Chewy Inc Earnings - Q4 2025 Analysis & Highlights
Chewy Inc. reported strong Q4 2025 results with continued margin expansion and record free cash flow, while maintaining disciplined execution and share gains in a stable pet industry environment. Management emphasized structural efficiency improvements through AI deployment, strategic private brand expansion, and veterinary care ecosystem development as key drivers for sustained profitable growth in 2026.
Key Financial Results
Q4 2025 net sales reached $3.26 billion with full year 2025 net sales of $12.6 billion, delivering 8.1% year-over-year growth in Q4 and 8.3% for the full year.
Active customers ended the year at 21.3 million, increasing 4% year-over-year with net additions up by more than 810,000 in fiscal 2025.
Autoship customer sales reached $2.7 billion in Q4 and $10.5 billion for the year, representing 84% of total net sales in Q4 and 83.3% for the full year, with growth outpacing overall top line growth at nearly 13% in Q4 and 14% for the full year.
Net sales per active customer (NSPAC) reached $591 in Q4 2025, increasing approximately 4% year-over-year.
Q4 gross margin was 29.4% and full year 2025 gross margin was 29.8%, representing approximately 90 basis points of year-over-year margin expansion in Q4 and 60 basis points for the full year.
Q4 adjusted net income was $115 million and full year 2025 came in at $541 million, translating into $0.27 adjusted earnings per share in Q4 and $1.27 in full year 2025.
Q4 adjusted EBITDA came in at $162 million, representing 5.0% adjusted EBITDA margin, up 120 basis points year-over-year, and full year 2025 adjusted EBITDA came in at $719 million, or 5.7% adjusted EBITDA margin, growing approximately 26% year-over-year with 90 basis points of year-over-year margin expansion.
Q4 free cash flow was $232 million and fiscal year 2025 generated $562.4 million of free cash flow, both record highs for the company.
Full year 2025 free cash flow reflects $691.6 million of net cash provided by operating activities and $129.2 million of capital expenditures.
Company ended the year with approximately $879 million in cash, cash equivalents and marketable securities, and remains debt-free with an overall liquidity position of approximately $1.7 billion.
Business Segment Results
Chewy Vet Care (CVC) opened 10 new practices in 2025, reaching the high end of the target range and bringing the CVC footprint to 18 locations across 5 states.
CVC performance continues to exceed expectations, supported by strong utilization and consistently high customer and veterinarian satisfaction scores.
CVC is the fastest NSPAC compounder in the business and serves as both a customer acquisition engine and an engagement flywheel that deepens relationships with high-value health customers.
SmartEquine acquisition is expected to contribute approximately $80 million of net sales to the total company in 2026.
SmartEquine is a high-quality business of pet health nutraceuticals with category gross margins in the plus-35% range, though 2026 is focused on stabilizing the business with no material contribution to the P&L expected.
Capital Allocation
Company 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 capital allocation strategy, with expected level of activity to increase relative to 2025, reflecting both the strength of cash generation and the company's view of current valuation.
Capital allocation priorities are unchanged: advance strategic priorities where returns are attractive, maintain a strong balance sheet, and return excess cash to shareholders.
Industry Trends and Dynamics
Pet is a uniquely attractive industry fueled by increasing pet humanization, premium product adoption, and expanding lifetime value per household.
Spending in the pet category is driven by emotional attachment and recurring nondiscretionary needs, which translates into resilient demand across economic cycles.
2026 pet industry dynamics are expected to largely mirror 2025, with steady and resilient demand to macro trends but without cyclical acceleration.
Pet household formation appears stable, with no evidence of deterioration, though no meaningful rebound in that variable is being underwritten.
Current estimates suggest low single-digit industry growth with dog at the lower end of that range and cat at the higher end.
Industry growth is expected to be predominantly volume-driven with little or no contribution from pricing.
A secular shift towards e-commerce penetration is expected to continue as consumers increasingly prioritize convenience, transparency and auto replenishment, which are structural advantages that persist across economic environments and benefit scaled digital platforms like Chewy.
Competitive Landscape
Chewy is unique with a differentiated flywheel-like operating model powered by a leading sales engine with over 80% of net sales on Autoship, supported by a world-class fulfillment network delivering best-in-class consumer satisfaction.
The algorithm supporting underlying growth remains balanced and durable, driven both by active customer growth and NSPAC expansion.
Chewy's retail media proposition is differentiated because it is highly tied to an engaged pet audience, strong first-party data, recurring purchase behavior, and closed-loop conversation.
Pet remains a deeply emotional category, where trust, relationships and empathy matter, and these are enduring strengths of the Chewy brand.
Combined with leadership in price selection and recurring convenience, both purchase and delivery, the company believes competitive position remains strong.
Macroeconomic Environment
Company expects 2026 pet industry dynamics to largely mirror 2025, with steady and resilient demand but without cyclical acceleration.
Model does not depend on a minimum net sales growth threshold to expand profitability, independent of macro reacceleration.
Guidance assumes no price inflation in 2026.
Company is relatively well insulated from fuel costs in the near term, given the scale of the Autoship business and strength of relationships with key partners.
