Chewy Posts 8.6% Revenue Gain in Q2

Chewy reported a robust Q2 FY2025, with revenue of $3.10 billion, up 8.6% year-over-year and exceeding management's guidance, alongside a 37.5% surge in adjusted diluted EPS to $0.33 and a 26.5% increase in Adjusted EBITDA. A key highlight was Autoship sales growing 14.9% to comprise a record 83.0% of total sales, signaling strong recurring revenue and customer loyalty, even as active customer growth moderated slightly. The reported net income decline was due to a prior-year one-time tax benefit, not operational weakness, reinforcing Chewy's disciplined execution and strategic focus on subscription-based offerings and enhanced customer value.

Analysis

Chewy, Inc. (CHWY) reported a robust second quarter for fiscal year 2025, demonstrating strong operational execution and a resilient business model. Revenue grew 8.6% year-over-year to $3.10 billion, surpassing the high end of management's guidance, while adjusted diluted EPS saw a significant 37.5% increase to $0.33. The core strength of the business is increasingly evident in its Autoship program, where sales grew 14.9% and now constitute a record 83.0% of total revenue, underscoring a successful shift towards a highly predictable, recurring revenue stream. Profitability metrics were a key highlight, with adjusted EBITDA rising 26.5% to $183 million and the adjusted EBITDA margin expanding to 5.9%. The reported steep decline in GAAP net income is attributable to a one-off deferred tax asset benefit in the prior-year period and does not reflect a deterioration in underlying business performance. While active customer growth has moderated to 4.5%, this is offset by a 4.6% increase in net sales per active customer to $591, indicating successful monetization of the existing user base. The company's healthy free cash flow of $105.9 million supported $152.6 million in share repurchases during the first half of the fiscal year, signaling management's confidence.

Key Decisions for Investors

• Investors should view the strong beat on revenue and adjusted EPS, driven by the accelerating and highly predictable Autoship segment, as a key validation of the company's subscription-centric strategy and improving operational leverage.
• Monitor the trade-off between moderating active customer growth and rising net sales per active customer; continued strength in the latter is critical to sustaining top-line momentum and justifying the growth narrative.
• Given the absence of updated guidance, investors should note that Q2 performance is tracking ahead of the prior full-year forecast, but should watch for formal management commentary on the outlook for the remainder of the year.
• The ongoing share repurchase program, funded by strong free cash flow, is a positive signal of management's belief in the stock's intrinsic value and should be considered a key component of total shareholder return.