管理層發言
Hello, everyone. Thank you for joining us, and welcome to Chewy's First Quarter 2026 Earnings Call. I will now hand the conference over to Lee Horowitz, Head of Investor Relations and Strategic Finance. Lee, please go ahead.
Thank you for joining us on the call today to discuss our first quarter results for fiscal year 2026. Joining me today are Chewy's CEO, Sumit Singh; and CFO, Chris Deppe. Our earnings release, which was filed with the SEC earlier today, has been posted to the Investor Relations section of our website. In addition to the earnings release, a presentation summarizing our results is also available on our website at investor.chewy.com. On our call today, we will be making forward-looking statements, including statements concerning Chewy's financial results and performance, industry trends, strategic initiatives, share repurchase program and the environment in which we operate. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks, uncertainties and other factors that could cause actual results to differ materially from our forward-looking statements. We encourage you to review our SEC filings, including the section titled Risk Factors in our most recent Form 10-K for a discussion of these risks. Reported results should not be considered an indication of future performance. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We assume no obligation to update any forward-looking statements, except as required by law. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided on our Investor Relations website and in our earnings release. These non-GAAP measures are not intended as a substitute for GAAP results. Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2025. Finally, this call in its entirety is being webcast on our Investor Relations website. A replay of the audio webcast will also be available on our Investor Relations website shortly. And with that, I'd like to turn the call over to Sumit.
Thank you, Lee, and good morning, everyone. Chewy delivered solid results in Q1, continuing to outperform the broader pet category while further expanding profitability and free cash flow. Our results demonstrate the durability of our business model and the structural advantages embedded across the Chewy platform. Despite the consumer environment that weakened in the latter parts of the quarter, we delivered nearly 200,000 net customer additions, achieved solid top line growth and record profitability, generated strong free cash flow and maintained consistent category share capture, all while continuing to advance strategic initiatives that we believe will deepen Chewy's competitive moats, drive meaningful free cash flow dollars and deliver long-term shareholder value creation. Q1 net sales grew 7.7% year-over-year to approximately $3.36 billion. We ended the quarter with 21.5 million active customers, up 3.6% year-over-year, while net sales per active customer or “NSPAC” increased to $597. Autoship customer sales once again outpaced overall company growth, increasing over 10% year-over-year and reaching 84.4% of total net sales in the quarter, further reinforcing the predictability, durability and recurring nature of our revenue base. Importantly, our performance continues to validate what we have consistently said about the pet category and about Chewy specifically. Pet remains a resilient category, driven by recurring nondiscretionary needs and strong emotional attachment. At the same time, consumers are growing more discerning, driven in part by elevated fuel prices and broader macroeconomic pressures. However, even against this more challenged backdrop, Chewy continues to steadily gain share. Our value proposition remains exceptionally strong: industry-leading convenience, highly competitive pricing, trusted service, deep assortment and a recurring Autoship ecosystem that customers increasingly rely upon. We believe these advantages become even more relevant in periods where consumers prioritize value, reliability and trusted relationships. Importantly, our ability to continue expanding earnings and free cash flow in this environment further reinforces our confidence in the structural durability of the model. Now let me spend a few minutes on margins and the underlying drivers supporting our profitability trajectory. Q1 adjusted EBITDA margin reached 7.5%, representing approximately 130 basis points of year-over-year expansion on the back of exceptionally healthy EBITDA flow-through of greater than 25%. This level of profitability at our scale reflects continued strength across multiple areas of the business, including sponsored ads, category mix, supply chain efficiencies, marketing productivity, OpEx discipline and improving operating leverage across our network. As we discussed previously, our long-term framework for margin expansion remains unchanged. We continue to believe Chewy has a unique and differentiated operating model, one that combines a leading recurring revenue engine with a highly scaled fulfillment and health platform and we remain on track to reach our 10% adjusted EBITDA margin target over time. Importantly, our model does not require outsized industry growth or significant pricing inflation to expand margins. The underlying drivers of profitability expansion remain structural in nature and continue to strengthen, including the expansion of sponsored ads, product mix shift into higher-margin