Chewy Fiscal Q2 2026 Earnings: Sales Rise 7.3% as Adjusted EBITDA Margin Expands

Chewy (NYSE: CHWY) reported fiscal Q2 2026 net sales of $3.33 billion, up 7.3% year over year, while diluted EPS increased to $0.20 from $0.14. Gross margin remained at 30.4%, but slower operating expense growth lifted adjusted EBITDA margin by 90 basis points to 6.8%; quarterly free cash flow, however, fell 15.5% to $89.5 million. The results cover the 13 weeks ended August 2, 2026.

Core Financial Results

Net sales growth was 5.7% when excluding contributions from SmartPak and Modern Animal, compared with reported growth of 7.3%. This 1.6-percentage-point difference shows that acquisitions contributed to the quarter, while the business excluding those contributions also expanded.

Net income grew faster than revenue, and the lower diluted share count—410.1 million versus 428.4 million—helped diluted EPS rise faster than net income. Adjusted EBITDA also grew faster than sales, reflecting operating leverage despite an unchanged gross margin.

Adjusted EBITDA, adjusted EPS, and free cash flow are non-GAAP measures and should be considered alongside the company’s GAAP results.

Customer and Autoship Performance

Active customers increased 3.8% to 21.705 million, while net sales per active customer rose 1.9% to $602. The active-customer figure includes approximately 43,000 customers attributable to SmartPak but excludes customer additions related to Modern Animal.

Autoship customer sales increased 9.3% to $2.82 billion, faster than total net sales growth. Autoship represented 84.6% of sales, up from 83.0% a year earlier, reinforcing management’s emphasis on the durability of Chewy’s recurring revenue base.

Operating Leverage, Not Gross-Margin Expansion, Drove Profit Growth

Gross margin remained unchanged at 30.4%, so the improvement in profitability came mainly from operating expenses growing more slowly than revenue. Total operating expenses increased approximately 5.4% to $919.2 million, compared with 7.3% sales growth, allowing operating income to rise about 32%.

Chewy’s operating margin was approximately 2.8%, up from about 2.2% a year earlier. Adjusted EBITDA margin expanded more substantially to 6.8%, but investors should note the difference between GAAP and adjusted results. The adjusted EBITDA reconciliation included $85.9 million of share-based compensation expense and related taxes, a $24.0 million reduction for net legal settlement proceeds, and $6.4 million of transaction-related costs.

Cash Flow and Balance Sheet

Quarterly operating cash flow increased 2.6%, but free cash flow declined because capital expenditures rose. Based on Chewy’s free-cash-flow definition, quarterly capital spending was approximately $47.9 million, compared with about $28.0 million a year earlier.

For the first 26 weeks of fiscal 2026, operating cash flow was $245.9 million and free cash flow was $160.3 million, up 11.6% and 3.7%, respectively. These year-to-date figures should not be confused with the quarterly cash flow amounts.

Acquisitions and capital allocation had a larger effect on the balance sheet. During the first 26 weeks, Chewy used $552.8 million for business acquisitions and $400.0 million for share repurchases. It received $811.7 million of debt proceeds and repaid $220.0 million of principal. Cash and cash equivalents consequently declined from $860.1 million at the start of the fiscal year to $611.0 million, while current and long-term debt totaled $591.7 million at quarter-end.

Management’s View

CEO Sumit Singh attributed the quarter to the durability of recurring revenue, continued customer growth, and disciplined execution. Management said these factors supported its decision to raise Chewy’s full-year revenue and profitability outlook while continuing to invest in customer engagement opportunities.

Recent Insider Transactions

The six-month insider summary reported 1,760,698 shares purchased across 14 transactions and 149,355 shares sold across four transactions, resulting in net purchases of 1,611,343 shares. Because the detailed records include zero-price stock awards, the aggregate should not automatically be interpreted as open-market buying or as a statement about valuation.

The latest 10 reported transactions include two CEO sales, one general counsel sale, and several director stock awards.

Investor Risks to Watch

• Acquisition contribution: Reported sales growth was 7.3%, but growth excluding SmartPak and Modern Animal was 5.7%. Investors should continue separating acquired growth from performance excluding those contributions.
• Free-cash-flow conversion: Quarterly free cash flow declined despite higher operating cash flow because capital spending increased.
• Balance-sheet change: Acquisition spending and share repurchases reduced cash, while Chewy added debt during the first half of the fiscal year.
• Reliance on expense discipline: Gross margin did not expand, making the quarter’s profit improvement more dependent on keeping operating expense growth below revenue growth.
• GAAP and non-GAAP gap: Share-based compensation and related taxes totaled $85.9 million, slightly more than quarterly GAAP net income, making the reconciliation between reported and adjusted profitability important.

Summary

Chewy’s fiscal Q2 2026 combined higher customer activity and faster Autoship growth with effective operating expense control, allowing profit and adjusted EBITDA to grow faster than sales even though gross margin was flat. The main follow-up areas are growth excluding acquisitions, continued expense discipline, free-cash-flow conversion, and the balance-sheet effects of acquisitions, repurchases, and new debt.