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Shares of Chewy (CHWY +16%) have been unleashed today, popping toward previous 52-week highs reached in June after the e-commerce pet supplies retailer delivered another sizeable earnings beat in Q2 (Jul). While CHWY's Q3 (Oct) revenue outlook was relatively tame, with the midpoint missing consensus, it again reaffirmed its FY25 (Jan) sales outlook of $11.6-11.8 bln, easing concerns over potentially shaky near-term economic conditions.

• Headline earnings and sales numbers in Q2 resembled Q1 (Apr). Adjusted EPS of $0.24 represented CHWY's second consecutive double-digit beat. Meanwhile, sales growth was again consistent with analyst forecasts, inching 2.5% higher y/yr to $2.86 bln.
• CHWY's key differentiating factor, Autoship, remained the star of the quarter, growing sales by around 6%, more than double the rate of company-wide net sales growth, reaching over three-quarters of consolidated revenue. Autoship not only provides a relatively stable revenue stream for CHWY but also increases engagement. Management noted that Autoship is helping grow CHWY's market share, with net sales per active customer (NSPAC) rates at a new record of $565, a 6% lift yr/yr.
• Despite the cumulative effects of inflation, consumers continue to shift their tastes toward premium pet foods. This development reflects how important pets are to pet owners and the relatively low elasticity of pet food. Furthermore, CHWY's progress in redesigning and enhancing its mobile app strengthened customer engagement on the company's mobile platform. Unique customers placing orders through the app jumped by around 13% yr/yr, with overall app orders increasing by approximately 15%.
  • Speaking of customers, CHWY ended Q2 with roughly 20.0 mln active customers, a minor bump sequentially (less than 100K), marking the first quarter of sequential growth in over a year.
• Chewy vet care clinics, a strategic priority for the company, have been serving as an acquisition funnel as vet customers help accelerate NSPAC rates. For instance, many clinic-goers are deepening their commitment to CHWY's ecosystem by purchasing pharmacy or food products for the first time. Management has also noticed a positive impact on its website following a clinic appointment. Thus far, CHWY has six clinics opened, right in the middle of its four-to-eight goal for 2024.

CHWY's Q2 report held onto the uplifting turnaround dynamics experienced last quarter. One of the significant positive themes from Q1 was management's remark that it did not notice any further deterioration in the discretionary spending environment. This headwind weighed heavily on FY24 numbers. With demand continuing to hold despite the broader economy enduring pockets of noticeable weakness, investors continue to warm up toward CHWY. However, the stock still has a long road to climb to reach 2021 highs of $120.00.