CHWY Q3 Deep Dive: Autoship, Membership, and Health Initiatives Drive Margin Expansion

E-commerce pet food and supplies retailer Chewy (NYSE:CHWY) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 8.3% year on year to $3.12 billion. Its non-GAAP profit of $0.32 per share was 5.4% above analysts’ consensus estimates.

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StockStory’s Take

Chewy delivered Q3 results slightly ahead of Wall Street’s expectations, with management crediting strong Autoship volume growth, improved marketing efficiency, and a higher contribution from its mobile app for the company’s year-over-year gains. CEO Sumit Singh emphasized that “growth in Autoship customer sales outpaced total company growth,” and highlighted the effectiveness of new customer acquisition strategies and increased retention. Enhanced engagement through the Chewy app also helped lift net sales per active customer, while margin expansion was supported by improvements in category mix and advertising productivity.

Looking to the next quarter and into 2026, management expects durable growth in active customers and continued margin expansion, primarily through operational leverage and strategic investments in automation and health services. Singh stated, “Our unique flywheel-like operating model gives us high confidence in our ability to deliver consistent durable EBITDA expansion over the next several years.” The company remains focused on scaling Chewy+, further developing its health ecosystem, and leveraging data-driven marketing to deepen customer engagement and drive both top-line and profit growth.

Key Insights from Management’s Remarks

Chewy’s latest results were driven by a mix of recurring revenue from Autoship, stronger customer retention, and expansion in health and membership offerings.

• Autoship program momentum: Autoship, Chewy’s subscription-like reorder service, delivered unit volume growth well above the company average and now represents 84% of total sales. Management credited this for improving revenue predictability and enabling better operational planning, which supports both cost reduction and margin gains.

• Marketing efficiency gains: Chewy achieved notable marketing leverage, spending less as a percentage of sales while increasing new and returning customer counts. Enhanced app functionality and targeted campaigns led to higher quality customer acquisition and improved conversion rates, supporting a lower customer acquisition cost and higher lifetime value.

• Mobile app adoption and engagement: The company reported a 15% year-over-year increase in app customers and orders, driven by app improvements and personalized features. This shift to mobile has increased direct traffic, further boosting margins due to reduced reliance on paid channels and improving retention.

• Expansion of health services: Chewy expanded its Chewy Vet Care (CVC) clinics to 14 locations, using these clinics both as customer acquisition points and retention drivers. The recent acquisition of Smart Equine, a premium equine health brand, is expected to strengthen Chewy’s margin profile and accelerate its presence in high-value wellness categories.

• Chewy+ membership scaling: The Chewy+ paid membership program saw continued growth even after a price increase to $79 per year. Management indicated that conversion rates and gross margins from Chewy+ members have exceeded expectations, with strong penetration into discretionary categories driving higher order frequency and broader engagement.

Drivers of Future Performance

Chewy’s outlook for the coming quarters centers on maintaining growth through recurring revenue programs, margin expansion, and strategic investments in automation and health offerings.

• Sustained Autoship and Chewy+ growth: Management expects recurring revenue streams from Autoship and increased adoption of Chewy+ to drive stable, predictable growth. Singh outlined that these programs not only improve retention and order frequency, but also increase customer lifetime value, making them central to Chewy’s strategy in the next year.

• Margin expansion via operational leverage: The company plans to shift further investment toward automation and fulfillment center efficiency, aiming for continued structural margin gains. Management forecasts that about half of future margin improvement will come from gross margin expansion, with the remainder from operating expense leverage as temporary costs subside.

• Health and wellness ecosystem development: Continued investment in health services, including CVC clinics and the integration of Smart Equine, is projected to deepen customer engagement and support higher-margin business lines. Chewy sees these initiatives as enhancing its competitive positioning and driving incremental sales and profitability.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the pace of adoption for Autoship and Chewy+ membership programs, (2) further expansion and customer uptake of Chewy’s health services and CVC clinics, and (3) the integration and performance impact of the Smart Equine acquisition on margin and product mix. Execution in these areas will be key indicators of Chewy’s ability to sustain growth and margin improvements.

Chewy currently trades at $35.20, up from $34.84 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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