year to $3.12 billion, driven by unit volume growth.
Autoship customer sales increased 13.6% to $2.61 billion.
Active customers reached 21.2 million, up nearly 5% year-over-year.
Net sales per active customer reached $595, up nearly 5% year-over-year.
Gross margin expanded roughly 50 basis points year-over-year to 29.8%.
Adjusted EBITDA reached $181 million, up 30% year-over-year.
Adjusted EBITDA margin reached 5.8%, representing 100 basis points of year-over-year expansion.
Generated approximately $176 million of free cash flow in the quarter.
Repurchased $55 million of shares.
Q3 adjusted net income was $135.7 million, up 59.6% year-over-year.
Adjusted diluted earnings per share of $0.32.
Free cash flow for the quarter was $175.8 million.
Business Segment Results:
Chewy Vet Care (CVC) continues to exceed expectations, driving strong utilization and customer loyalty.
Acquisition of SmartEquine, a leading equine health brand, expected to be accretive to adjusted EBITDA margins upon closing.
Capital Allocation:
Repurchased approximately 1.5 million shares for $55 million during the quarter.
Ended Q3 with $304.9 million of remaining authorization under the repurchase program.
Ended the quarter with approximately $675 million in cash and cash equivalents, remaining debt-free with total liquidity of approximately $1.5 billion.
Industry Trends and Dynamics:
Chewy continues to outperform the pet category and expand market share.
The pet market is expected to grow at a low single-digit rate in FY 2025.
Competitive Landscape:
Chewy has the leading sales engine in the industry, with 84% of sales on Autoship.
The company has a built-out world-class fulfillment network.
Chewy's best-in-class consumer satisfaction leads customers to trust them with increasing levels of business.
Growth Opportunities and Strategies:
Expanding health offerings through Chewy Vet Care (CVC) and the acquisition of SmartEquine.
Enhancing customer engagement and loyalty through the Chewy+ paid membership program.
Focus on scalable self-funding initiatives that enhance profitability.
Investments in automation and health services with clear ROI thresholds and measurable payback periods.
Continued expansion of Chewy Vet Care (CVC) practices, with plans to open 8 to 10 locations this fiscal year.
Financial Guidance and Outlook:
Narrowing full-year 2025 net sales outlook to between $12.58 billion and $12.6 billion, or approximately 8% year-over-year growth.
Narrowing full-year 2025 adjusted EBITDA margin outlook to 5.6% to 5.7%, or approximately 90 basis points of adjusted EBITDA margin expansion.
Expect approximately 60% of adjusted EBITDA margin expansion to be driven by improvements in gross margin.
Expect fourth quarter 2025 net sales of between $3.24 billion and $3.26 billion, or approximately 7% to 8% year-over-year growth.
Expect Q4 adjusted diluted earnings per share in the range of $0.24 to $0.27, including an estimated $10 million of closing costs related to the SmartEquine acquisition.
Advertising and marketing expense expected to be approximately 6.5% to 6.6% of net sales for the full year.
Expecting share-based compensation expense, including related taxes, of approximately $315 million for the full year 2025.
Weighted average diluted shares outstanding of approximately 430 million.
Expect 2025 net interest income of approximately $15 million to $20 million.
Expect the effective tax rate to be between 16% to 18% for 2025.
Continue to expect to convert approximately 80% of adjusted EBITDA to free cash flow for full year 2025.
Now expect 2025 capital expenditures to come in around 1.3% of net sales.