categories, including health, and operating expense leverage from automation and scale. Turning now to Chewy Health and Chewy Vet Care. We continue to believe health represents one of the largest and most compelling long-term opportunities for Chewy. Today, pet health care represents approximately $54 billion of TAM, including over $40 billion associated with in-clinic products and veterinary services alone. Our Chewy Vet Care Clinics are delivering strong stand-alone economics while simultaneously acting as a powerful customer acquisition and retention engine for the broader Chewy ecosystem. Approximately 40% of CVC customers are new to Chewy, and these customers tend to reach a year 1 NSPAC of approximately $900. Furthermore, existing Chewy customers who engage with CVC increase share of wallet meaningfully faster than other cohorts following their first visit. At the same time, our veterinary teams deliver industry-leading productivity metrics, supported by the technology-enabled workflows and AI-assisted tools we are embedding across the platform, resulting in vet retention and employee satisfaction that outperforms peers. In a world where veterinarians are in short supply, this last point affords Chewy a structural advantage relative to peers as we look to scale our Vet Clinic footprint. As part of this strategy, we are excited about the recently announced acquisition of Modern Animal, which closed shortly after quarter end. Modern Animal adds a highly complementary and well-established footprint with above-industry unit economics, strong clinical expertise and an experience-led technology-enabled model that closely aligns with CVC. This transaction accelerates the expansion of CVC and unlocks multiple avenues to accelerate clinic growth, combining CVC's organic growth with Modern Animal's existing footprint and development pipeline. Combined, we expect to operate approximately 60 clinics exiting fiscal 2026 with embedded revenue contribution approaching approximately $290 million at a steady state. We believe CVC will be a meaningful driver of long-term shareholder value at Chewy and we look forward to updating you on our progress in the coming quarters. Now turning to AI. We continue to believe AI represents a meaningful opportunity for Chewy, both from a customer experience perspective and from an operational efficiency standpoint. Over the last several quarters, we have continued to build the foundational infrastructure required to deploy AI broadly across the enterprise. Today, we are embedding AI across multiple layers of the business including customer service, pharmacy operations, fulfillment and marketing workflows. We continue to see meaningful opportunities to structurally lower cost to serve while simultaneously improving speed, efficiency and service quality. Based on our current road map and implementation progress, we continue to expect AI-driven efficiencies to contribute a low tens of millions of dollars benefit in fiscal 2026 with a more meaningful ramp expected into 2027 and beyond. Now before I turn the call over to Chris, I would like to briefly address our outlook and how we are thinking about the balance of the year. While we remain confident in the long-term trajectory of the business and Chewy's share-gaining posture with an increasingly larger pet TAM available to us, we are also recognizing that the consumer pet environment has become incrementally more challenged since we initially established our fiscal 2026 outlook earlier this year. As a result, our updated guidance, which Chris will discuss in more detail shortly, now reflects a more appropriately conservative view of the consumer environment and broader category growth assumptions for the balance of the year. For clarity's sake, we are seeing a modest level of incremental pressure on premiumization and product attach rates amongst our current customer base, resulting in what we view as a short-term NSPAC headwind. Conversely, our improved go-to-market initiatives including better CRM efforts, resulting in greater conversion, increased engagement via our mobile app, continued success in reactivating lapsed customers and ongoing success in driving down churn is supporting an ongoing healthy trajectory for customer net additions. That said, our confidence in the underlying strength of the business, our ability to continue gaining share and our long-term growth and profitability algorithm remains unchanged. Pet remains a more resilient category relative to other parts of the consumer landscape and Chewy is increasingly building the capabilities and business lines to accrue a growing share of this incredibly attractive end market. Additionally, the strength of our customer acquisition funnel continues to support sustained share gains across macro environments while also positioning Chewy to return to more typical NSPAC compounding rates as consumer conditions normalize, all on top of a meaningfully larger customer base. Furthermore, we believe our strategic initiatives across health, AI, fulfillment and customer experience continue to strengthen the moat around the Chewy ecosystem. In closing, I want to thank the entire Chewy team for another quarter of disciplined execution and innovation. We remain focused on delivering profitable growth, durable free cash flow generation and long-term shareholder value creation. With that, I will turn the call over to Chris.
