The market has sent Chewy (NYSE: CHWY) to the doghouse. The stock is down more than 40% year to date, and now trades below its 2019 IPO price. Yet, Chewy continues to report steady growth in active customers, spending per customer, and free cash flow, supported by a subscription model that now accounts for the majority of sales.
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The decline reflects ongoing pressure on discretionary pet spending, intense price competition from rivals like Amazon, and concerns that agentic AI could disrupt its ad business.
A subscription model built for stability
Chewy’s advantage lies in its Autoship program. This subscription service for pet food, treats, and medications has become the core of the business. In fiscal 2025, Autoship customer sales accounted for 83% of total revenue, up from 76% just two years earlier.
The service automates spending on necessities like food and medicine, providing Chewy with a predictable, recurring revenue stream. Sales from these subscribers grew 12% last year, outpacing the company’s total revenue growth of 6%.
Still, the company faces real issues ahead. Chewy is a low-margin retailer in a mature industry, and it’s feeling the pressure from price-sensitive consumers. Competitors like Amazon and Walmart are gaining share, and a potential price war in pet supplies would squeeze Chewy’s margins further.
The market is also worried about the threat from AI-driven shopping agents that could bypass Chewy’s storefront and reduce its high-margin advertising revenue. Management argues that more than 85% of its sales are from products with manufacturer-set prices and that its Autoship program is structurally protected, but it remains a risk for investors to watch.
The path to higher profitability
Chewy is also moving from the digital shelf to the physical examination room through the build-out of its own Chewy Vet Care clinics and the recent acquisition of Modern Animal, announced last month. The deal adds 29 physical clinic locations, bringing the total to 47, and is expected to be accretive to earnings per share within a year.
While the company’s total revenue growth has moderated to the single digits, its profitability is improving. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin has improved from 3.3% in fiscal 2023 to 5.7% in 2025.