Chewy Autoship Sales Up 15% in Q2: Have Investors Missed the Catalyst?

Chewy Inc. (CHWY) reported robust Q2 FY25 results, driven by a 14.9% year-over-year increase in Autoship sales to $2.58 billion, which now represents a record 83% of total net sales and outpaced the company's overall 8.6% net sales growth. This strong recurring revenue penetration enhanced operational efficiency, contributing to a 90 basis point expansion in gross margin to 30.4%. Management cited the Autoship program's momentum, alongside new product offerings and Chewy+ adoption, as key factors supporting confidence in achieving full-year net sales targets of $12.5-$12.6 billion and an adjusted EBITDA margin of 5.4-5.7%, indicating a strengthening and more predictable revenue stream.

Analysis

Chewy's fiscal Q2 2025 results demonstrate a significant strengthening of its core business model, driven by the outsized performance of its Autoship subscription program. Autoship sales grew 14.9% year-over-year to $2.58 billion, substantially outpacing the company's overall net sales growth of 8.6%. This has pushed recurring revenue to a record 83% of total net sales, enhancing revenue predictability and customer retention. Operationally, this increased penetration is a key factor behind the 90-basis-point expansion in gross margin to 30.4%, as predictable orders improve inventory management and fulfillment efficiency. Management has reaffirmed its full-year guidance for $12.5-$12.6 billion in net sales and an adjusted EBITDA margin of 5.4-5.7%, citing Autoship momentum and increasing Chewy+ adoption as foundational to this confidence. While the stock's 23.6% gain in the past year lags the broader industry's 30.4% growth, it has dramatically outperformed key peers like Petco and Spectrum Brands, which saw steep declines. The company's forward price-to-sales ratio of 1.20 is below the industry average but represents a significant premium to these struggling peers, reflecting its superior execution and more stable growth profile.

Key Decisions for Investors

• Investors should recognize the accelerating penetration of the Autoship program as the primary value driver, as its 14.9% growth and contribution to margin expansion underpins the credibility of the company's strong full-year guidance.
• Given Chewy's significant outperformance against competitors like Petco (-24.3%) and Spectrum Brands (-42.3%), a long position in CHWY could be viewed as a quality play within a challenged sector, justifying its premium valuation relative to peers.
• Despite strong fundamentals, the Zacks #3 (Hold) rating and the stock's valuation premium over direct peers suggest that investors might monitor for a more attractive entry point rather than chasing the recent run-up.