Thank you, Sumit, and thank you all for joining us today. Q1 results reflect continued disciplined execution across the business, highlighted by continued share gains, meaningful margin expansion and strong free cash flow generation despite a macro environment that softened as we moved through the quarter. Q1 net sales reached approximately $3.36 billion, representing 7.7% year-over-year growth, reflecting the continued strength across our recurring revenue base, balanced contribution from both active customer growth and NSPAC expansion and ongoing market share gains within the pet category. We closed our acquisition of SmartPak in the first quarter as planned and the revenue contribution from the business was in line with our previously communicated $80 million net sales expectation for the full year 2026. We continue to grow active customers, ending the quarter with approximately 21.5 million, increasing 3.6% year-over-year. Autoship customer sales reached approximately $2.83 billion in the quarter, increasing over 10% year-over-year and representing 84.4% of total net sales. Growth in Autoship continues to outpace overall company growth, reinforcing the durability and predictability of our recurring revenue model. NSPAC reached $597 in Q1, increasing approximately 4.6% year-over-year on a normalized basis when accounting for the extra week in the prior year comparable period, and reflects continued customer cohort maturation, growth in health and wellness penetration and increasing cross-category engagement across the platform. Turning to profitability. We reported first quarter gross margin of 30.1%, representing approximately 50 basis points of year-over-year expansion, including a low single-digit million dollar impact from fuel surcharges passed on by our carrier partners. Gross margin performance was driven primarily by continued growth in sponsored ads, favorable category mix and continued operating discipline. Moving to operating expenses. Please note that my discussion of SG&A excludes share-based compensation expense and related taxes as well as transaction and integration-related costs. First quarter non-GAAP SG&A was approximately $593 million or 17.7% of net sales. Now, Q1 non-GAAP SG&A excludes approximately $10 million of transaction-related costs associated primarily with acquisition and integration activities related to SmartPak and Modern Animal. As planned, we delivered approximately 90 basis points of year-over-year SG&A leverage, reflecting continued operating discipline, fulfillment productivity improvements driving down our variable costs and early benefits from technology and AI-enabled efficiencies across the organization. We continue to lower our cost to serve as we scale. Advertising and marketing expense was approximately $206 million or 6.1% of net sales, reflecting modest leverage year-over-year. As we have consistently stated, our marketing strategy remains focused on profitable customer acquisition and long-term lifetime value generation, and we continue to see strong returns across both lower and upper funnel investments. Q1 adjusted net income was approximately $180 million, translating into adjusted diluted earnings per share of $0.43. Adjusted EBITDA reached approximately $253 million in the quarter representing a 7.5% adjusted EBITDA margin, up approximately 130 basis points year-over-year and reflects adjusted EBITDA flow-through of greater than 25%. This level of profitability expansion reflects the structural strengthening of Chewy's earnings model. We are expanding earnings materially faster than revenue growth while continuing to invest behind strategic initiatives, including Chewy Health, Chewy Vet Care, AI infrastructure and fulfillment network optimization. The power of our underlying profitability profile allows us to both deliver consistent margin expansion while simultaneously investing into core strategic growth drivers that give us an increasing right to win a growing share of the pet parent wallet. Free cash flow for the quarter was approximately $71 million, increasing over 45% year-over-year. Q1 free cash flow reflected approximately $109 million of net cash provided by operating activities and approximately $38 million of capital expenditures. Our continued free cash flow stream reflects the durability of the Chewy model, the recurring nature of our revenue base and the structural expansion and profitability we continue to drive across the business. During the quarter, we deployed capital across several strategic priorities, including the acquisition of SmartPak and approximately $200 million of share repurchases under our existing program. These actions reflect our continued confidence in the long-term opportunity ahead of us as well as our disciplined approach to capital allocation. We ended the quarter with approximately $520 million of cash, cash equivalents and marketable securities and over $1 billion of total available liquidity, inclusive of our revolving credit facility. Subsequent to quarter end, we completed the acquisition of Modern Animal further expanding our presence within the highly attractive and under-penetrated pet health care market. In addition, earlier today, we launched a $600 million Term Loan B transaction. Given the scale of our business, the durability of our earnings profile and our consistent free cash flow generation, we believe adding a modest amount of leverage is an appropriate evolution of Chewy's capital structure. We intend to maintain a conservative balance sheet and over time target net