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Chewy (CHWY) reported solid but mostly in-line Q2 results, with modest revenue growth and margin expansion. Despite beating internal guidance, the lack of a stronger upside surprise has led to a sharp selloff as investors had hoped for a more pronounced beat-and-raise.

• Net sales rose 8.6% yr/yr to $3.10 bln, exceeding the high end of management’s guidance.
• Autoship customer sales grew 15% yr/yr and now account for 83% of total net sales.
• Active customers increased 4.5% yr/yr to 20.9 mln, with net sales per active customer (NSPAC) up 4.6% to $591.
• Gross margin expanded 90 bps yr/yr to 30.4%, helped by a favorable mix shift to premium products and growth in sponsored ads.
• Adjusted EBITDA rose 26.5% yr/yr to $183.3 mln, with margin expanding 80 bps to 5.9%.
• Free cash flow was $106 mln; the company repurchased $125 mln in stock during the quarter.
• FY25 revenue guidance was raised slightly to $12.5–$12.6 bln (+7–8% yr/yr), with no change to EBITDA margin or EPS guidance.

Briefing.com Analyst Insight:

CHWY delivered a fundamentally sound Q2, with continued strength in Autoship and improvements in both gross and EBITDA margins. However, investors were clearly looking for more. The stock’s negative reaction reflects disappointment over modest guidance revisions and ongoing cost pressures that are slowing margin momentum. While management sees these as transitory and expects better leverage in the back half of the year, the quarter didn’t provide the breakout upside needed to re-energize the bull case. Execution remains solid, but stronger acceleration will be needed to turn sentiment in a competitive and cost-sensitive environment.