Profitability Gains Accelerating
Gross margin expanded roughly 50 basis points year-over-year to 29.8%, driven by sponsored ads growth, a strong autoship baseline, and favorable category mix. Singh emphasized that "these gains will structurally enhance our margins going forward."
Adjusted EBITDA reached $181 million, up 30% year-over-year. That 5.8% adjusted EBITDA margin represents 100 basis points of year-over-year expansion and flow-through of about 18%—meaning the company is converting incremental sales into profit at a healthy clip.
Will Billings, Chief Accounting Officer and Interim Principal Financial Officer, highlighted that the company generated approximately $176 million of free cash flow in the quarter, up nearly $70 million sequentially. "For full year 2025, we continue to expect to convert approximately 80% of adjusted EBITDA to free cash flow," Billings noted.
The company ended the quarter with approximately $675 million in cash and cash equivalents, remained debt-free, and had total liquidity of approximately $1.5 billion. During Q3, Chewy repurchased approximately 1.5 million shares for $55 million, leaving $304.9 million of remaining authorization under its existing repurchase program.
Mobile App Driving Direct Traffic Growth
One of the more interesting developments this quarter was the continued strength in Chewy's mobile app. Enhanced mobile functionality is lifting direct traffic, with app customers and app orders both up approximately 15% year-over-year.
Singh spent considerable time on the earnings call explaining why the mobile app matters so much to the company's strategy. "The mobile app obviously is a closed loop system that pushes more and more direct traffic, much more personalized interactions, repeat purchase rates in apps are stronger, Average Order Value (AOV)s are stronger," he said.
When customers use the app instead of finding Chewy through paid search or other marketing channels, the company saves money on customer acquisition costs. Those savings are showing up in the marketing efficiency numbers.
Chewy Plus Membership Gets a Price Increase
Chewy launched its paid membership program earlier this year at an introductory price of $49 per year with a 30-day free trial. At the end of October, the company raised the annual fee to $79.
The price increase could have been risky, but Singh reported that "early data shows continued growth and strong conversion from free to paid memberships." Even better, "paid Chewy members are already delivering gross margins in line with the overall enterprise and with higher pricing in place, we remain confident in the program's growth and margin potential."
Singh revealed that 80% of the member mix is now paid subscribers, which is a healthy sign that customers see value in the program beyond the introductory offer. He also noted that Chewy Plus members show higher penetration in categories like hard goods and specialty items compared to the overall customer base, suggesting the program is working as intended to drive category expansion.
The program targets customers spending between $300 and $700 annually with Chewy, aiming to accelerate their discovery of products beyond consumables and health items. "It is a discoverability offering," Singh explained. "Number two, it accelerates NASPAC consolidation. And number three... it should aid in a very healthy way in improving our retention from already strong levels."
Veterinary Clinics Expanding on Schedule
Chewy Vet Care continues its rollout, with the company opening two additional practices since the last earnings call, including its first location in Phoenix. That brings the total to 14 locations across five states, with two more clinics opening soon.
Singh said the clinics are "driving strong utilization, supporting ecosystem engagement and strengthening customer loyalty through recurring high margin services." Each clinic functions as both an acquisition channel and a retention driver, supporting deeper autoship and health program participation.
The company remains on track to open eight to 10 locations this fiscal year. Singh noted that four out of 10 customers walking into Chewy Vet Care locations are new to Chewy, and about 50% of clinic customers expand their relationship with Chewy.com by adding new categories within a short timeframe.
Smart Equine Acquisition Expands Health Portfolio
On October 30th, Chewy announced the acquisition of Smart Equine, a leading equine health brand. The transaction is expected to be accretive to adjusted EBITDA margins upon closing.
"Smart Equine enhances Chewy's premium health and nutraceutical assortment and strengthens our position in high value wellness categories," Singh said. "By layering its premium assortment over Chewy's network and scale, we see significant opportunity to enhance our health and wellness mix and expand both net sales within this category as well as margins."
The acquisition fits into Chewy's broader strategy of expanding into higher-margin health and wellness categories where customer loyalty tends to be stronger and repeat purchase behavior is more predictable.
Industry Conditions Remain Choppy But Stable
During the Q&A session, Singh provided his current read on the broader pet industry. The short version: don't expect dramatic improvements in 2026.
"As of this point, we're looking at 2026 more or less like 2025," Singh told analysts. "Our current read is to view 2026 more or less like 2025. So industry growing at low single digit, perhaps the low end of mid single digit net household formation kind of remaining flattish."
The pet industry has been dealing with headwinds around household formation—basically, fewer people are getting new pets compared to the pandemic boom years. Singh noted that shelter adoptions are running at about 100,000 to 150,000 surplus between adoptions and returns, but that number would need to be five to six times higher to signal a normalized industry environment.