leverage below 2x adjusted EBITDA. Within that framework, the transaction enhances our financial flexibility and positions us to continue investing behind our strategic priorities, pursue attractive growth opportunities and return capital to shareholders while maintaining significant liquidity. Now turning to our updated outlook. As Sumit mentioned earlier, while the pet category remains resilient overall, the consumer environment has become more challenged since we established our original fiscal 2026 outlook earlier this year. Most notably, we are seeing more pressure on discretionary attachment and premiumization behavior across portions of our customer base, resulting in slower NSPAC growth than we had originally anticipated. Against this backdrop, we are updating our full year fiscal 2026 net sales outlook to reflect both the softer consumer environment as well as a more conservative set of internal assumptions for the balance of the year. For fiscal 2026, we now expect net sales of between approximately $13.40 billion and $13.55 billion, representing approximately 6.3% to 7.5% year-over-year growth. Included within this range is an expected net sales contribution of approximately $80 million from SmartPak and approximately $70 million for Modern Animal for fiscal year 2026. As we entered the year, we anticipated several company-specific initiatives which support improving growth trends through the back half of fiscal 2026, including expectations that changes to our Autoship product flow would accelerate product line attachment rates and enhanced digital advertising bidding algorithms would drive faster levels of customer growth. While we remain confident in the long-term value of these initiatives and both products are delivering strong underlying gains, the impact of both products have been muted by the macro environment. We no longer believe it is prudent to embed a meaningful acceleration in consumer spending into our outlook given the current operating environment. The low end of our guidance range assumes the current consumer backdrop worsens relative to the trends we are observing at this point, while the high end assumes spending patterns improve from current levels as we move through the second half. We continue to see healthy active customer trends, ongoing market share gains and continued strength in Autoship. That said, given the current environment, we now expect active customer additions to trend towards the lower end of our previously stated range of approximately 150,000 to 250,000 net adds per quarter. The Chewy customer funnel remains healthy with consistent churn gains during the quarter and extremely healthy reactivation rates, which are being somewhat offset by new-to-Chewy customer softness due to the challenged spending environment. Now turning to profitability guidance. Given the continued strength we are seeing across the earnings profile of the business, we are maintaining our full year fiscal 2026 adjusted EBITDA margin guidance range at 6.6% to 6.8% or approximately 100 basis points of year-over-year expansion at the midpoint. That said, as we mentioned as part of the Modern Animal acquisition, while these clinics are highly profitable on a 4-wall mature basis, we expect the business to represent a modest margin rate drag in 2026. Thus, our stable total margin guidance speaks to the increasing durability of Chewy's earnings algorithm. At the midpoint of our guidance ranges, this implies approximately $900 million of adjusted EBITDA for the year. Importantly, our updated profitability outlook continues to reflect ongoing investment across several strategic priorities, including Chewy Health, Chewy Vet Care, automation initiatives, AI-enabled productivity efforts and continued customer acquisition investments. Our confidence in earnings power of the business continues to strengthen, supported by structural improvements across gross margin, sponsored ads, fulfillment productivity, operating discipline and broader operating leverage throughout the organization. Furthermore, as we look to continue to deliver robust profitability gains in spite of the more challenged consumer backdrop, we are able to act on certain efficiency gains that we originally had slated for the back half of 2026 earlier in the year supporting full year margin durability. As you think about the cadence of profitability through the balance of the year, there are several important items to keep in mind. First, as we discussed on our prior earnings call, we continue to expect quarterly gross margin cadence in fiscal 2026 to more closely resemble the patterns observed in fiscal 2023 and fiscal 2024. Specifically, we expect second quarter gross margin to contract modestly year-over-year, driven primarily by difficult comparisons associated with nonrecurring MAP pricing benefits realized during the second quarter of fiscal 2025. Despite this quarterly dynamic, we continue to expect gross margin expansion on a full year basis. Second, we expect SG&A leverage to remain relatively consistent throughout the balance of the year as we continue investing behind strategic growth initiatives while also realizing ongoing operational efficiencies across the business. Taken together, these factors are expected to result in more muted adjusted EBITDA margin expansion during the second quarter relative to the first quarter with stronger year-over-year expansion expected across the back half of the year. Overall, while we are moderating our revenue expectations to reflect the current operating