Chewy, Inc. (CHWY) Q4 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects strong financial performance, with record high free cash flow and a debt-free position. The SmartEquine acquisition and Chewy+ program are expected to enhance margins. Management's optimistic guidance for EBITDA margin expansion and strategic use of AI further support a positive outlook. However, some uncertainty exists due to management's reluctance to provide specific guidance on certain initiatives. Overall, the positive financials and strategic initiatives suggest a likely stock price increase in the near term.
Key Financial Performance
Net Sales (Q4 2025) $3.26 billion, an 8.1% year-over-year increase. This growth reflects strong execution, continued share gains, and consistent performance across customer growth and spend per customer.
Net Sales (Full Year 2025) $12.6 billion, an 8.3% year-over-year increase. The growth was driven by stable category environment, customer growth, and increased spend per customer.
Active Customers 21.3 million, a 4% year-over-year increase. Net additions were up by more than 810,000 year-over-year, driven by improvements across all elements of the active customer equation.
Autoship Customer Sales (Q4 2025) $2.7 billion, representing 84% of total net sales, a nearly 13% year-over-year increase. This reflects the strength of the recurring revenue model.
Autoship Customer Sales (Full Year 2025) $10.5 billion, representing 83.3% of total net sales, a 14% year-over-year increase. This highlights the strength of the recurring revenue model.
NSPAC (Q4 2025) $591, a 4% year-over-year increase. Growth was driven by premium mix into high-margin categories and health and wellness verticals.
Gross Margin (Q4 2025) 29.4%, a 90 basis points year-over-year expansion. This was driven by sponsored ads growth, premium mix into high-margin categories, and a rational promotional environment.
Gross Margin (Full Year 2025) 29.8%, a 60 basis points year-over-year expansion. This was driven by similar factors as Q4, including premium mix and sponsored ads growth.
SG&A (Q4 2025) $607 million or 18.6% of net sales. Includes $10 million of one-time transaction costs related to the SmartEquine acquisition. Excluding these costs, SG&A leverage improved by 20 basis points.
SG&A (Full Year 2025) $2.4 billion or 18.8% of net sales, flat year-over-year. Excluding one-time costs, SG&A leverage remained consistent.
Advertising and Marketing Expense (Full Year 2025) $825 million or 6.5% of net sales, a 30 basis points year-over-year improvement. This reflects improved efficiency in marketing spend.
Adjusted Net Income (Q4 2025) $115 million, translating to $0.27 adjusted earnings per share. This reflects strong profitability.
Adjusted Net Income (Full Year 2025) $541 million, translating to $1.27 adjusted earnings per share. This reflects strong profitability and operational efficiency.
Adjusted EBITDA (Q4 2025) $162 million, representing a 5.0% adjusted EBITDA margin, a 120 basis points year-over-year expansion. This reflects strong operational leverage.
Adjusted EBITDA (Full Year 2025) $719 million, representing a 5.7% adjusted EBITDA margin, a 90 basis points year-over-year expansion. This reflects structural strength and operating discipline.
Free Cash Flow (Q4 2025) $232 million, a record high for the company. This highlights improved earnings quality and capital efficiency.
Free Cash Flow (Full Year 2025) $562.4 million, a record high for the company. This reflects strong cash generation and operational efficiency.
Net Cash Provided by Operating Activities (Full Year 2025) $691.6 million, reflecting strong operational performance.
Capital Expenditures (Full Year 2025) $129.2 million, reflecting disciplined capital allocation.
Cash, Cash Equivalents, and Marketable Securities (End of 2025) $879 million, with an overall liquidity position of approximately $1.7 billion. The company remains debt-free.
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Operating Highlights
Chewy Vet Care Expansion: Opened 10 new practices in 2025, reaching 18 locations across 5 states. Performance exceeded expectations with strong utilization and high customer and veterinarian satisfaction.
Chewy Made Launch: Introduced a unified owned brand platform, Chewy Made, to deliver high-quality products and drive growth. Expansion includes dog and cat consumables, with a focus on accessible price points and high-demand formats.
E-commerce Growth: Secular shift towards e-commerce continues, benefiting Chewy due to its convenience, transparency, and auto-replenishment features.
