On Wednesday, Chewy, Inc. Chewy (CHWY) reported first-quarter results that topped Wall Street expectations on both earnings and revenue. But the online pet retailer also lowered its fiscal 2026 sales outlook, citing a more cautious consumer spending environment. It's a classic case of good news and bad news—and the market focused on the latter.

Earnings and Margins Top Expectations

Adjusted earnings came in at 43 cents per share, ahead of the 39-cent consensus estimate. Net sales increased 7.7% year over year to $3.357 billion, just above analyst expectations of $3.352 billion. GAAP net income rose to $94.8 million from $62.4 million a year earlier, while GAAP basic and diluted earnings per share increased to 23 cents from 15 cents.

Adjusted net income climbed to $179.9 million from $148.9 million. Adjusted EBITDA increased 31.3% year over year to $253.1 million, and adjusted EBITDA margin expanded 130 basis points to 7.5%. Gross margin improved 50 basis points to 30.1%, while net margin increased 80 basis points to 2.8%.

Customer Growth and Cash Flow Strengthen

Active customers grew 3.6% year over year to 21.5 million, with nearly 200,000 net additions during the quarter. Net sales per active customer increased 2.4% to $597. Autoship customer sales—the subscription-like recurring revenue—rose 10.5% to $2.83 billion and accounted for 84.4% of total net sales, compared with 82.2% a year earlier. That's a sign that Chewy's sticky customer base is still spending, even if they're being more careful.

Cash flow also strengthened. Net cash provided by operating activities increased 25.6% to $108.5 million, and free cash flow rose 45.4% to $70.8 million. Cash and cash equivalents totaled $485.2 million at quarter-end, down from $860.1 million at the start of the fiscal year. During the quarter, Chewy spent $200 million on share repurchases and used $174.8 million, net of cash acquired, for an acquisition.

Guidance Reflects Softer Consumer Spending

For the second quarter, Chewy expects adjusted earnings of 36 cents per share, above analysts' estimate of 25 cents. But the company forecast second-quarter sales of $3.30 billion to $3.33 billion, below the consensus estimate of $3.38 billion. Chewy also lowered its fiscal 2026 revenue outlook to a range of $13.4 billion to $13.55 billion, down from its prior forecast of $13.6 billion to $13.75 billion. The revised outlook falls short of analysts' estimate of $13.84 billion.

Management Sees Consumer Pressure Persisting

Management said the lower revenue outlook reflects a more conservative view of consumer spending and broader pet industry growth for the remainder of the year. During the earnings call, CEO Sumit Singh said consumers are growing more discerning, driven in part by elevated fuel prices and broader macroeconomic pressures. The company noted that pressure on premium product purchases and lower product attach rates weighed on net sales per active customer. While customers continued to buy discretionary items, management said spending patterns became more selective.

Chewy now expects quarterly active customer additions to trend toward the lower end of its previously stated range of approximately 150,000 to 250,000 net additions. Despite the softer revenue outlook, the company maintained its fiscal 2026 adjusted EBITDA margin guidance of 6.6% to 6.8%.

Chewy also said artificial intelligence-driven efficiencies are expected to contribute savings in the low tens of millions of dollars during fiscal 2026 and more than $50 million in fiscal 2027. So while the top line faces headwinds, the company is finding ways to protect profitability.

“Chewy continues to outperform the pet category while expanding profitability and free cash flow,” Singh said.

CHWY Price Action: Chewy shares were down 1.08% at $20.18 at the time of publication on Wednesday. The stock is near its 52-week low of $19.30.