• Active Customer Growth Shows Strong Momentum: Chewy reported sequential active customer growth of 160,000 customers in Q3, reaching 20.2 million total active customers. Management now expects to end fiscal 2024 with modest year-over-year active customer growth, which they anticipate will "continue to strengthen in 2025." Both new customers and reactivations grew year-over-year, with gross additions exceeding pre-COVID levels and gross churn improving.
• Hard Goods Category Turnaround: After several quarters of decline, Chewy has achieved two consecutive quarters of year-over-year growth in hard goods, with Q3 growth accelerating faster than Q2. Management noted "encouraging signs" in Q4 trends as well, indicating a potential recovery in discretionary purchasing as the industry normalizes.
• Mobile App and Membership Program Success: Mobile app engagement is showing strong results with both unique customers and monthly active users increasing in the "mid-teens range" compared to last year. App users demonstrate higher average order values, better retention rates (by "several hundred basis points"), and stronger cross-category attachment. The new Chewy+ membership program is also showing early promise with members placing more orders and demonstrating higher cross-category penetration than non-members.

• The company is significantly increasing marketing spend in Q4, with advertising and marketing expense expected to exceed 7% of sales for the quarter (above their typical 6-7% range). This suggests potentially higher customer acquisition costs and could pressure margins, as CFO David Reeder noted they expect "Q4 adjusted EBITDA margin to decline sequentially due to typical seasonality and the timing of certain investments, primarily pertaining to marketing campaigns."
• Chewy's mobile app penetration remains relatively low at around 20% of revenues, with management acknowledging it will take "perhaps a couple of years of efforts to get to sort of market standard rates of about 40%, 45%" according to CEO Sumit Singh. This represents a significant gap compared to industry standards and could limit their ability to fully capitalize on higher conversion rates and better customer retention that the app provides.
• While hard goods sales have shown improvement for two consecutive quarters, this category previously experienced several quarters of decline and remains dependent on discretionary spending, which could be vulnerable in an economic downturn. Management noted that the "category that, of course, is more elastic right now as we move through Q4, particularly cyber is more on the hard goods and discretionary side."

Chewy (CHWY) Q3 2025 Earnings Call Q&A Summary

1. Active Customer Growth
   Q: What's driving the customer growth acceleration?
   A: Customer growth of 160,000 sequentially was driven primarily by Chewy's internal marketing efforts rather than industry recovery. Gross additions exceeded pre-COVID levels with both new customers and reactivations growing year-over-year, while churn improved. Management expects this trend to strengthen in 2025.

2. Marketing Investment
   Q: Why the significant increase in Q4 marketing spend?
   A: Marketing will be above 7% of sales in Q4, higher than their typical 6-7% range, as they're seeing strong ROI on current customer acquisition. New customer cohorts show 300-500 basis points higher reorder rates, with three-quarters of new customers purchasing at least one repeatable category item.

3. Profitability Trends
   Q: What drove the margin expansion this quarter?
   A: Q3 adjusted EBITDA reached $138.2 million (4.8% margin), representing 180 basis points of year-over-year expansion. Gross margin improved 80 basis points to 29.3%, primarily driven by sponsored ads and premium category mix shift. SG&A leverage improved 90 basis points through corporate payroll discipline and fulfillment efficiencies.

4. Pricing Environment
   Q: How is pricing affecting results currently and into 2025?
   A: There was no benefit from pricing in Q3, with the environment remaining rational. For 2025, management expects the long-term growth algorithm with 2-2.5% pricing benefit as the industry normalizes, combined with low to mid-single-digit active customer growth and mid to high single-digit NSPAC growth.

5. Hard Goods Performance
   Q: How is the hard goods category trending?
   A: Hard goods grew year-over-year for the second consecutive quarter, with Q3 growth exceeding Q2's rate. Management attributed this to expanded assortment, upgraded site experience, and thoughtful campaign execution. Early Q4 trends are also positive, indicating continued momentum.

6. Automation Benefits
   Q: What's the status of fulfillment automation?
   A: Currently six fulfillment centers are automated, with just under half of volume shipping through these 2G centers. This automation provides up to 50% productivity improvement, 30% increased volume per square foot, and 60% improvement in ergonomics and safety, contributing to stronger operational efficiency.

7. Mobile App Engagement
   Q: How is the mobile app performing?
   A: App usage grew with unique customers and monthly active users increasing in the mid-teens range year-over-year. The app delivers higher AOVs, better retention (several hundred basis points), and greater cross-category attachment. Management aims to double current volume through the app over the next couple of years.

8. Vet Clinic Expansion
   Q: What have you learned from the vet clinic rollout?
   A: Chewy will hit the high end of their 4-8 clinic target for 2024, with six clinics currently open. They're seeing high operational utilization, strong customer service levels, and over half of new clinic customers subsequently shopping on chewy.com. This initiative taps into a $25 billion TAM opportunity.

9. Private Brand Strategy
   Q: How are private brand initiatives performing?
   A: Private brands remain in the mid-to-high teens penetration for hard goods. Management aims to increase overall private brand penetration to mid-teens level, which at scale could contribute up to 500 basis points of higher gross margin to the core business. Current performance is relatively stable.

10. Tariff Exposure
    Q: Does Chewy have tariff exposure?
    A: Tariff exposure is minimal as Chewy has "very small reliance" on Chinese sourcing, primarily limited to some hard goods. The vast majority of net sales come from domestically sourced products, limiting potential impact from tariff increases.