10-Q: Chewy Reports Strong Q3 Growth, Acquires SmartPak Equine

Chewy, Inc. announced robust third-quarter results with significant increases in net sales, gross profit, and adjusted EBITDA, alongside the strategic acquisition of SmartPak Equine.

Summary

• Net sales for the thirteen weeks ended November 2, 2025, increased by 8.3% to $3.1 billion, compared to $2.9 billion in the prior year period.
• Gross profit for the thirteen weeks ended November 2, 2025, rose by 10.0% to $928.2 million, with gross margin expanding by 50 basis points to 29.8%.
• Income from operations for the thirteen weeks ended November 2, 2025, surged by 154.7% to $65.2 million.
• Net income for the thirteen weeks ended November 2, 2025, was $59.2 million, a substantial increase from $3.9 million in the comparable prior year period.
• Adjusted EBITDA for the thirteen weeks ended November 2, 2025, grew by 30.9% to $180.9 million, achieving an adjusted EBITDA margin of 5.8%.
• Active customers increased by 4.9% to 21.155 million, and net sales per active customer grew by 4.9% to $595.
• Autoship customer sales as a percentage of net sales increased to 83.9% for the thirteen weeks, up from 80.0% in the prior year.
• Chewy entered into a definitive agreement on October 28, 2025, to acquire SmartPak Equine, LLC, expected to close in fiscal year 2025.
• The company's finance information technology architecture modernization project, commenced in fiscal year 2024, has expanded in scope and is now expected to go live towards the end of fiscal year 2026.

Sentiment

Score: 8

Explanation: The filing indicates strong operational and financial performance with significant growth in key metrics like net sales, gross profit, operating income, and adjusted EBITDA. Customer acquisition and retention are healthy, as evidenced by active customer growth and increased Autoship penetration. While GAAP net income for the 39-week period decreased, this is primarily due to a non-recurring tax benefit in the prior year, with adjusted net income showing strong growth. The strategic acquisition of SmartPak Equine and ongoing share repurchase program are positive indicators. The IT project delay is a minor negative, but overall, the company demonstrates robust health and strategic progress.

Positives

• Net sales increased by 8.3% for the quarter and 8.4% for the thirty-nine weeks, demonstrating consistent top-line growth.
• Gross profit margin improved by 50 basis points for the quarter and 40 basis points for the thirty-nine weeks, driven by growth in sponsored ads, Autoship sales, and margin expansion in consumables and healthcare.
• Operating income saw a significant increase of 154.7% for the quarter and 73.2% for the thirty-nine weeks, indicating improved operational efficiency.
• Adjusted EBITDA grew by 30.9% for the quarter and 24.9% for the thirty-nine weeks, with adjusted EBITDA margin expanding to 5.8% and 6.0% respectively, highlighting strong underlying profitability.
• Active customer base expanded by 4.9% to 21.155 million, coupled with a 4.9% increase in net sales per active customer to $595, reflecting effective customer acquisition and retention strategies.
• Autoship customer sales as a percentage of net sales increased to 83.9% for the quarter and 83.0% for the thirty-nine weeks, underscoring the strength of recurring revenue and customer loyalty.
• Free cash flow increased by 15.8% for the quarter to $175.8 million and 11.7% for the thirty-nine weeks to $330.4 million, indicating robust cash generation.
• The acquisition of SmartPak Equine, LLC is expected to strengthen the company's equine product offerings, expanding its market reach.
• The company maintains a strong liquidity position with $675.4 million in cash and cash equivalents and $783.1 million in available borrowing capacity under its ABL Credit Facility, with no outstanding borrowings.

Negatives

• Net income for the thirty-nine weeks ended November 2, 2025, decreased by 50.4% to $183.6 million, primarily due to a $275.7 million deferred income tax benefit recognized in the prior year period.
• Interest and other income, net, for the thirty-nine weeks ended November 2, 2025, decreased by 70.7% to $9.4 million, mainly due to lower interest income from cash and marketable securities compared to the prior year.
• The finance information technology architecture modernization project has an expanded scope and is now expected to go live towards the end of fiscal year 2026, indicating a delay from original timelines.

Risks

• Ability to sustain recent growth rates and successfully manage challenges related to future growth, including introducing new products or services and expanding into new jurisdictions and offerings.
• Successfully responding to business disruptions and managing risks related to the macroeconomic environment, such as inflation, tariffs, and high interest rates, which can impact business operations, financial performance, supply chain, and consumer behavior.
• Acquiring and retaining new customers cost-effectively and increasing net sales, improving margins, and maintaining profitability.
• Maintaining positive perceptions of the company and preserving, growing, and leveraging the value of its reputation and brand.
• Limiting operating losses as the business continues to expand.
• Strengthening current supplier relationships, retaining key suppliers, and sourcing additional suppliers, as well as negotiating acceptable pricing and terms with third-party service providers.
• Mitigating changes in, or disruptions to, shipping arrangements and operations.
• Optimizing, operating, and managing the expansion of fulfillment center capacity.
• Maintaining adequate cybersecurity with respect to systems and retaining third-party service providers that do the same.
• Complying with existing or future laws and regulations in a cost-efficient manner.
• Successfully defending against any allegations or claims the company may be subject to.
• Attracting, developing, motivating, and retaining highly-qualified and skilled employees.
• Successfully competing in the pet products and services health and retail industry, especially in the e-commerce sector.
• Ability to raise capital as needed to fund operations or strategic initiatives.
• Maintaining effective internal control over financial reporting.

