Key takeaways:
- Recurring revenue anchored Chewy in Q2; Autoship accounted for 84.6% of net sales and Chewy is stacking its paid Chewy+ loyalty program on top, with members placing more orders, shopping more categories and adopting Autoship at higher rates than non-members.
- The retailer’s acquisition of The Modern Animal added 29 veterinary clinics, 24/7 virtual care and a membership model, giving Chewy a way to stay connected to pet parents beyond food, treats and supplies.
- Chewy expects AI savings in the low tens of millions of dollars this year, scaling to roughly $50 million in fiscal 2027, with about 30% of chats already resolving through self-service.
Chewy isn’t waiting for the pet market to bounce back.
The online pet retailer is deepening its relationships with customers, expanding into pet healthcare, and putting AI to work as it continues to gain ground in a market that remains under pressure.
That strategy was evident in Chewy’s second-quarter results, with the company continuing to add customers and increase engagement even as CEO Sumit Singh said he has yet to see a meaningful recovery in the broader pet market. Instead, Singh said, conditions have stabilized while Chewy continues to outperform its competitors.
Chewy ended Q2 with 21.7 million active customers, up 3.8% year over year, while sales per active customer reached $602. The company also added 208,000 customers sequentially. For the second quarter ended Aug. 2, net sales rose 7.3%, to $3.33 billion, while gross margin of 30.4% remained consistent year over year.
“The durability of our recurring revenue base, continued customer growth and disciplined execution give us confidence to raise our full-year revenue and profitability outlook, while continuing to invest in compelling opportunities that deepen customer engagement and create long-term shareholder value,” Singh said in a statement.
Deepening Customer Relationships with Chewy+
Chewy is focused on converting a purchase into an ongoing relationship. Autoship, which automatically replenishes recurring pet purchases, accounted for 84.6% of net sales in the quarter, reinforcing the recurring-revenue model that has become a cornerstone of the business.
Now Chewy is trying to build another layer on top of that foundation with Chewy+, its paid loyalty program.
Early results are encouraging. Singh said Chewy+ members are placing more orders, shopping across more categories and using the company’s mobile app more frequently than non-members. They are also showing higher Autoship adoption, suggesting various pieces of Chewy’s loyalty strategy could reinforce one another.
The company is now preparing to redesign Chewy+ around a broader range of benefits, including healthcare offerings, with the goal of encouraging customers to engage with more of the Chewy ecosystem.
“We have really liked the program so far,” Singh said on the company’s earnings call on Wednesday. “It has helped us learn the boundaries of sales, customer penetration and profitability guardrails, which were important to learn. At one level beneath that, it has helped us understand specific cohort interaction, cohort behavior, maturity curves of cohorts, given that we played the program through for roughly five quarters now. That is, in our opinion, a good amount of learning.”
Building a Pet Healthcare Ecosystem
Chewy’s acquisition of Modern Animal earlier this year accelerated its push into pet healthcare, adding 29 veterinary clinics, 24/7 virtual care and a membership model to the company’s existing healthcare operations.
The move gives Chewy another way to stay connected with pet parents throughout the life of their pets, and not just when they need food, treats or supplies.
Chewy Health and Chewy MedCare are also contributing to that expansion, while the company said SmartPak, the equine health company it acquired in 2025, performed ahead of expectations. Growth in equine, farm and exotic-pet businesses is adding further breadth to the healthcare and specialty-care opportunity.
How Chewy is Using AI
Chewy recently launched Kai, its customer-facing AI assistant, which can handle common requests such as order and shipment status as well as returns and refunds, to some of its app users. Chewy is also deploying AI across customer care and pharmacy operations.
Singh said roughly 30% of chats are already resulting in self-service, while the company has launched eight AI capabilities designed to turn customer signals into actionable insights.
“These efficiencies will also help offset the normal cost pressures. So whether that’s wage inflation, or other trends in the industry, they will help us offset the normal cost pressures, and we may reinvest some of these funds to drive attractive growth opportunities,” Singh said. “Net-net, we view AI as a powerful enabler of continued margin progression, not as a standalone pool of savings that will flow directly into the bottom line. So I think both sides of the equation just have to be appropriately understood.”
Chewy expects its AI initiatives to generate savings in the low tens of millions of dollars, with the potential to scale to roughly $50 million in savings in fiscal 2027.
Pet Market Remains Uneven
The strategy comes as Chewy continues to operate in a pet market that remains uneven, Singh said.
Management said it has seen softness in areas such as the dog category, which it attributed in part to macroeconomic factors. At the same time, traffic has stabilized and Chewy believes it can continue to grow meaningfully ahead of the broader category without relying on an industry-wide recovery. The company plans to put more marketing dollars behind customer acquisition and brand building ahead of the holidays, while introducing new products and experiences designed to bring customers into additional categories.
The company also raised its full-year outlook following the quarter, reflecting what CFO Chris Deppe described as increased visibility and continued confidence in the business.
Q3 net sales are expected to increase 6.6% to 6.7%, from $3.32 billion to $3.35 billion while fiscal year 2026 net sales are projected to increase 6.8% to 7.7%, to $13.46 billion to $13.57 billion.
