Pet owners are still buying food and medicine for their furry friends, but many have drastically cut back on new toys and gear to deal with rising prices.
"What's happening now with inflation is that 80% to 85% [of the budget] is going towards food and health, and 15% is going towards supplies," Chewy (CHWY) CEO Sumit Singh told Yahoo Finance, noting that the fun part of the pet budget has essentially been cut in half.
Despite this discretionary pullback, Singh claimed consumers are "highly engaged" and staying loyal to the brand. They've refrained from trading down — even as they buy fewer nonessential items.
Investors appeared to buy into that resilience narrative on Wednesday. Chewy's slight earnings miss didn't keep its stock from surging over 12% following its fourth quarter report, bolstered by its upbeat fiscal 2026 outlook. The company forecasts sales to be between $13.6 billion and $13.75 billion, ahead of the $13.59 billion consensus estimate.
During the period, the company posted $3.26 billion in revenue, up 0.5% year over year and meeting analyst expectations, per Bloomberg data. However, adjusted EPS came in at $0.27, missing the $0.28 expected.
And Wall Street isn't entirely sold on this "loyalty" story.
Evercore ISI analyst Mark Mahaney noted that the firm expects Chewy to have lost about 150,000 active customers during the fourth quarter, a metric that usually makes investors nervous.
While Mahaney still likes the stock's long-term potential because of its subscription model, the drop in actual users suggests Chewy is fighting to keep what it has rather than finding new growth.
Citi analyst Steven Zaccone also raised a red flag, noting that while the earnings were "solid," the amount each customer spent was slightly lower than expected. With 2026 expected to look eerily similar to 2025, the pressure is on Chewy to prove its new vet clinics and automated warehouses can make up for a pet industry that is no longer accelerating.
Still, Singh is optimistic a "flywheel" effect can help Chewy claw back market share.
Beyond loyalty, the CEO said AI may be the pet giant's saving grace. Singh described the technology as a "force multiplier" that the company has been quietly developing while others rushed to make flashy announcements.
"We've been taking our time to really fundamentally build how you essentially deploy AI at scale inside an organization [of] our size," he said. Chewy currently employs an estimated 18,000 people.
Singh said the company is deploying AI across three different areas: search and personalization for shoppers, automating customer service via self-service bots and agents, and streamlining operations in fulfillment centers and vet clinics.
The CEO expects these efficiencies to scale significantly, forecasting that the financial benefits will grow from the "low tens of millions" in 2026 to over $50 million in 2027. Notably, Singh did not explicitly say whether AI would lead to workforce reductions.
For an industry stuck in a stagnant cycle, Chewy's betting that AI will take on the heavy lifting that new customer growth no longer can.