CHWY Q1 Earnings Call: Customer Growth, AutoShip, and Vet Care Expansion Drive Results
Is now the time to buy CHWY? Find out in our full research report (it's free).
Revenue: $3.12 billion vs analyst estimates of $3.08 billion (8.3% year-on-year growth, 1.1% beat)
Adjusted EPS: $0.35 vs analyst estimates of $0.34 (3.2% beat)
Adjusted EBITDA: $192.7 million vs analyst estimates of $190.7 million (6.2% margin, 1.1% beat)
Operating Margin: 2.5%, in line with the same quarter last year
Market Capitalization: $19 billion
Chewy's first quarter performance was shaped by continued gains in active customers and increased engagement with its core AutoShip subscription service. CEO Sumit Singh described AutoShip as a 'pillar of strength and differentiation,' with AutoShip customer sales outpacing overall growth and making up a record share of total revenue. The company also highlighted improved retention and higher quality of new customer cohorts, attributed to a refreshed product assortment and enhancements to the overall customer experience. Notably, Chewy reported double-digit year-over-year growth in hard goods, reflecting efforts to improve inventory management and assortment. Management also pointed to successful cost control, as disciplined operating expense management helped support steady profitability.
Looking ahead, Chewy's leadership is focused on expanding strategic initiatives such as Chewy Vet Care (CVC) clinics and the Chewy Plus membership program, both expected to deepen customer loyalty and broaden revenue streams. CFO David Reeder reiterated that AutoShip and loyalty programs remain central to driving recurring sales, while management believes that growing its sponsored ads business and scaling CVC clinics will meaningfully contribute to margin expansion and customer engagement. The company's outlook assumes modest industry-wide growth, with Chewy aiming to outpace the sector by increasing market share through execution on customer acquisition and retention. Singh emphasized, 'Key verticals like health, sponsored ads, and private brands remain early in their life cycles,' signaling that these areas are expected to play larger roles in Chewy's long-term strategy.
Chewy's management attributed the quarter's performance to stronger AutoShip adoption, customer growth, and solid progress in new businesses such as Chewy Vet Care and sponsored ads.
AutoShip momentum: Chewy's AutoShip subscription sales grew faster than overall revenue, now representing 82% of net sales. Management credited the program's convenience and customer loyalty benefits for driving both retention and repeat purchases.
Hard goods recovery: The company saw 12.3% year-over-year growth in hard goods sales, which management connected to refreshed product assortments and improved inventory management. This segment had previously lagged, but efforts to boost discoverability and engagement yielded stronger results.
Active customer growth: Chewy ended the quarter with 20.8 million active customers, a 3.8% year-over-year increase. Management attributed this to higher gross customer additions and lower churn, supported by ongoing investments in marketing and a wider product selection.
Sponsored ads expansion: Management highlighted continued growth in sponsored ads, driven by the migration to a first-party advertising platform and the introduction of new ad formats. Off-site advertising is ramping up, with demand from partners exceeding internal expectations.
Vet clinic rollout: Chewy expanded its Chewy Vet Care (CVC) clinic footprint to 11 locations across four states, with further expansion planned. Management stated that CVC clinics are generating demand and contributing to broader ecosystem engagement, reinforcing Chewy's long-term health and wellness strategy.
Chewy's management expects recurring revenue streams and new verticals like veterinary care to drive growth, while maintaining margin discipline despite some industry headwinds.
Recurring revenue focus: Management stated that the AutoShip program and Chewy Plus membership are expected to sustain growth in active customers, repeat purchases, and wallet share. These programs are seen as the foundation for predictable revenue and increased customer lifetime value.
Vet care and health initiatives: The rollout of Chewy Vet Care clinics is anticipated to broaden Chewy's addressable market and enhance customer engagement. Management noted that these clinics, alongside pharmacy and pet health services, are early in their growth cycle and could increase cross-selling opportunities.
Margin drivers and risks: Leadership expects gross margin improvements to come from expanding higher-margin categories like sponsored ads and private brands. However, they cautioned that seasonality, investment timing, and minimal tariff impacts could introduce volatility in expense trends throughout the year.
In coming quarters, the StockStory team will closely monitor (1) the pace of AutoShip and Chewy Plus membership growth and their impact on customer retention; (2) Chewy Vet Care clinic expansion and signs of ecosystem benefits from integrating health services; and (3) continued growth in sponsored ads and its contribution to gross margin. The ability to maintain margin discipline while investing in new initiatives will also be an important indicator of long-term execution.
Chewy currently trades at a forward EV/EBITDA ratio of 26×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it's free).
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