AI Integration: Deployed AI across purchase experience, service operations, and supply chain. Expected to contribute low tens of millions of dollars in 2026 and approximately $50 million in annualized savings by 2027.
Houston Fulfillment Center: Ramp-up of next-generation fulfillment center to enhance operational efficiency.
Share Gains and Margin Expansion: Focused on share gains, margin expansion, and free cash flow generation. Achieved 8.3% net sales growth in 2025 and expects 8-9% growth in 2026.
SmartEquine Acquisition: Acquired SmartEquine, expected to contribute $80 million in net sales for 2026.
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Risk or Challenges
Pet Industry Growth: The pet industry is expected to grow at a low single-digit rate in 2026, with limited contribution from pricing and predominantly volume-driven growth. This could pose challenges for Chewy's revenue growth if market conditions do not improve.
Customer Growth: Chewy's customer growth is projected to remain in the low single digits, which may limit the company's ability to significantly expand its revenue base.
Macroeconomic Environment: Chewy's growth and profitability are not dependent on macroeconomic reacceleration, but any adverse macroeconomic conditions could still impact consumer spending and demand for pet products.
Supply Chain and Fulfillment: Chewy is relying on efficiencies from its Houston Fulfillment Center and AI-driven improvements. Any disruptions or delays in these initiatives could impact cost savings and operational efficiency.
AI Implementation: Chewy's AI-driven efficiencies are expected to contribute to cost savings, but delays or challenges in scaling these technologies could impact the projected financial benefits.
Private Brand Expansion: The launch of Chewy Made and expansion into new product categories carry risks related to customer adoption and competitive pressures from established brands.
Veterinary Care Expansion: Chewy's expansion into veterinary care with Chewy Vet Care involves operational risks, including maintaining high customer and veterinarian satisfaction and scaling the platform effectively.
Advertising and Marketing Costs: Chewy's advertising and marketing expenses are expected to remain consistent, but any inefficiencies or increased competition could lead to higher costs and reduced profitability.
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Guidance & Outlook
Pet Industry Dynamics: Chewy expects the pet industry dynamics in 2026 to largely mirror 2025, with steady and resilient demand but without cyclical acceleration. Industry growth is projected to be in the low single digits, driven predominantly by volume rather than pricing. E-commerce penetration is expected to continue increasing, benefiting Chewy's digital platform.
Customer Growth and Net Sales Per Active Customer (NSPAC): Chewy anticipates continued quarterly sequential net additions of 150,000 to 250,000 customers. NSPAC growth is expected through premium and health mix shifts, private brand expansion, and deeper customer engagement.
Margin Expansion: Chewy expects further profitability expansion in 2026, with SG&A leverage strengthening due to the ramp-up of the Houston Fulfillment Center and AI-driven efficiencies. Adjusted EBITDA margin is projected to expand by approximately 100 basis points year-over-year, reaching 6.6% to 6.8%.
AI-Driven Efficiencies: AI-driven efficiencies are expected to contribute low tens of millions of dollars in 2026, with a significant step-up to approximately $50 million or more in annualized savings by 2027.
Private Brand Expansion: Chewy plans to launch 'Chewy Made,' a unified owned brand platform, in April 2026. This includes expanding dog and cat consumables and consolidating existing brands under this platform.
Veterinary Care Expansion: Chewy aims to scale its Chewy Vet Care (CVC) platform, which has shown strong performance and customer satisfaction. Veterinary care is viewed as a key growth vector and value creation pillar.
2026 Financial Guidance: Chewy projects net sales of $13.6 billion to $13.75 billion, representing 8% to 9% year-over-year growth. Adjusted EBITDA is expected to range from $900 million to over $930 million. Q1 2026 net sales are forecasted at $3.33 billion to $3.36 billion, with adjusted diluted EPS of $0.40 to $0.45.
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Shareholder Return Plan
Share Repurchase Program: Over the course of the year, we repurchased and retired approximately 6.8 million shares, spending approximately $257 million on share repurchases in 2025. Share repurchases will remain a key part of our capital allocation strategy and we expect our level of activity to increase relative to 2025, reflecting both the strength of our cash generation and our view of the current valuation.
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Key Q&A
Q:What are the expectations for A&M leverage going forward and the biggest drivers?
