After nailing subscription, Chewy eyes AI and new categories

Chewy reported its fourth-quarter and full-year earnings on Wednesday, revealing that it grew net sales to $12.6 billion in fiscal 2025, a 8.3% year-over-year increase. The company also posted a full-year gross margin of 29.8%.

Part of the company’s growth stems from a broad subscription-based revenue model; over 80% of Chewy’s net sales come from autoship orders. From a brand standpoint, the company is known for its customer service habits like asking people to donate returned items instead of sending them back, and sending sympathy cards, flowers or portraits to customers after their pets pass away.

“Pet remains a deeply emotional category where trust, relationships and empathy matter, and these are enduring strengths of the Chewy brand,” CEO Sumit Singh said on Wednesday’s earnings call. “Combined with our leadership in price selection and recurring convenience, both purchase and delivery, we believe our competitive position remains strong.”

Chewy’s growth is unique in an environment where many consumers are pulling back on discretionary spending. While hardly recession-proof, pet ownership is a big category with customers who are increasingly looking for premium products. Morning Consult recently reported that 75.6% of U.S. adults live in dog-owning households and 58.6% in cat-owning households, as of December. And both groups also show “an above-average spending appetite and willingness to pay for premium products,” skewing younger and wealthier than the average population, the report said.

Brad Jashinsky, director analyst at Gartner, said Chewy has been able to build a strong subscription-based business despite the customer and logistical challenges that come with it. There’s also a financial consideration, as autoship orders usually come at a discount that many retailers may not be able to absorb on a regular basis. At Chewy, the autoship program comes with 35% off on the first order and 5% off on subsequent orders, with occasional promotions like 50% off initial pharmacy orders.

“You have to have really strong supply chain forecasting, because the last thing you want is to have all of these customers subscribed and not be able to fulfill it. They’re going to shift their business elsewhere if you can’t deliver,” he said. “So Chewy and Amazon and these companies make it look easy, but there’s a lot going on in the background to make it all work seamlessly and ensure that those subscriptions are delivering products on time.”

From a category standpoint, Jashinsky said another reason Chewy’s autoship business has remained strong is that people tend to stick with the same pet food unless there’s a medical change for their pet. And even cost-of-living pressures that dampen discretionary spending in some categories don’t tend to erode pet care because people tend to prioritize their pets over other areas:

“Everybody wants to have recurring revenue,” he said. “It makes things a lot easier if you’re getting such a significant amount of revenue from subscriptions. You can forecast easier, whether on the supply chain side or the advertising. And it also makes the cost of advertising easier, too, if you already have that kind of dedicated customer base.”

To help further its growth, Singh said Chewy is deploying more AI across its business. It’s applying AI across its platforms to improve search relevance, product discovery and personalization, he said. Behind the scenes, it’s using more AI for functions like customer service, fulfillment, pharmacy and marketing operations, Singh said.

“Based on our current road map, we expect AI-driven efficiencies to contribute a low tens of millions of dollars benefit in 2026 with a meaningful step-up in 2027, where we see a path to approximately $50 million or more in annualized savings as these capabilities scale,” he said.

Beyond its AI progress, Wednesday’s call also included an update on the Chewy+ program, a membership program it rolled out in 2024 that included free shipping and rewards to redeem for future purchases. The program went from $49 a year to $79 in November, and though Singh didn’t say if that affected membership, he said the program ended the year with about 4% penetration across its customer base. He also declined to answer an analyst’s question around how much it may grow this year, saying the service is still in a “test-and-learn” phase.

“We’re sort of ebbing and flowing back and forth to go, ‘Great, how are customers perceiving that value? Are we giving too much value? Are we extracting how much value?'” he said.

Chewy is also looking to broaden into more categories and even services. Last year, it launched a new private label called Chewy Made, plus a fresh food brand called Get Real. And last year, it opened 10 new vet practices, bringing its total to 18 locations across five states. This is becoming a new acquisition tool, said CEO Sumit Singh, and is driving more net sales per active customer.

“We believe veterinary care is a powerful growth vector and a key pillar of value creation for Chewy. We are confident in the path ahead as we continue to execute and scale this platform,” he said on the earnings call.