environment, our confidence in the long-term structural margin opportunity and free cash flow generation profile of the business continues to increase. Now turning to second quarter guidance. For the second quarter of fiscal 2026, we expect net sales between approximately $3.30 billion and $3.33 billion, representing approximately 6% to 7% year-over-year growth. Our second quarter outlook assumes the current operating environment and consumer behavior trends remain generally stable with what we experienced exiting the first quarter. We continue to see healthy active customer engagement, Autoship program strength and continued market share gains, although we expect ongoing pressure on discretionary attachment and premiumization behavior to persist near term. Given the number of moving pieces impacting quarterly profitability cadence including the gross margin dynamics we discussed earlier and our desire to be more transparent and clear with quarterly profitability expectations, we are introducing quarterly adjusted EBITDA margin guidance. For the second quarter, we expect adjusted EBITDA margin of between 6.3% and 6.4%, representing approximately 50 basis points of year-over-year expansion at the midpoint. As a reminder, second quarter profitability will be impacted by more difficult year-over-year gross margin comparisons associated with nonrecurring MAP pricing benefits realized in the prior year period as well as elevated fuel surcharge costs flowing through the quarter, which we expect to represent a roughly mid-single-digit million dollar headwind to the quarter. At the same time, we continue to expect ongoing SG&A discipline and operational efficiency improvements across the business. Furthermore, our updated guidance for adjusted EBITDA margin in fiscal year 2026 contemplates similar levels of fuel cost headwinds for the balance of the year. Thus, while second quarter adjusted EBITDA margin expansion is expected to be more muted relative to the first quarter, we continue to expect stronger year-over-year profitability expansion across the back half of fiscal 2026 as reflected in our full year guide as we lap this one-time MAP item. We also expect adjusted diluted earnings per share for the second quarter to be approximately $0.36. And finally, for the full year 2026, we continue to expect share-based compensation expense, including related taxes, to remain broadly flat year-over-year. We are lowering our weighted average diluted shares outstanding by 5 million shares and now expect to end the year with approximately 420 million shares. Net interest expense of approximately $10 million to $15 million given the interest expense on our recently launched term loan and an effective tax rate in the range of approximately 24% to 26%. In closing, I would like to thank all of our Chewy team members for their continued disciplined execution and focus on operational excellence. We believe the combination of our recurring revenue model, growing health ecosystem, structural margin expansion opportunities and strong free cash flow generation position Chewy well to continue delivering long-term profitable growth and shareholder value creation. With that, I will turn the call back over to Sumit for some closing remarks.
Thanks, Chris. While the consumer environment has become modestly more challenged, our first quarter results reinforce that the power of the Chewy model remains durable and continues to strengthen. We are continuing to gain share with an increasingly larger pet TAM by leveraging the assets and initiatives we have built across Autoship, Health, Vet Care, AI, fulfillment and customer experience. These capabilities are deepening our competitive moats, expanding the durability of our earnings and free cash flow profile and strengthening our right to win a greater share of the pet parent wallet over time. As today's transitory headwinds subside, we believe Chewy will be even better positioned to compound those gains and deliver long-term shareholder value. With that, I will turn the call over to the operator for questions.
分析師問答
Your first question comes from the line of Nathan Feather with Morgan Stanley.
I appreciate the quarterly EBITDA guidance, that's really helpful. Can you give us sort of a finer point on the puts and takes here that are leading to the sequential margin improvement in the back half of the year?
Yes. So thanks for the question, Nathan. And so Q2, I'll just emphasize, is really all about phasing. The SG&A expansion that we expect in Q2 remained broadly flat to what we saw in Q1 and what we'll see for most of the year. But if you look at our gross margin curve from last year, Q2 had a much higher and sort of outsized increase quarter-over-quarter, that's not our normal seasonal pattern that you can see in our fiscal 2023 and 2024. And so Q2 is really just a phasing of that gross margin where 2026 looks more stable quarter-over-quarter on gross margin rate. So as you get to the back half of the year, we continue to think the back half of the year looks like our full year where SG&A delivers slightly more than the gross margin improvement. Gross margin will continue to expand year-on-year, but the seasonality of gross margin in the back half of the year looks more normal versus what we experienced prior. And so again, Q2 is really all phasing. Structurally, SG&A continues to leverage with fulfillment costs. We continue to leverage corporate payroll costs, gross margin will continue to expand with sponsored ads, premiumization and a rational promotional environment.
