Chewy (CHWY) Q2 2025: Autoship Sales Jump 15% as Membership and Private Brands Accelerate Share Gains
Chewy’s Q2 was defined by accelerating share gains, driven by record Autoship performance, a fast-ramping Chewy Plus membership, and a strategic push into high-margin private brands. Management is leaning into growth investments, even as margin expansion continues, signaling confidence in outpacing a slow-growth pet market. The company’s disciplined capital allocation and operational scaling position it for further outperformance, despite near-term cost headwinds and a competitive landscape.
Summary
- Autoship Penetration Surges: Subscription-driven sales reached a new high, fueling recurring revenue and deeper customer engagement.
- Chewy Plus Ramps Rapidly: Paid membership adoption is accelerating, with strong incrementality and higher spend per member.
- Growth Investments Prioritized: Leadership is reinvesting margin gains to expand programs and capture share, even as industry growth normalizes.
Performance Analysis
Chewy posted 8.6% net sales growth in Q2, reaching $3.1 billion and outpacing a pet industry growing at low to mid-single digits. The company’s Autoship program, subscription-based recurring orders, drove 83% of net sales and grew nearly 15% year over year, underscoring the strength of its core retention engine. Hard goods, a historically more volatile segment, delivered over 15% growth, powered by volume gains and improved in-stock levels. Active customers rose 4.5% to 20.9 million, and net sales per active customer (NESPAC) climbed 4.6% to $591, reflecting deeper customer wallet share and improved cohort quality.
Gross margin expanded to 30.4%, up nearly 90 basis points year over year, aided by premium product mix and a fast-growing sponsored ads business. While SG&A deleveraged 30 basis points due to fulfillment ramp costs and inventory investments, management emphasized these are temporary, with leverage expected to resume in the back half. Adjusted EBITDA margin expanded 80 basis points to 5.9%, and free cash flow topped $105 million, enabling both reinvestment and $125 million in share repurchases. Chewy remains debt-free with $1.4 billion in liquidity, supporting ongoing strategic flexibility.
- Autoship and Membership Engines: High retention and premiumization are driving both revenue quality and margin durability.
- Hard Goods Recovery: Volume-led growth, not pricing, is fueling the rebound, with improved inventory positioning for peak periods.
- Margin Expansion Balanced by Growth Investment: Management is choosing to reinvest incremental margin into scaling Chewy Plus and private brands, rather than maximizing near-term profitability.
Chewy’s results reflect both operational discipline and a willingness to invest behind proven growth vectors, positioning the company to accelerate share gains as industry growth moderates.
Executive Commentary
"Strength of our Autoship program in categories such as consumables and health anchored Q2 net sales performance. Second quarter Autoship customer sales of $2.58 billion represented 83% of our Q2 net sales, reaching a new record high for the company. Growth in Autoship customer sales once again outpaced overall top line growth, increasing by nearly 15% in Q2."
Sumit Singh, CEO
"We reported second quarter gross margin of 30.4%, representing approximately 90 basis points of margin expansion year-over-year... Importantly, we believe these increases are primarily temporary in nature, and we continue to expect to deliver modest SG&A leverage in fiscal year 2025."
Will Billings, Chief Accounting Officer and Interim Principal Financial Officer
Strategic Positioning
1. Autoship and Chewy Plus: Deepening Customer Lock-In
Autoship, Chewy’s recurring order program, continues to be the company’s primary growth and retention lever. With 83% of sales now coming from Autoship and nearly 15% YoY growth, Chewy is transforming from a transactional retailer to a subscription-based platform. Chewy Plus, its paid membership program, is showing early signs of strong product-market fit, already accounting for 3% of July sales and expected to reach mid-single-digit penetration by year-end. Members display higher frequency, larger baskets, and greater adoption of Autoship, compounding retention and spend advantages.
2. Private Brands and Product Innovation: Margin and Differentiation
The launch of Get Real, Chewy’s exclusive fresh dog food, marks a strategic entry into the fast-growing fresh and frozen pet food segment. Early customer response is positive, with 70% of initial buyers being existing Chewy customers and 30% net new. Management expects high gross profit per unit and has already built out capacity to support growth through 2028, keeping CapEx at the low end of guidance. Private brands are positioned as a high-margin, high-ARPU (average revenue per user) engine, with further innovation planned for the second half.
