• Improving customer metrics showing turnaround: Chewy reported sequential growth in active customers for the first time since Q1 2023, with new customer acquisition, reactivations, and retentions exceeding internal expectations for the second quarter in a row. Management noted improvements in gross churn rates and highlighted that this turnaround was more driven by Chewy's strategic initiatives than by macro factors.
• Strong profitability improvements and operational efficiency: SG&A decreased on an absolute dollar basis for the first time, while adjusted EBITDA margin expanded 190 basis points year-over-year to 5.1%. Management highlighted that over 40% of order volume is now benefiting from automation, and their proprietary supply chain software is enabling more optimal inventory placement, leading to both lower fulfillment costs and improved customer experience.
• Strategic initiatives gaining traction: The Chewy Vet Care clinics are exceeding expectations as an acquisition funnel for new customers while accelerating NSPAC growth curves, and their sponsored ads business is on track to reach the low end of their long-term target of 1-3% of net sales by the end of 2024. Mobile app engagement is improving significantly with app orders increasing 15% year-over-year, with management noting higher units per order and better retention when customers use the app.

• Customer growth remains uncertain despite modest improvement - While Chewy saw sequential active customer growth for the first time since Q1 2023, management maintained their guidance of "approximately flat active customers for the year". This suggests uncertainty about whether customer acquisition momentum can be sustained, with management attributing improvements more to internal efforts than macro factors, stating "quarter-over-quarter, that isn't what drove our turnaround".
• Pet household formation remains stagnant - Despite "green shoots" in adoption trends, management acknowledged that "when you look at overall pet household year-over-year, it's relatively flattish". This fundamental constraint on market growth means Chewy will need to increasingly rely on taking share from competitors rather than benefiting from overall market expansion.
• Low mobile app penetration compared to industry standards - Management revealed that "Less than 20% of our orders currently transact through our app" compared to an industry benchmark where similar-sized businesses see "north of 60% of owners going through our app". This significant gap exposes Chewy to higher customer acquisition costs and potential competitive vulnerability as their closed-loop ecosystem remains underdeveloped.

CHWY Q2 2025 Earnings Call Q&A Summary

1. Active Customer Growth
   Q: What drove the positive net customer adds this quarter?
   A: For the first time since Q1 2023, Chewy achieved positive sequential net adds. This was driven by new customer acquisition exceeding internal expectations, accelerated customer reactivation, and improved retention efforts. Management credits their enhanced segmentation and targeting capabilities rather than macro improvements, though they're maintaining the full-year guidance of approximately flat active customers.

2. Gross Margin Expansion
   Q: What drove the strong gross margin performance?
   A: Gross margin reached 29.5%, up 120 basis points year-over-year. The primary drivers were growth in sponsored ads (approaching the low end of their 1-3% of net sales target), improved business mix including healthcare products, and scale benefits from fulfillment centers. Management expects continued gross margin expansion over time.

3. Profitability Outlook
   Q: Is SG&A sustainably flat with current revenue growth?
   A: SG&A declined year-over-year in absolute dollars for the first time, coming in at 18.8% of net sales (100 basis point improvement). Management expects SG&A to remain relatively flat going forward due to three scale advantages: fixed fulfillment centers, at-scale software, and human capital efficiency.

4. Mobile App Strategy
   Q: How is the mobile app performing?
   A: Unique customers placing orders through the app increased 13% year-over-year, with overall app orders up 15%. Currently, less than 20% of orders come through the app, but management sees potential to reach over 60% long-term. App users show higher AOV, greater Autoship penetration, and better retention.

5. Competitive Environment
   Q: How are competitive trends evolving?
   A: Competitive trends remain stable quarter-over-quarter. Chewy is effectively competing in consumables and health, which represent 85% of their net sales. Hard goods have stabilized after previous declines. The company's Autoship program (now 78.4% of sales) provides significant competitive insulation.

6. Vet Care Expansion
   Q: How are veterinarian recruitment efforts progressing?
   A: Chewy has expanded to 6 Vet Care clinics (of 4-8 planned for 2024). Veterinarian recruitment is strong, with high vet NPS scores. Their technology reduces vet back-office work by over 50%. About half of clinic visitors subsequently place orders on Chewy's e-commerce site, creating cross-selling opportunities.

7. International Expansion
   Q: How is the Canadian market performing?
   A: Canada is performing as expected after three quarters in market, with customer basket building and app engagement exceeding expectations. Mid-to-high teens traffic is already coming from Ontario. Management isn't planning any materially incremental investment in Canada for the back half of the year.

8. Pet Household Formation
   Q: Are positive pet adoption trends continuing?
   A: Management sees similar positive trends as in Q1, despite Q2 being a typical peak for pet relinquishments due to seasonal travel. Adoptions remain up low teens year-over-year, while relinquishments are down low to mid-single digits. Overall pet household formation year-over-year remains relatively flat, but trends are improving.

9. Hard Goods Performance
   Q: Can positive momentum in hard goods be sustained?
   A: Hard goods have stabilized and are broadly flat quarter-to-quarter. Management views this stabilization as a positive signal, consistent with a normalizing market in 2024 and potential full return to industry normality in 2025.