Your next question comes from the line of Eric Sheridan with Goldman Sachs.
Maybe one and a follow-up, if I could. With respect to the comments you made about the consumer, how should we be thinking about going one level lower on consumer behavior? And are you seeing any deviation in behavior relative to age of cohort or income levels that you want to call out in terms of consumer behavior on the platform?
Eric, this is Sumit. Not really. Those are not data points that we collect on a periodic basis, more so on a twice a year basis. But I can tell you that underneath of it, when we look at cumulative reorder rates for customers, these types of trends are holding very positive. That's true for new customers as well as reactivated customers. When I look at cohort behavior for the customers that we acquired in the first part of this year that are now lapping two periods, those cohort trends are positive. So broadly speaking, this is—as we've shared on the call—more so around the broad trends of premiumization and a modest impact on attach rates. But in terms of consumer demographics, those types of data we don't collect on a periodic basis.
Okay. And then just one follow-up, if I can. Against the macro environment you find yourself in now, when you think about some of the longer-term platform and product initiatives that you guys highlighted in your prepared remarks, how do you think about either maintaining or accelerating the investment cadence in the business to capitalize on your market share potential relative to the rest of the industry as you look out towards the remainder of this year?
So we plan twice a year for the long-range plan and then sort those plans down into what we would execute over the next 12 months or so. Our focus is always investing in activities that allow us to grow our TAM and continue to gain incremental share of wallet from customers. Underneath the gross margin line, we're investing in infrastructure capabilities to invest back in AI that are driving efficiency savings that we've quantified last quarter and again confirmed this quarter. At the most strategic level, we're investing behind initiatives like Chewy Health and, under that, Chewy Vet Care and clinic initiatives that open up TAM by an incremental $40 billion and are the fastest compounder of NSPAC. When you think about our product initiatives, they are meant to drive NSPAC curves up—whether this is investment in Autoship that drives repeat recurring purchase behavior, whether it's improvement in experience that drives incremental attach rates. One of the projects we mentioned in the prepared remarks, where we've been less bullish than initially conceived, is attaching more lines to Autoship per customer; that has been somewhat muted by the way consumer behavior is acting rather than a loss of belief that the product will drive attach rates. Chewy Plus is another investment for us; to be clear, from a margin investment point of view, it is neutral, not dilutive to 2026. That's one of those initiatives we are closely evaluating for product market fit to push NSPAC curves higher. Below the gross margin line, we're continuing to invest in automation and AI, which drive SG&A leverage while maintaining corporate payroll discipline across the company. We're evaluating every line of the income statement and ensuring that profit converts into free cash flow on a moving basis. And we will continue to be efficient in our capital allocation, including returning capital to shareholders where appropriate.
Your next question comes from the line of Doug Anmuth with JPMorgan.
Sumit, can you talk about just how you get the confidence that the weaker environment late 1Q and into 2Q is macro-driven? And just weighing on the broader category rather than anything market share specific to Chewy. And then when you think about the AI savings that you talked about—the low tens of millions in fiscal '26—are you still expecting kind of what you had talked about previously, like $50 million plus in fiscal '27?
The answer to the second question is yes. On the first question—how are we confident it's macro-driven—we're clearly gaining share. Our data and competitive data across the industry suggest that. A few supporting items: when you look at customer reactivation toward Chewy, it remains solidly driven by our efforts and by branded searches and direct traffic migrating to Chewy—those traffic trends were stronger. At the industry level in Q1, we saw weakening trends within overall pet food and supplies from an impressions index point of view, underscoring the cautious consumer. Despite this, Chewy's absolute clicks increased mid-single-digit percentages year-over-year across most categories. When you look at spend cohort behavior, outside of modest pressure on attach rates for discretionary categories, consumables and health care categories that are recurring via Autoship remain strong. Underneath share dynamics, primary source of share gains in the pet industry are still with large e-commerce players like us. Our customer behavior shows lower churn, healthier reactivation rates and modestly worse-than-expected new customer acquisition—these are indicators of a more cautious consumer, not a dilution of our proposition. E-commerce continues to take strength and we continue to hold onto our customers; we don't see indicators of a meaningful change in the competitive environment. Taken together, these trends give us confidence the pressures are primarily macro-related rather than share loss.