On pricing, Singh said the industry typically sees 1% to 2% pricing improvements year-over-year, but 2025 saw essentially zero pricing benefit. "Pricing has remained rational and stable with no material benefit or detriment from inflation or deflation in recent quarters," he explained. For 2026, he expects pricing to be "slightly larger than what we've seen in 2025, which was nearly muted or zero."
Despite the challenging industry backdrop, Chewy continues to take share. Singh emphasized that the company is "growing at approximately twice the market rate, taking share again without pricing below inflation or sacrificing margin."
Marketing Efficiency Gains Are Real and Durable
One analyst asked Singh to explain what's working in the customer acquisition funnel that's allowing Chewy to be more efficient while still growing the customer base.
Singh's answer revealed a multi-year effort that's now paying off. "You have to go back two years and build from there," he said. The company started by connecting the marketing funnel from lower, middle, and upper stages—work that takes time because "you have to essentially rev up your creative engine, you have to rev up your concepting and go to market."
The mobile-first strategy launched two years ago is now showing results, with the mobile app becoming stronger in terms of traffic percentage, order percentage, and overall retention metrics. The company also rebuilt its CRM engines, bidding protocols, and models over the past year.
The output of all this work: increased traffic from new assortment and programs, improved search engine optimization, better conversion of third-party traffic into first-party app traffic, and enhanced website experiences that convert more visitors into customers.
"Our application fundamentally looks different from how it looked 18 months ago," Singh said. "Next year it is going to look even better than what it looks right now."
Fourth Quarter Guidance and Full-Year Outlook
For the fourth quarter, Chewy expects net sales between $3.24 billion and $3.26 billion, representing approximately 7% to 8% year-over-year growth when adjusted to exclude the impact of the 14th week in Q4 of fiscal 2024.
The company expects Q4 adjusted diluted earnings per share in the range of $0.24 to $0.27, which includes an estimated $10 million of closing costs related to the pending Smart Equine acquisition.
For the full year 2025, Chewy narrowed its net sales outlook to between $12.58 billion and $12.6 billion, representing approximately 8% year-over-year growth when adjusted to exclude the 53rd week in fiscal 2024. The company also narrowed full-year adjusted EBITDA margin guidance to 5.6% to 5.7%, representing approximately 90 basis points of expansion at the midpoint.
Billings noted that the company now expects advertising and marketing expense to come in at approximately 6.5% to 6.6% of net sales for the full year, and capital expenditures to come in around 1.3% of net sales, below the low end of the prior target range of 1.5% to 2%.
Fourth Quarter Margin Dynamics
The guidance implies that Q4 adjusted EBITDA margins will step down sequentially from Q3 levels. Singh explained that this isn't unusual for Chewy.
"It's not atypical for us to view fourth quarter as an investment quarter," he said. "Multiple things are going on: promotion levels are higher, pricing is generally not your friend in fourth quarter. On top of that, structurally you're essentially pushing a lot more units through your fulfillment center. So leverage that you expect in other quarters you don't get the same type of leverage in fourth quarter. And then marketing intensity and media rates are elevated in fourth quarter."
Despite the sequential step-down, Singh emphasized the year-over-year improvement: "On a year over year basis, we're delivering at mid-point 90 basis points and that equates to roughly 25% profit increase year over year on growth that is roughly 8%. That is three times incremental profit than growth on a rate basis."
Black Friday Performance and Quarter-to-Date Trends
Singh said the company was pleased with performance during the Black Friday and Cyber Monday period. "The week came in very much in line with our expectations. The team performed really well. Execution was strong. Supply chain backlogs were healthy in stock levels, were maintained at really healthy levels."
The discipline around promotional spending and marketing efficiency continued through the holiday period. "Net sales and engaged sessions were up year over year while total event spend and customer acquisition costs were down year over year," Singh noted.
More broadly, Singh said that "quarter to date we like the momentum that we've headed into December with," though he noted there's still a lot of the quarter left to go.
The Path to 10% EBITDA Margins
Singh spent considerable time during the call reiterating Chewy's long-term target of 10% adjusted EBITDA margins. At the exit of this year, the company will have less than 450 basis points to go to hit that target.
"We expect roughly half of that will come from gross margin. The other half will come from opex," Singh explained.
On the gross margin side, Singh outlined several structural expansion levers: sponsored ads continuing to grow steadily, premium category mix consolidation, strengthening private label share (with "more exciting news" coming in March or April), the expanding health ecosystem, and Chewy Plus moving from potential drag to potential contributor.
On the operating expense side, Singh emphasized that 2026 will look different from 2025 in terms of investment levels. "A number of the cost impacts you have seen in recent quarters such as inventory pull forwards, one time launch expenses within fresh food for instance, and early stage chewy incentives are all temporary by design," he said.