Future Outlook

The company expects the acquisition of SmartPak Equine, LLC to close in fiscal year 2025, subject to regulatory approvals. The finance information technology architecture modernization project, which aims to enhance scalability, visibility, and analytical capabilities, is now expected to go live towards the end of fiscal year 2026. The company is also evaluating the impact of the recently signed One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements for the fiscal year ending February 1, 2026.

Management Comments

• Management believes the forward-looking statements are based on reasonable assumptions, but actual results could differ materially due to various factors.
• Management views the number of active customers as a key indicator of growth, ability to acquire and retain customers, and the value provided.
• Management considers net sales per active customer a key indicator of customer purchasing patterns, including initial and repeat purchase behavior.
• Management views the Autoship subscription program as a key driver of recurring net sales and customer retention.
• Management believes that cash and cash equivalents and availability under the revolving credit facility will be sufficient to fund working capital, capital expenditure requirements, and contractual obligations for at least the next twelve months.
• Management does not expect that disclosure controls and procedures will prevent or detect all error and fraud, as any control system provides only reasonable, not absolute, assurance.

Industry Context

Chewy operates as the largest pet e-tailer in the United States, offering a broad selection of products and services. The company's continued growth in active customers, net sales per active customer, and Autoship penetration suggests it is effectively navigating evolving macroeconomic conditions and strengthening its market position in the competitive e-commerce pet products and services industry. The acquisition of SmartPak Equine indicates a strategic move to expand into specialized equine health and nutrition, diversifying its offerings within the broader pet care market.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• The company is subject to various legal claims arising in the normal course of business. Management believes it has adequately accrued for probable and reasonably estimable loss contingencies and does not believe the ultimate resolution of current matters will have a material adverse effect on results of operations, financial condition, or cash flows.

Related Party Transactions

• BC Partners Advisors LP and its affiliates, along with other Sponsors, control a majority of the voting power of the company's outstanding common stock.
• The company has a receivable of $23.4 million from affiliates of BC Partners as of November 2, 2025, related to indemnification for certain tax liabilities from the October 2023 Transactions.
• The company repurchased shares of Class A common stock from Buddy Chester Sub LLC, an entity affiliated with the Sponsors, in June 2024 ($500 million), September 2024 ($300 million), and June 2025 ($100 million).

Stakeholder Impact

• **Shareholders**: Positive impact due to strong financial performance, increased profitability, share repurchase program, and strategic acquisition, potentially leading to increased shareholder value. The decrease in GAAP net income for the 39-week period is an accounting artifact and not indicative of operational decline.
• **Customers**: Continued growth in active customers and net sales per active customer suggests strong customer satisfaction and value proposition. The SmartPak acquisition expands product offerings, particularly in equine health.
• **Employees**: The 2024 Omnibus Incentive Plan provides enhanced opportunities for equity-based compensation, potentially improving employee motivation and retention. The IT modernization project aims to create efficiencies for team members.
• **Suppliers**: The company's growth and strategic expansion, including the SmartPak acquisition, may lead to increased demand for products and services from existing and new suppliers.
• **Creditors**: Strong cash flow generation and available credit under the ABL Credit Facility indicate a healthy financial position, reducing credit risk.

Next Steps

• Close the acquisition of SmartPak Equine, LLC in fiscal year 2025, subject to regulatory approvals and customary closing conditions.
• Continue the finance information technology architecture modernization project, with an expected go-live towards the end of fiscal year 2026.
• Evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on consolidated financial statements for the fiscal year ending February 1, 2026.
• Continue share repurchases under the authorized program, with $304.9 million remaining as of November 2, 2025.

Key Dates

Recommendation

Chewy's Q3 2025 results demonstrate exceptional operational strength and strategic execution. The significant increases in net sales, gross profit, operating income, and adjusted EBITDA, coupled with healthy active customer growth and strong Autoship penetration, underscore a robust business model. While the GAAP net income for the 39-week period shows a decline, this is an accounting anomaly due to a prior-year tax benefit, and the underlying adjusted profitability metrics are highly positive. The strategic acquisition of SmartPak Equine expands market reach, and the ongoing share repurchase program signals confidence and commitment to shareholder returns. The company's strong liquidity position further supports future growth and stability. Despite the minor delay in the IT modernization project, the overall trajectory and financial health warrant a 'strong buy' recommendation for investors seeking exposure to a leading and growing e-commerce player in the pet industry.

Keywords

Pet e-commerce, Online pet supplies, Pet food delivery, Autoship, Pet healthcare, SmartPak Equine, Q3 earnings, Financial results, EBITDA, Customer growth