A：The company delivered strong results, continuing to gain share and expand profitability. Key highlights include: strong performance of the business model and disciplined execution, durable sales supported by a strong recurring revenue base, expansion of the ecosystem with contributions from Chewie Health driving structural V.O.I.T share gains, and outperforming the broader pet category by two to three times. Total enterprise net sales were at the high end of guidance at $3.33 billion, with 7.3% year over year growth excluding smart P&F and modern animals. Q2 organic sales increased 5.7 year over year, driven by active customer growth, netpac expansion, and ongoing market share gains. The company ended the quarter with 21.7 million active customers, up 3.8% year over year, while net sales per active customer increased to $602.

A：The impact of recent acquisitions, specifically smart P&F and modern animal, was positive as both businesses performed ahead of the assumptions embedded in the prior outlook. This contributed to the company's financial performance, with strong results in the second quarter. Auto ship customer sales reached $2.8 billion, increasing 9.3% year over year and representing 84.6% of total net sales. Active customers reached 21.7 million, up 3.8% year over year, and the company continued to add, reactivate, and deepen customer engagement across the Chei ecosystem.

A：The company's AI strategy continued to progress from capability development towards scaled deployment and measurable financial impact. In the second quarter, strong progress was made deploying AI across three areas: improving the customer experience, increasing team member productivity, and structurally lowering cost to serve. Customer-facing AI tools were launched to resolve common needs with encouraging early results. AI tools were also deployed across customer care, pharmacy, and Chevette care to reduce manual work and improve productivity. These initiatives are expected to generate cost savings, with a forecasted annualized cost savings of $50 million in fiscal 2027. AI is viewed as a durable lever within the earnings model, set to improve productivity, lower variable cost to serve, and create flexibility for reinvesting in growth opportunities.

A：The company has reset expectations to reflect a more cautious consumer environment, focusing on gaining share, growing and retaining customers, scaling health, and driving structural efficiencies. The outlook is grounded in what can be controlled, with modern animals and smart pack contributing above the prior outlook levels. Despite not assuming a meaningful consumer recovery, confidence is in the company's ability to control operational aspects and continue profitable growth. Recent performance reflects these efforts and demonstrates the company's strength and consistency across business operations.

A：Adjusted EBITDA reached $200.7 million in the quarter, representing a 6.8% adjusted EBITDA margin, which is above the guidance range of 6.3% to 6.4%.

A：Second quarter gross margin was 30.4%, flat year over year, supported by continued growth in sponsored ads and disciplined promotional activity, and it exceeded expectations due to timing benefits and discrete items. The EBITDA margin benefited from these factors, with a portion of the outperformance due to timing-related benefits.

A：Non-GAAP SGA was $612 million or 18.4% of net sales, compared with 19.1% in the prior year period, resulting in 70 basis points of year-over-year SGA leverage.

A：The company expects full year free cash flow growth of roughly 80%, maintaining a conservative and flexible balance sheet, investing behind strategic priorities, and returning excess capital to shareholders. It also plans to remain opportunistic regarding share repurchases.

A：During the quarter, the company completed the acquisition of Modern Pet Care for $400 million, raised $600 million through an inaugural term loan issuance, and deployed $200 million towards share repurchases.

A：The company's strategy for the balance of the year includes narrowing the full year organic net sales growth range based on increased visibility into the operating environment and confidence in market share gains. The outlook assumes modest improvements in the consumer environment, continued execution against plans, and does not depend on a meaningful recovery in the broader pet category.

A：The company has raised the low end of full year fiscal 2026 adjusted EBITDA margin guidance by 10 basis points to 6.7% to 6.8%, and narrowed the range to 6.7% to 6.8% from 6.6% to 6.8%. The guidance reflects continued confidence in the earnings profile and the ability to deliver substantial year-over-year margin expansion.

A：The company reports growing both the number of customers and the amount spent per customer, reinforcing the recurring and durable nature of revenue. Earnings strength is indicated by growing efficiency across the business, scaling higher-margin areas like health and sponsored ads, and realizing productivity benefits from AI and automation.

A：The discussion suggests that the portion of consumables which can be considered treat or discretionary is significant but a precise percentage is not provided. It is mentioned that consumers continue to spend on treats through auto ship services, indicating their engagement and continued interest in this discretionary area of consumables. It's also noted that consumers experiment with over 10 types of treats across various categories, each with different price points and consumption patterns.

A：Consumer behavior when allocating a budget towards the discretionary part of consumables involves prioritizing core food, medications, and supplements as essential health investments, with everything else considered more discretionary. This dynamic behavior reflects how consumers manage their spending, especially in light of prioritizing needs over discretionary items.

