Chewy’s Autoship Revival Lifts Guidance—So Why Did the Stock Fall?

Chewy’s latest quarter is the clearest sign yet that the pet retailer’s flywheel is turning again: more customers, more recurring orders, and a slightly bigger revenue ambition for the year. Before the opening bell on Wednesday, Sept. 10, the company said fiscal second‑quarter net sales reached about $3.1 billion (up roughly 9% year over year), with adjusted EPS of $0.33—squarely in line with expectations. Management nudged full‑year revenue guidance up to $12.5–$12.6 billion. Yet shares fell around 9% premarket as traders who had chased the stock higher into the print looked for something more dramatic. (barrons.com, investors.com)

Beneath the headline miss/meet debate, Chewy’s operating engine showed cleaner lines. Active customers rose to 20.9 million (about 4.5% growth), and net sales per active customer climbed to $591—both markers of improving engagement. Most important for the business model, Autoship—the subscription‑like program that keeps food and meds arriving on doorsteps—grew 15% and accounted for 83% of sales, reinforcing the annuity‑like character of Chewy’s demand. Those are the numbers long‑term holders wanted to see. (barrons.com, marketwatch.com)

So why the selloff? In part, optics. GAAP net income of $62.2 million translated to about $0.14 a share, down sharply from last year’s unusual $299 million quarter, when Chewy booked a one‑time $276 million tax benefit tied to a valuation allowance release—a comparison that flattered 2024 and flatters no one in 2025. Strip out that distortion and the underlying profitability picture looks more stable than the headline suggests. (marketwatch.com, aol.com, investor.chewy.com)

Chewy’s story has always worked best when Autoship does the heavy lifting. The 83% mix this quarter—paired with double‑digit Autoship growth—signals that the company’s demand is both sticky and increasingly predictable. In consumer Internet, predictable demand earns better multiples over time because it smooths cash flows and takes promotional guesswork out of the model. If management can hold Autoship above 80% while expanding the basket (more health, more premium food, more private brands), margin expansion tends to follow. (marketwatch.com)

Two other green shoots strengthen that thesis: customer count and spending per customer both rose. After a year when industry adoption slowed and wallet sizes normalized, Chewy is adding accounts again and coaxing more spend from each of them—fuel for both top‑line growth and operating leverage as fixed fulfillment and tech costs spread over more orders. (barrons.com)

Chewy quietly leaned into a Prime‑like idea: Chewy+—a paid membership, priced at an introductory $49 per year—designed to boost engagement and frequency. Early data suggest members shop more often and across more categories, but the program can carry lower near‑term margins due to benefits and discounts. That mix shift likely dampens some EPS upside now, even as it deepens customer lock‑in for later. The trade‑off mirrors the early years of other large retail memberships: near‑term pressure, long‑term lifetime‑value lift. (fool.com, marketwatch.com)

For investors, the signal is not this quarter’s penny here or there; it’s that membership, Autoship and health services are converging into a higher‑retention model. If management keeps cohorts healthy, the compounding shows up in 2026–2027 free cash flow more than in next quarter’s EPS.

Retail media has been a stealth margin driver across e‑commerce. Chewy migrated its ad stack to first‑party tech and has been adding off‑site formats on platforms like YouTube, Instagram and TikTok, using closed‑loop attribution anchored in its first‑party data. Management flagged sequential improvement earlier this year; external partners say one in three Chewy ad clicks converts and nearly half of those convert into recurring Autoship orders—exactly the kind of high‑margin revenue stream that scales with traffic. (fool.com, digitalcommerce360.com)

Ad dollars are still early relative to site traffic, but as placement density, targeting and measurement improve, Chewy Ads should add incremental gross margin without incremental inventory risk.

Another subplot resolving in shareholders’ favor: the slow reduction of the BC Partners overhang. In mid‑2024 Chewy bought back $500 million of stock directly from the sponsor at a discount, and this June the sponsor priced an upsized secondary at $41.95. While the June sale was by BC Partners (not Chewy), these transactions chip away at supply and simplify the cap table—helpful should volatility return. (businesswire.com, investor.chewy.com)

Chewy has also emphasized free‑cash‑flow discipline. On its June call, management reiterated that about 80% of adjusted EBITDA is expected to convert to free cash flow in FY25—an important ballast as the company funds membership benefits, ad‑tech and vet‑care expansion through the P&L. (fool.com)

This quarter’s GAAP profit looks soft only against an anomalous base. In Q2 last year, Chewy’s net income ballooned thanks to a $276 million one‑time tax benefit related to releasing a valuation allowance; the company’s own statements and transcripts called this out explicitly at the time. Normalizing for that, this year’s EPS cadence is closer to flat-to‑up and more reflective of the underlying margin profile. (aol.com, investor.chewy.com)

Today’s dip says more about positioning than fundamentals. The stock had rallied into the print on optimism and upgrades, setting a bar that required a beat‑and‑raise across every line. What Chewy delivered instead was something subtler but arguably more valuable: evidence that the long‑term compounding machine is re‑accelerating. (marketwatch.com)

Chewy guided Q3 sales to $3.07–$3.10 billion and adjusted EPS to $0.28–$0.33, roughly in line to slightly ahead of consensus. If Autoship momentum and membership engagement persist, that range looks achievable. The bigger prize, however, remains 2025–2026 free‑cash‑flow growth as retail media and health expand within the mix. (marketwatch.com)