The structural investments—automation and health services—all have "clear ROI thresholds and measurable payback periods." As the company moves into 2026, Singh expects "the balance of investment to shift towards operating leverage."
He laid out the framework simply: "Invest where returns are compelling and durable, moderate spend where benefits have been captured and drive leverage using our scale across the platform."
Complementary Programs Building on Each Other
One of the more interesting parts of the earnings call was Singh's explanation of how Chewy's various initiatives work together rather than competing for resources or customer attention.
He asked analysts to visualize "three sort of flywheels, the autoship Chewy Plus CVC and... imagine all of these built onto a closed loop, highly personalized app, mobile app."
Autoship is a "rinse and repeat product merchandise program" that's free and delivers high reliability and accuracy. Chewy Plus is designed to accelerate product discovery beyond consumables and health, targeting customers who spend $300 to $700 annually to drive basket consolidation. Chewy Vet Care expands the total addressable market by $40 billion through health services while creating a health ecosystem where customers can start online or offline.
The mobile app ties everything together as a "closed loop system that pushes more and more direct traffic, much more personalized interactions" with stronger repeat purchase rates, higher average order values, and better autoship conversion.
"There’s strong intersection and strong complementarity between the programs," Singh said. "These are separate programs that essentially compound NSBAC curves, increase retention, cohort retention, reduce churn and drive both top line as well as greater efficiency in the way that we deliver profitability."
Active Customer Moderation in Q4 Is Comp-Related
The guidance implies some moderation in active customer net additions in Q4 compared to Q3, which could have been concerning. Singh addressed this proactively.
"The implied moderation in Q4 is largely comp driven and reflects timing more than anything else," he explained. "We're cycling a much stronger Q4 from last year in terms of net adds. That naturally creates a tougher comparison."
He added that "when looking at Q4 quarter till date, we like the momentum that we're seeing on net adds and we're running ahead of our forecast." But with half the quarter remaining, "it's prudent to hold kind of the conservatism that we're bringing forward."
Looking Ahead to 2026
While Singh was careful not to provide specific 2026 guidance—that will come when the company reports Q4 results in March—he offered enough color to paint a picture of management's expectations.
The industry will likely look similar to 2025, with low single-digit growth and flattish household formation. Chewy plans to continue taking share, growing at roughly twice the market rate without resorting to aggressive pricing or sacrificing margins.
Investment levels will shift from temporary initiatives to more structural, self-funding projects. The company expects continued improvements in marketing efficiency, fulfillment leverage as automated facilities scale, and gross margin expansion from multiple structural drivers.
"2026 is going to be better," Singh said. "We expect to take share and at the same time, investment levels are more structural and durable investment levels moving forward while we continue to self fund a bunch of the temporary investments that you've seen us take in Q1 or Q2 of this year."
The confidence in the business model is clear. Singh emphasized that the company has "an unmatched position in a uniquely attractive industry" with 84% of sales on autoship "layered on top of a built out world class fulfillment network."
"The best in class consumer satisfaction that results from this combination leads customers to trust us with ever increasing levels of business," he said. "As you can see from the growth of our pharmacy business and our multi year steadily rising nest pack Q3 shows the result."
The long-term framework remains unchanged: Chewy is targeting 10% adjusted EBITDA margins, and "the underlying engines that drive margin expansion are strengthening." Management remains "firmly on track towards the long term margin profile of 10% adjusted EBITDA that we outlined at Investor day."
What This All Means
Chewy delivered a quarter that showed the company can walk and chew gum at the same time—growing revenue, expanding margins, generating free cash flow, and investing in future growth initiatives all simultaneously. That's not easy to pull off in retail, especially in a category that's still normalizing from pandemic-era disruptions.
The customer metrics tell a story of improving fundamentals: more new customers, better retention, higher spending per customer, and all of it achieved with greater marketing efficiency. The autoship model continues to provide structural advantages that competitors can't easily replicate.
The newer initiatives—Chewy Plus, veterinary clinics, the mobile app push—are all showing positive early signals. None of them are home runs yet, but they're all moving in the right direction and building on each other in complementary ways.
The path to 10% EBITDA margins looks increasingly realistic rather than aspirational. With less than 450 basis points to go and multiple levers to pull on both gross margin and operating expense, management has a clear roadmap for getting there.
The industry backdrop isn't great—household formation remains weak, pricing is muted, and a return to "normal" conditions keeps getting pushed further into the future. But Chewy is taking share in this environment, which means when conditions eventually improve, the company will be positioned to benefit disproportionately.
For now, the strategy is straightforward: keep taking share, keep improving margins, keep generating cash, and keep investing in initiatives with clear ROI thresholds. It's working, and the momentum is building.
