Chewy posts 7.3% revenue growth as pet sector's staple-discretionary split sharpens
The pet sector's divide between staple and discretionary spending has come into sharper relief against the backdrop of a consumer cycle that has stabilized without recovering. Chewy, Inc. reported 7.3% revenue growth in its…
Key takeaways
- Chewy reported 7.3% revenue growth in its second fiscal quarter of 2026, which management said outpaced the broader pet category by two to three times.
- Autoship customer sales reached 84.6% of total net sales, providing a subscription-like base of revenue predictability.
- Q2 adjusted EBITDA margin was 6.8%, though management flagged roughly $15 million in discrete and timing-related items, including tariff refunds and gift card breakage, that are not indicative of the underlying run rate.
- Health categories drove growth, with Chewy Vet Care posting triple-digit revenue growth and the fresh and frozen portfolio posting triple-digit unit growth.
- Chewy's AI assistant Kai resolves about 30% of self-service chats, with AI savings expected in the low-tens of millions for fiscal 2026 and about $50 million annualized by fiscal 2027.
The pet sector's divide between staple and discretionary spending has come into sharper relief against the backdrop of a consumer cycle that has stabilized without recovering. Chewy, Inc. reported 7.3% revenue growth in its second fiscal quarter of 2026, a pace management attributed to outperforming the broader pet category by two to three times.
Autoship customer sales reached 84.6% of total net sales, the metric management treats as the backbone of revenue predictability. That subscription-like base has cushioned the business as spending on treats and toppers softens. Management characterized those sub-categories as discretionary in the current demand environment, with consumers experimenting less and adjusting budgets, while core food and medication spending has held at normal levels. Hard goods grew in the mid-teens, which management attributed to improved merchandising execution rather than any recovery in discretionary sentiment.
Health categories carrying the margin story
The profitability picture in Q2 carries an important asterisk. Adjusted EBITDA margin reached 6.8%, but management flagged approximately $15 million in discrete and timing-related items, including tariff refunds and gift card breakage, that are not indicative of the underlying run rate. Chewy Vet Care delivered triple-digit revenue growth in the period, and the fresh and frozen portfolio posted triple-digit unit growth, both reflecting a deliberate shift toward higher-margin health categories.
The $400 million acquisition of Modern Animal closed during the quarter and is currently a modest drag on adjusted EBITDA margin as integration continues. Management said the combination with SmartPak is progressing ahead of internal expectations, adding scale and differentiated telehealth capability to the health ecosystem.
Cost structure and the AI offset
Chewy's AI assistant, Kai, is resolving approximately 30% of self-service chats, with plans to extend its use cases to product recommendations. AI initiatives are expected to generate savings in the low-tens of millions for fiscal 2026, scaling to approximately $50 million on an annualized basis by fiscal 2027, management said. Management framed those savings as an offset to cost pressures like wage inflation rather than a direct addition to the bottom line.
Fuel costs are expected to remain a mid-single-digit million-dollar headwind through the rest of the fiscal year. Free cash flow conversion is expected to hold at approximately 80% for the full year. Advertising and marketing spend is weighted toward Q3, management said, to build brand awareness ahead of the holiday season, and Chewy Plus is set for a Q3 relaunch with integrated health benefits targeting deeper customer engagement.
Fiscal 2026 guidance assumes the consumer environment holds at current levels, with no benefit from inflation-driven pricing or deflation assumed in the model. Management noted that dog formation is currently pressured by macro factors including household formation, while cat-related categories are showing relative strength.
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