Chewy (NYSE: CHWY) reported second-quarter revenue of $3.33 billion, up 7.3% year over year and slightly above Wall Street’s $3.32 billion estimate, while adjusted diluted EPS came in at 36 cents, matching expectations and rising from 33 cents a year ago.
The market’s response was brutal, with shares falling more than 10% after the report, but I think the selloff is making the stock more interesting because the underlying business is behaving differently from the discretionary consumer businesses investors have been punishing.
Customers Are Still Buying What They Can’t Afford To Stop Buying
Chewy added 208,000 active customers sequentially, taking its customer base to 21.7 million, while sales per active customer climbed to $602 from $591 a year ago. Autoship sales rose 9.3% to $2.82 billion, faster than total revenue, and now account for 84.6% of sales.
That is a useful glimpse into what Chewy is becoming, because a customer ordering pet food or medication through Autoship behaves very differently from someone deciding whether to buy another discretionary item when the household budget gets squeezed.
Management said consumers are cutting back on treats, toppers and other discretionary pet purchases while continuing to prioritize food, medication and health-related products. Chewy is still growing its consumables business at a mid-single-digit rate while the broader category is roughly flat, which points toward market-share gains rather than simply benefiting from a healthy pet market.
The Profitability Improvement Is Harder To Ignore
Chewy’s gross margin held at 30.4%, while adjusted EBITDA climbed 23.7% to $226.7 million, lifting the margin to 6.8% from 5.9% a year ago. For a business growing revenue 7.3%, having profit grow more than three times as fast is the kind of operating leverage I want to see from an e-commerce company that is moving past its most expensive growth phase.
There is a caveat: management said the quarter benefited from timing-related items, including tariff refunds and rebates, gift-card breakage, inventory adjustments and vendor-funded merchandising, so I wouldn’t simply annualize the $226.7 million EBITDA number. Even after allowing for those items, the broader margin trend is moving in the right direction, with adjusted EBITDA margin reaching 6.8% compared with 5.9% a year ago and 5.0% in Q4.
Management also raised its full-year revenue outlook to $13.46 billion-$13.57 billion and expects an adjusted EBITDA margin of 6.6%-6.7%, despite maintaining a cautious view of consumer spending.
Chewy Is Slowly Owning More Of The Pet Owner’s Wallet
SmartPak and Modern Animal make this story bigger than food and toys, because Chewy is using acquisitions and its existing customer base to move into veterinary care, equine health and pharmacy, all areas where the relationship with the customer can produce recurring spending rather than depending on another discretionary purchase.
The company is also expecting its AI initiatives to generate low tens of millions of dollars in savings this year and approximately $50 million annually from fiscal 2027, giving management another potential source of margin expansion as the core business matures.
There is a historical parallel worth keeping in mind here: Amazon Inc (NASDAQ: AMZN) spent years being valued primarily on how much merchandise it could sell before investors had to reckon with what its recurring, higher-margin businesses could do to the economics of the whole company. Chewy is nowhere near that scale or diversification, but its Autoship penetration and expansion into pet health are creating a similar opportunity to make the customer relationship more valuable than the individual transaction.
But The Market Still Needs Convincing
CHWY closed at $20.75, down 10.8% on the day, and the technical picture remains weak with the stock sitting below its 20-day moving average around $23.29, its 50-day around $22.37 and its 200-day around $25.70. The decline from the $30s earlier this year has been substantial, but the stock has also spent the past few months building a base around the high-$18 to low-$20 area rather than making fresh lows.
I would want to see $22.37 reclaimed first, followed by a move through the $23-$24 zone, before treating this as a genuine reversal; clearing the 200-day near $25.70 would give the bulls a much stronger technical case.
For me, CHWY is a BUY, because the stock is being punished for weakness in discretionary pet spending while the numbers increasingly show a business anchored by recurring essentials, a growing customer base, improving profitability and share gains in a sluggish category.
If that combination continues, $20.75 starts looking less like the end of Chewy’s run and more like the price the market is giving investors before it has to recognize what this business is becoming.