Growth Opportunities and Strategies
Chewy Made is a unified owned brand platform designed to deliver trusted, high-quality products while driving durable profitable growth.
Starting in April and throughout 2026, Chewy will expand presence across both dog and cat consumables, including a balanced offering of dog food positioned at more accessible price points to broaden reach into everyday nutrition, a broader assortment in everyday and gourmet cat nutrition, as well as entry into high-demand formats where penetration is currently low.
Private brands should be low to mid-teens level penetration of net sales for Chewy, with private brands expected to be roughly 500 basis points higher gross margin than the base business.
Company is currently at low to mid-single digits of penetration of net sales for private brands, with mid-teens to high-teens level penetration on supplies and significant opportunity on the consumables side.
Consumables represents the largest TAM at approximately $50 billion to $60 billion of the $90 billion food and supplies TAM.
AI is being deployed across key layers of the business, specifically the purchase experience, service and operations layer, and supply chain and fulfillment network.
AI is being applied across platforms to improve search relevance, product discoverability and personalization.
Company is closely following the emergence of agentic commerce models and views it as a future incremental demand and distribution channel for Chewy.
AI-driven efficiencies are expected to contribute a low tens of millions of dollars benefit in 2026 with a meaningful step-up in 2027, where the company sees a path to approximately $50 million or more in annualized savings as these capabilities scale.
Functions such as customer service, fulfillment, pharmacy and marketing operations are leveraging internally developed AI tools to streamline workflows and improve productivity.
Chewy+ exited at about 4% penetration for 2025 and is compounding NSPAC in the order the company wants, though the company is retaining flexibility to ebb and flow the program to land incrementality and spend in the right order.
Newer customer cohorts from 2024 and 2025 are stronger than 2022 and 2023 cohorts and are much more in line with legacy cohorts.
Cohorts interfacing with value-added services, including those native to the app, health, and CVC, are the fastest compounders of NSPAC in the company.
Financial Guidance and Outlook
For full year 2026, net sales are expected to be between $13.6 billion and $13.75 billion, or approximately 8% to 9% year-over-year growth.
SmartEquine acquisition is expected to contribute approximately $80 million of net sales to the total company in 2026, with quarterly net sales contribution expected to be broadly consistent throughout the year.
Overall net sales growth will continue to be driven by a combination of active customer growth and NSPAC expansion.
Company remains confident in delivering low single-digit active customer growth with net additions broadly consistent throughout the year.
Q1 2026 net sales are expected to be between $3.33 billion and $3.36 billion, or approximately 7% to 8% year-over-year growth, representing the low point of the year.
Net sales growth is expected to build in Q2 and continue to strengthen through Q3.
Full year 2026 adjusted EBITDA margin is expected to be in the range of 6.6% to 6.8%, or approximately 100 basis points of year-over-year expansion at the midpoint.
Expected to deliver adjusted EBITDA of approximately $900 million to over $930 million, with growth to outpace net sales growth by approximately three times in 2026.
Larger share of EBITDA margin expansion is expected to come from operating leverage, reflecting structural improvement within SG&A and modest leverage in A&M, with gross margin continuing to expand year-over-year, though at a more moderate pace than in 2025.
Gross margin is expected to progress quarter-over-quarter more in line with historical performance as observed in prior years.
SG&A leverage is expected to be delivered in 2026 with SG&A as a percentage of net sales broadly consistent throughout the year.
Advertising and marketing expense is expected to follow a similar sequential quarterly progression as observed in 2025.
Sequential moderation in Q4 margins is anticipated, consistent with typical seasonality and the timing of promotional activity as observed in prior years.
First quarter adjusted diluted earnings per share is expected to be in the range of $0.40 to $0.45.
Share based compensation expense, including related taxes, is expected to be broadly flat compared to 2025.
Weighted average diluted shares outstanding are expected to be approximately $425 million.
2026 net interest income is expected to be approximately $10 million to $15 million.
Effective tax rate is expected to be in the range of 20% to 22%.
SG&A leverage will further strengthen as the company moves through the year, supported by the continued ramp of the next-generation Houston fulfillment center and efficiencies from the use of AI that help structurally lower cost to serve.
Company expects to further expand profitability in 2026 with the rate of expansion expected to build relative to 2025.
Technology and Innovation
Company operates on a modern, nimble and scalable tech stack supported by a world-class team of designers, product managers, marketers and technologists who excel at building applications that enhance customer experience while lowering costs.
Over the past several quarters, the company has focused on building the foundation required to deploy AI at scale across Chewy.
With unified enterprise data platform and central AI tooling in place, the company is embedding AI across key layers of the business.
Within the purchase experience, the company is progressing quickly to apply AI across platforms to improve search relevance, product discoverability and personalization.
Internally, the company is already deploying AI to drive greater structural efficiency across functions such as customer service, fulfillment, pharmacy and marketing operations.
Company has launched refunds and returns in a self-service manner, with engagement and success rate being quite impressive.
Computer vision is being used in fulfillment centers and AI is being used to codify the way scripts are being read and processed.
60% of variable cost in fulfillment is spent in picking and packing, and the company believes it can build relevant solutions in the future to drive dramatic productivity in these areas.
