Chewy's Subscription Model Delivers Stellar Q3 Performance, Crushes Wall Street Expectations

Chewy, Inc. CHWY unveiled impressive third-quarter fiscal 2025 results that demonstrated the resilience of its core business model, with revenue and profitability metrics both exceeding analyst consensus and strengthening year-over-year.

The Autoship Advantage: Subscription Revenue Powers Growth

The star performer in Chewy’s quarter was undoubtedly its Autoship program—the company’s recurring subscription service that continues to redefine its customer engagement strategy. Autoship customer sales surged nearly 13.6% year-over-year to hit a record $2.614 billion, accounting for a substantial portion of total revenue and demonstrating the durability of subscription-based revenue streams in pet retail.

Net sales reached $3.117 billion, representing 8.3% year-over-year growth and surpassing the Zacks Consensus Estimate of $3.098 billion. This performance exceeded the upper bound of management’s guidance, underscoring the strength of both Autoship adoption and broader customer demand across Chewy’s ecosystem.

Profitability and Margin Expansion Signal Operational Excellence

The company’s bottom line reflected strong operational discipline. Net income came in at $59.2 million, translating to a net margin of 1.9%—a meaningful 180 basis point year-over-year improvement. Adjusted earnings per share landed at 32 cents, beating the consensus estimate of 30 cents and climbing 12 cents versus the prior-year quarter.

Gross profit expanded to $928.2 million with the gross margin increasing 50 basis points to 29.8%, indicating that Autoship’s higher-margin business model is beginning to flow through the P&L more substantially. Adjusted EBITDA surged $42.7 million to $180.9 million, with the adjusted EBITDA margin expanding 100 basis points year-over-year to 5.8%.

Customer Growth and Monetization Drive Long-Term Value

Chewy’s customer base expanded to 21.2 million active customers, reflecting a 5% year-over-year increase. More impressively, net sales per active customer reached $595, up 4.9% year-over-year. This metric demonstrates that the company is not just attracting customers but deepening engagement—likely driven by Autoship penetration and higher purchase frequency.

Financial Position Remains Robust

The company ended Q3 with $675.4 million in cash and cash equivalents, providing substantial financial flexibility. Total shareholders’ equity stood at $469.4 million, while free cash flow generation reached $176 million during the quarter, underscoring the cash-generative nature of the recurring Autoship revenue model.

Guidance Raised: Management Confidence Builds Momentum

Looking ahead, Chewy raised its full-year fiscal 2025 guidance. The company now projects net sales between $12.58 billion and $12.6 billion, up from the previous range of $12.5 billion to $12.6 billion. Adjusted EBITDA margin guidance was also lifted to 5.6% to 5.7%, compared to the prior range of 5.4% to 5.7%.

For the fourth quarter, Chewy expects net sales between $3.24 billion and $3.26 billion, with adjusted earnings per share anticipated in the 24- to 27-cent range. The elevated guidance signals management’s confidence in sustained Autoship momentum heading into the year-end holiday season.

Market Performance and Outlook

Chewy carries a Zacks Rank of #3 (Hold) and has gained 2% over the past three months, outperforming its industry peer group which declined 3.2% in the same period. The stock’s resilience reflects investor recognition of the company’s durable subscription revenue model and improving operational leverage, positioning Chewy as a compelling play on the recurring revenue thesis within retail.