A：The factors contributing to the relative growth rates within the consumables category include the company's focus on hard goods, which has driven double-digit growth through improved execution and share capture. This growth is attributed to the expansion of the breadth and relevance of the assortment, enhancing the company's ability to meet customer needs and capture demand. Additionally, the growth reflects underlying consumer prioritization and behavior towards various product categories, with certain types viewed as more discretionary.

A：The company expects roughly one-third of the 100,000 customers from the Modern Animal acquisition to be net new to the Chewy platform. Integration efforts are ongoing, and while specific details have not been disclosed, the company anticipates that the conversion of customers to the auto-ship platform will be super healthy. Initial integration inputs are performing better than forecasts, and the focus for the remainder of the year, particularly in Q3, is on the integration process. The company believes the Modern Animal acquisition will positively impact the customer ownership platform and is trending to be high, much like a typical Chewy customer.

A：The company is considering various levers to accelerate sales growth without relying on investment as the sole method. They believe they have credible levers to self-fund and drive growth at a healthy return on investment. These levers include the introduction of a refreshed Chewy Plus program, continued investment in marketing to attract customers, enhancing targeting, conversion, and app capabilities, and bringing unique products and experiences to deepen consumer engagement. The company is also focused on the holiday season and Q3 to Q4 growth plans, and while specific investment levels for 2027 are still under determination, they aim to reinvest in a way that aligns with long-term returns and broader earnings and margin objectives.

A：The learnings from the Chewy Plus redesign have provided insights into sales customer penetration, profitability guardrails, and cohort behavior. The company has observed positive customer feedback on the convenience and loyalty features offered by the program. However, there is also feedback suggesting that customers would appreciate an even broader offering of health benefits integrated directly into the program. This has led to plans for program design evolution to include a wider range of health benefits, which are expected to drive customer interaction across different business segments, thereby deepening engagement. The goal is to maintain the current margin contribution profile while increasing scale, attachment, and incremental sales.

A：The industry is not showing signs of a rebound in sales growth, as initially expected, and pricing inputs are not expected to materially change. The promotionality environment has been stable, with some peaks, but overall stability. The environment has remained relatively stable with a trend of worsening dog and strengthening cat.

A：The trajectory is influenced by the secular trend tailwind and the value proposition being brought to the market, which allows the industry to aggregate share despite a pressured consumer environment.

A：The company's guidance for the back half of the year does not assume any recoveries or improvements in consumer behavior. It expects to grow meaningfully ahead of the category without needing external recovery, driven by continued execution against controllable growth drivers.

A：The company has high confidence in its AI-driven efficiency framework and the results flowing into the field. AI is seen as a key component of the productivity agenda, providing greater confidence in financial objectives and helping offset normal cost pressures such as wage inflation. The company does not view AI as a standalone savings pool but as a powerful enabler of continued margin progression. AI initiatives are expected to contribute to lowering variable cost to serve and driving structural cost reductions.

A：Gross margin is expected to be down sequentially from Q2 but not year over year in Q3. For the second half of the year, the contribution from Synchrony has been a tailwind to gross margin, and it is expected to continue to be accretive as the company looks into next year.

A：The company expects both on-site and off-site ads to continue growing and to provide a gross margin tailwind as they move forward and grow their Chewy health ecosystem. This is expected to contribute to growth and margin tailwinds for the remainder of the year.

A：The main drivers of gross margin expansion this year include continued mix premiumization and a continued tailwind from sponsored ads, although at a lower level compared to the previous year.

A：Since the beginning of the year, the company's view has updated from a low single-digit impact to a mid single-digit impact related to the war in the Middle East. Despite this, the company is managing the incremental headwind while continuing to deliver expanded gross margins.

A：The softness in the dog category and net dog adoptions are tied closely to macro factors, specifically household formation and the economy's stability. These factors impact dog penetration rates and are correlated with broader economic trends.

A：Pricing and inflation have affected the cost of ownership, with double-digit inflation having occurred for several years post-pandemic. While inflation has stabilized, other factors have impacted consumers' mindsets, creating pressure on their spending. Retailers that offer value, convenience, and help manage the cost of life on a lifecycle basis are likely to maintain a competitive advantage during this short-term or transitory headwind.

A：The company does not expect the resilience or relative immunity of the category to decline over the long term.

A：The expansion of the Kai program is expected to improve customer impact and experience by addressing top contact center drivers such as order status inquiries and auto-ship management. The program incorporates automated returns and refunds and is designed to direct customer traffic to appropriate responses, catering to younger consumer cohorts who prefer self-help. As the program expands rapidly, it aims to provide a convenient and self-directed experience that meets customers where they prefer to be met.

A：Future developments for the Kai and Cali agents include the potential to build more holistic solutions that combine product recommendations and deepen customer engagement. Use cases under trial with Cali include outbound appointment and scheduling. The company is excited about scaling faster and the journey ahead as it continues to refine its infrastructure and focus on data accuracy.