It has been about a month since the last earnings report for Chewy (CHWY Quick QuoteCHWY - Free Report) . Shares have lost about 10.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Chewy due for a breakout? Well, first let's take a quick look at the most recent earnings report in order to get a better handle on the recent catalysts for Chewy before we dive into how investors and analysts have reacted as of late.

CHWY Q2 Earnings Meet Estimates, Sales Beat on Customer Growth

Chewy reported second-quarter fiscal 2026 adjusted earnings of 36 cents a share, which rose 9.1% year over year and came in line with the Zacks Consensus Estimate. Net sales increased 7.3% to $3,330.2 million, topping the consensus mark of $3,322 million.

Results reflected customer growth, market share gains and disciplined execution. Chewy added 208,000 net active customers sequentially, excluding additions related to Modern Animal, while its customer funnel remained healthy across acquisition, retention and reactivation.

CHWY's Customer Base Keeps Expanding

Organic net sales, excluding SmartPak and Modern Animal, rose 5.7% year over year. Active customers increased 3.8% to 21.705 million, while net sales per active customer advanced 1.9% to $602.

On a normalized basis, adjusting for the extra week in the prior-year comparable period, net sales per active customer increased 3.8%. Management cited customer cohort maturation, greater engagement across health and pharmacy, and broader cross-category adoption as supports.

Chewy's Autoship Mix Reinforces Recurring Sales

Autoship customer sales climbed 9.3% to $2,817.2 million and represented 84.6% of total net sales. The program continued to grow faster than the overall business, reinforcing the recurring nature of Chewy's revenue base.

Consumer pressure remained visible in discretionary areas. Treat sales slowed more sharply than core food, while premiumization and discretionary attachment stayed pressured. Even so, mid-teens hard goods growth substantially outpaced the broader market, and Pet Health and Specialty Products delivered strong organic growth.

CHWY's Margins Benefit From Cost Discipline

Gross margin was 30.4%, flat year over year and up 30 basis points sequentially. Adjusted EBITDA increased 23.7% to $226.7 million, supported by sponsored ads, disciplined promotional activity and lower variable cost to serve.
About $10 million of upside came from timing-related benefits, mainly earlier tariff refunds and shifted rebates. More than $5 million came from discrete items, including gift-card breakage, inventory adjustments and vendor-funded merchandising. Adjusted SG&A declined to 18.4% of sales from 19.1%, reflecting fulfillment utilization, automation and productivity gains.

Chewy Health and AI Add Growth Levers

Chewy Vet Care again generated triple-digit revenue growth, while the fresh and frozen portfolio posted triple-digit unit growth. The equine, farm and exotics business delivered a seventh consecutive quarter of mid-double-digit sales growth. Modern Animal and SmartPak also performed ahead of prior expectations.

AI initiatives are moving into scaled deployment. Kai, Chewy's customer-facing AI assistant, resolved about 30% of chats through self-service in early use. Management still expects AI-related initiatives to generate low tens of millions of dollars in fiscal 2026 cost savings, scaling to about $50 million annualized in fiscal 2027.

CHWY's Cash Flow Supports Capital Returns

Free cash flow fell 15.5% year over year to $89.5 million, reflecting $137.4 million of operating cash flow and $47.9 million of capital expenditures. Chewy ended the quarter with $612 million of cash, cash equivalents and marketable securities and more than $1 billion of total available liquidity.

The company deployed $200 million toward share repurchases and bought back 9.9 million shares in the quarter. It also completed the $400 million Modern Animal acquisition and raised $600 million through its inaugural term loan issuance.

Chewy Raises Fiscal 2026 Outlook

Chewy expects fiscal 2026 net sales between $13.46 billion and $13.57 billion, implying reported growth of 6.8%-7.7% and organic growth of 5.5%-6.3%. Management had earlier guided net sales in the band of $13.40-$13.55 billion. Adjusted EBITDA margin is projected at 6.7%-6.8%, with the low end raised by 10 basis points from the prior range.

For the third quarter, net sales are expected at $3.323-$3.358 billion, with adjusted EBITDA margin of 6.6%-6.7% and adjusted earnings of around 39 cents a share. The outlook assumes no meaningful consumer recovery and continued low pricing contribution, while management expects Chewy to keep gaining share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a upward trend in fresh estimates.

VGM Scores

Currently, Chewy has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a grade of B on the value side, putting it in the second quintile for value investors.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, Chewy has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.