Your next question comes from the line of Shweta Khajuria with Wolfe.
Let me try two, please. So when we think about your mid- to longer-term growth rate, in your view, does anything change in the growth algorithm? Should we be thinking about your growth as sort of 2x the overall industry growth rate driven by the initiatives that you were taking outside of macro environment? And then the second is on CVC and the veterinarian efforts. Now that the acquisition is closed, could you please remind us what your goals are between now and year-end and how we should be thinking about your expansion efforts there?
I'll take the first one. Yes, we still expect to continue to grow share and to grow at roughly 2x or more relative to the market. Our value proposition and initiatives are strengthening across multiple fronts—expanding TAM, improving execution across food and supply, experience-led products like Autoship and Chewy Plus, and expanding into health categories. We have signaled our aspiration to gain meaningful share in health-related categories and continue to see that come true. Overall, our expectation and aspiration to accrue market share and drive outsized growth relative to the market has not changed.
Yes. On CVC, clinics remain a compelling revenue and earnings growth driver for Chewy. We closed the last fiscal year with 18 CVCs and now that we have Modern Animal closed, we've added 29 clinics from them, putting us at 47 clinics. We will continue with our plan as stated of 10 to 12 new openings in fiscal 2026 for Chewy Vet Care and focus on integrating Modern Animal into our operating and technology stacks and then evaluate the business going forward. We'll plan to attack it aggressively via expansion as we move forward and continue to evaluate all of our organic and inorganic opportunities in the space. So for 2026, we'll stay with our 10 to 12 clinic opening plan of record and go from there.
To summarize, we will exit fiscal 2026 with roughly 60 clinics. Our focus is stabilization and integration alongside ensuring that the synergies between Modern Animal and Chewy are starting to get unlocked so we can have a healthy 2027 relative to those.
Your next question comes from the line of Michael Morton with MoffettNathanson.
I just wanted some additional clarity on what you're seeing with the consumer and trying to connect some prior comments. So Sumit, in May when you were at an industry conference, you said you saw gross adds increasing and then churn improving quarter-over-quarter. But the guidance and the forward commentary talk about customer additions coming in at the low end of the net adds range per quarter. I would just love to get a better understanding maybe of some of the breakdown in consumer behavior over the last 30 to 60 days that seems to be driving such a reset. And then part of that is the question we get a lot is Amazon's push into same-day grocery—has that had an impact in the competitive environment at all?
On the first point, nothing has changed relative to how we had forecasted the curve of the year. If you recall our comments from last quarter and at Boston, we provided a range of active adds between 150,000 to 250,000 customers per quarter and indicated we'd start the year likely at the low- to mid-end and then accelerate into the back half. Underlying that, we were not underwriting a rebound in adoption or relinquishment trends relative to the industry. All the progress you're seeing is primarily driven by Chewy's efforts against a macro that was expected to normalize coming out of 2025, but we prudently observed we should not fully underwrite that normalization. So what has changed is that instead of the back half getting stronger as initially modeled, we now view it more conservatively given trends we observed in the back half of Q1—modest pressure on NSPAC driven by attach rate, particularly on the discretionary side, as well as premiumization headwinds. So this is mainly a macro-driven update, with a smaller component due to some initiatives not accelerating as fast as we initially forecasted. Regarding Amazon's push into same-day grocery, no material impact to call out. We are not seeing a change in the competitive environment; we continue to focus on our proposition and innovation in pet, including food and supply as well as new categories like health, equine and specialty animals. Pricing and promotional intensity remain rational and consistent with what we've seen; we remain disciplined in managing the business and deploying promotions where they generate high ROI.
Your next question comes from the line of Anna Andreeva with Piper Sandler.