A:Management expects to show A&M leverage going forward but refrains from commenting on the extent on an annual basis. They are ahead of profit targets and aim to hit 10% EBITDA, with half of the remaining improvement coming from gross margin and the rest from SG&A and marketing. Spending in the 6%-6.5% range is considered reasonable in the near term.
Q:What is the Chewy Made strategy and its financial implications?
A:The Chewy Made strategy aims to increase private brand penetration to low to mid-teens of net sales, which could yield 500 basis points higher gross margin than the base business. The focus is on consumables, the largest TAM segment, and filling assortment gaps to boost margins and expand NSPAC per customer.
Q:What are the key areas where AI is being applied in the business?
A:AI is being applied in customer service, fulfillment, pharmacy, marketing operations, and campaign optimization. Examples include self-service refunds and returns, applications for agents to improve service quality and reduce costs, and computer vision in fulfillment centers. Long-term, AI could significantly impact fulfillment costs.
Q:How does management plan to balance efficiency gains from AI with reinvestment in the business?
A:Management aims to grow revenue by high single-digit to low double-digit percentages, deliver 100 basis points of margin expansion annually, and convert at least 80% of profitability into free cash flow. They plan to reinvest in high ROI opportunities while maintaining a balance between growth and profitability.
Q:What are the views on Agentic Commerce and its impact on Chewy's business?
A:Management believes Chewy is well-insulated from disintermediation due to its recurring service-rich platform. They see Agentic Commerce as an opportunity to expand discovery and integrate Chewy's assortment and services into emerging interfaces. Sponsored ads are expected to remain strong due to Chewy's engaged audience and first-party data.
Q:What is the outlook for revenue growth and its drivers in 2026?
A:Revenue growth is expected to build throughout the year, supported by stable customer adds, strong retention, consistent spend expansion, and ongoing share gains. Q1 is the lowest growth point, with growth ramping up in subsequent quarters.
Q:What are the expectations for EBITDA margin expansion in 2026?
A:Management expects 100 basis points of EBITDA margin expansion, driven by operating leverage and improvements in gross margin from premium mix and sponsored ads. SG&A leverage will also contribute significantly.
Q:What is the progress and outlook for Chewy+?
A:Chewy+ achieved 4% penetration by the end of 2025. Management is in a test-and-learn phase, focusing on incrementality, retention, and efficiency metrics. They aim to refine the program before setting specific targets for 2026.
Q:What are the expectations for the SmartEquine acquisition?
A:The SmartEquine acquisition is expected to contribute $80 million in revenue in 2026, with gross margins in the 35% range. Management plans to stabilize the business in 2026 and sees potential for it to grow into a few hundred million-dollar category with high margins.
Q:What is the industry growth backdrop and its impact on Chewy?
A:The industry is growing at a low single-digit rate, below the normalized mid-single-digit growth. Management is not baking in a rebound in pet household formation but expects to benefit if the industry normalizes.
Q:What are the expectations for the health category in 2026?
A:The health category is expected to remain a high-growth, high-margin segment, contributing significantly to Chewy's overall performance. It includes products, consumer services, and B2B services, complemented by an expanding clinic footprint.
Q:Review of Unclear Management Responses
A:Management avoided providing specific annual targets for A&M leverage and refrained from discussing future AI applications in detail due to competitive reasons. They also did not provide specific penetration targets for Chewy+ in 2026, citing the need for further analysis and refinement of the program.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI efficiency
CFO
CVC
Investor Relations
NSPAC
Pet
Relations website
SEC
advantage
brand launch
brand platform
capability
cat
convenience
customer
dog
engine
flywheel
fulfillment network
generation
health
household
launch brand
margin expansion
measure
model sale
nutrition
pet industry
platform AI
progress
purchase experience
relationship
release
satisfaction
shift
strength
world class
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The earnings call reflects strong financial performance, with record high free cash flow and a debt-free position. The SmartEquine acquisition and Chewy+ program are expected to enhance margins. Management's optimistic guidance for EBITDA margin expansion and strategic use of AI further support a positive outlook. However, some uncertainty exists due to management's reluctance to provide specific guidance on certain initiatives. Overall, the positive financials and strategic initiatives suggest a likely stock price increase in the near term.
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Frequently Asked Questions
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