3. Operational Scale and Fulfillment Investments
Chewy is executing a multi-year automation strategy, ramping its Houston fulfillment center and targeting 50% of volume through automated sites by mid-2026. While this contributed to temporary SG&A deleverage, management expects leverage to return as volumes scale and density improves. Inventory investments in hard goods are both a defensive move against tariff-driven cost inflation and an offensive play to capture share as competitors raise prices.
4. Sponsored Ads and Health Ecosystem Expansion
Sponsored ads, Chewy’s digital advertising business, are scaling as a high-margin contributor, supported by strong traffic growth (mobile sessions up 25% YoY). The Chewy VetCare (CVC) network is outperforming expectations, driving higher NESPAC curves and cross-sell into the broader ecosystem. Pharmacy and compounding businesses remain high-barrier, high-margin verticals with significant runway.
Key Considerations
Chewy’s Q2 highlights the company’s ability to simultaneously drive share gains, expand margin, and fund growth initiatives. The following considerations are critical for investors assessing the durability and trajectory of Chewy’s model:
Key Considerations:
- Autoship and Chewy Plus Synergy: Recurring revenue engines are accelerating customer lifetime value and reducing churn, supporting higher NESPAC and margin.
- Private Brand Upside: Get Real and future branded offerings are positioned to capture premium TAM and deliver high-margin, subscription-based growth with minimal incremental CapEx.
- SG&A Leverage Path: Temporary cost pressures from fulfillment ramp and inventory investments are expected to subside, with automation and volume density driving future operating leverage.
- Capital Allocation Discipline: Strong free cash flow and a debt-free balance sheet enable both reinvestment in growth and meaningful buybacks, balancing shareholder return with long-term positioning.
Risks
Chewy faces near-term margin pressure from fulfillment ramp costs, inventory investments, and wage inflation, though management frames these as transitory. Tariff volatility and competitive pricing actions could impact both revenue and margin, particularly as Chewy invests in price while peers may pass through cost increases. The company’s growth thesis depends on continued success in scaling membership and private brands, as well as maintaining operational execution during automation transitions.
Forward Outlook
For Q3 2025, Chewy guided to:
- Net sales of $3.07 to $3.1 billion (7% to 8% YoY growth)
- Adjusted diluted EPS of $0.28 to $0.33
For full-year 2025, management raised and narrowed guidance:
- Net sales of $12.5 to $12.6 billion (7% to 8% YoY, ex-53rd week)
- Adjusted EBITDA margin of 5.4% to 5.7% (75 bps expansion at midpoint)
Management cited continued share gains, strong membership ramp, and a willingness to reinvest incremental margin in growth as key drivers for the back half:
- SG&A leverage expected to improve as fulfillment ramps and automation scales
- Gross margin expansion to remain healthy, with Q2 representing the high point for the year
Takeaways
Chewy’s Q2 demonstrates a scalable, defensible business model with multiple engines for growth and margin expansion.
- Recurring Revenue Model Strength: Autoship and Chewy Plus are driving higher retention, deeper spend, and a more predictable revenue base.
- Growth Investment Over Pure Margin Maximization: Leadership is intentionally reinvesting in programs and private brands, prioritizing long-term share and customer value over short-term profit maximization.
- Execution and Capital Allocation Discipline: Operational scaling, disciplined CapEx, and ongoing buybacks provide a strong foundation for continued outperformance and flexibility in a competitive market.
Conclusion
Chewy’s Q2 results reinforce its position as the category share gainer in pet, with recurring revenue engines, private brand innovation, and operational scaling supporting both growth and margin. Strategic reinvestment and disciplined execution are setting the stage for further outperformance as the pet industry normalizes.
Industry Read-Through
Chewy’s outperformance and accelerating share gains signal ongoing channel shift from offline to online in pet, with subscription and membership models increasingly critical for customer lock-in and margin stability. Private label and fresh offerings are emerging as key battlegrounds for both differentiation and profitability, with Chewy’s early success likely to spur further innovation and competitive response across the sector. Tariff and inventory strategies will be a watchpoint for all retailers facing cost inflation and supply chain uncertainty, while automation and fulfillment investments are becoming table stakes for scalable e-commerce models.