Sumit, we just wanted to follow up on the pressure with premiumization on the NSPAC. I think you mentioned that's more across discretionary. Can you remind us what's the penetration of what you guys consider discretionary on the platform? Are you seeing this more with new or existing customers? And just your thoughts on company-specific initiatives to accelerate that NSPAC. I think you mentioned promotional environment is pretty rational for the industry. But do you view higher promotional activity as a lever for Chewy to drive the business as you go through this softer macro?
Let's unpack those. On premiumization and discretionary penetration: hard goods continues to perform well and remains an important contributor to customer engagement and NSPAC growth. What we are referring to is not a decline in hard goods demand; rather, the pace of discretionary attachment is running below our original expectations entering the year. We forecast at the line item level the spending behaviors for new, existing and reactivated customers and attach rates within each cohort. Customers are still purchasing discretionary categories but are a bit more deliberate in their spending decisions than several quarters ago. For example, treats can be experimental—an average pet parent may try many different treat brands a year—and willingness to pay drives premium treats penetration. Our Autoship business continues to grow strongly and is a primary driver of attach. Some initiatives, like encouraging customers to add more line items to Autoship, have been slower to ramp than expected due to consumer behavior. Regarding promotions and levers to accelerate NSPAC: we view investment broadly. We don't consider promotions as our primary lever unless they are profitable and drive high-quality customers. We are cautious about chasing dilutive growth or over-investing in acquisition that yields low-LTV customers. Demand elasticity is real, but we prioritize LTV-to-CAC discipline and only deploy promotional spend when ROI is attractive.
Your next question comes from the line of Mark Mahaney with Evercore.
I just wanted to ask about sponsored ads. If you could provide a little bit more of an update on this. I know you've been citing it for a while as a driver of gross margin expansion. If you could be more specific about that. And then if there's anything new in terms of the types of advertisers that you've been able to bring on to the platform? Any color there would be great.
Mark, I can start and Chris can add. Sponsored ads continue to be a strong driver of margin expansion and we're pleased with the progress. We exited 2025 at roughly the midpoint of our growth curve for ads and have leaned into on-site ads as a primary growth driver of margin contribution in 2024 and 2025. As the program grows, we'll mix more into off-site ads. At our underwriting—around 3%—we expect overall contribution to convert roughly two-thirds to 70% into bottom-line improvement. This quarter we accelerated a product launch called Cmax, which allows advertisers to collaborate with us faster and helps solve cold start challenges for new or smaller brands. Roughly 40% of our advertisers tried Cmax and gave positive feedback. Sponsored ads also help offset some fuel pressures in our P&L. Overall, the product has high customer reception, strong advertiser scores, healthy demand and we're focused on optimizing supply and ramping up offsite ads.
We have time for one more question, which will come from the line of Michael McGovern with Bank of America.
Given CVC customers are about $900 in year 1 NSPAC, can you speak to the customer acquisition cost of a clinic-acquired customer versus your primary digital channels? And then second question, more broadly, can you talk about the EBITDA margin headwind from Modern Animal in the Q2 guidance? Anything along the lines of how much of the quarter-on-quarter margin headwind is a self-directed investment there?
On acquisition cost versus digital, this has been a pleasant surprise. The halo of the Chewy brand when a clinic opens in a particular MSA attracts, with very little local activation, a high-quality set of customers to CVC, making our overall acquisition costs highly efficient. As you recall, about 40% of customers walking into CVC are net new to Chewy, and we've seen this trend remain consistent across boxes we've opened. After operating the infrastructure for roughly two to two-and-a-half years, we have good cohort data from original and newer cohorts and are pleased with the acquisition costs and effectiveness. The Chewy brand awareness helps significantly.
On the Modern Animal EBITDA margin headwind, as we shared when we announced the transaction, we expect Modern Animal to be generally adjusted EBITDA dollar neutral in 2026. We shared a roughly $70 million net sales impact for the year and roughly dollar-neutral EBITDA, so that will provide a modest margin rate drag for the year. From a timing and curve perspective, perhaps that drag is a little higher in Q2 and wanes through the year. But that's the overall view for Modern Animal.
Thank you for all your questions. This concludes today's call. You may now disconnect.