Chewy added 208,000 customers in Q2 as AI tools target labor cost across three operations

Chewy launched an AI assistant named Kai to a select group of customers during the quarter, and the assistant resolved approximately 30% of chats through self-service across common needs like orders, returns, Autoship, and account management, CEO Sumit Singh told investors. A customer opens the Chewy app, taps the chat icon, and types a question about changing an Autoship delivery date. Kai handles the entire exchange without routing to a human agent.

The rollout is part of a broader AI push the company is scaling fast. Chewy reported a 7.3% year-over-year increase in net sales to $3.3 billion for the second quarter of fiscal 2026, which ended August 2. The company added 208,000 net active customers, bringing its customer base to 21.7 million. Net income rose 30% to $80.5 million. Autoship sales accounted for 84.6% of total revenue, reaching $2.8 billion, up 9.3% year-over-year.

Chewy is deploying AI-enabled tools across customer care, pharmacy, and Chewy Vet Care to reduce manual work and improve productivity. The company expects these AI initiatives to generate cost savings in the low tens of millions of dollars in fiscal 2026, scaling to about $50 million annualized in fiscal 2027.

The AI layer across three operations and what it replaces

Chewy is running AI in three distinct parts of the business. Kai, the customer-facing assistant, handles the repetitive service requests that used to require a human agent. In pharmacy, AI is automating data extraction and validation while improving review consistency, Singh said. At select Chewy Vet Care locations, the company launched Callie, an AI-powered tool supporting appointment confirmations, scheduling, and routine follow-ups.

The 30% self-service resolution rate for Kai is the only performance figure the company disclosed, but the $50 million annualized savings target by fiscal 2027 suggests Chewy sees material labor cost reduction across all three deployments. The company did not break out how much of the savings comes from customer care versus pharmacy or vet operations.

The customer-add math and where the growth came from

Chewy added 208,000 net active customers in the quarter. CFO Chris Deppe told investors the new customer additions included 43,000 unique buyers who have transacted with SmartEquine, the equine-care business Chewy acquired earlier this year. The remainder of the net adds came from the core pet business and the Modern Animal acquisition.

Net sales per active customer stood at $602. Revenue grew 5.7% during the period when excluding contributions from the SmartEquine and Modern Animal acquisitions, the veterinary care provider Chewy also bought recently.

Singh highlighted strong performance from Chewy Vet Care and the fresh and frozen portfolio, both delivering triple-digit revenue growth in Q2, as well as the equine, farm, and exotics business, which registered its seventh consecutive quarter of mid-double-digit year-over-year sales growth. The company did not disclose revenue figures for any of those segments.

What the AI spend signals about where Chewy sees margin pressure

Chewy's adjusted EBITDA increased by $43.4 million year-over-year to $226.7 million, and the adjusted EBITDA margin rose 90 basis points to 6.8%. The company raised the low end of its full-year adjusted EBITDA margin guidance to 6.7%, with the range now at 6.7% to 6.8%.

The AI investment targets labor cost in customer service, pharmacy operations, and vet care scheduling. Chewy is automating the work that does not require judgment while keeping human agents for the interactions that do. The company is aiming to reduce costs in areas that scale with volume.

For an independent retailer, Chewy is moving the cost structure on the parts of the business that scale with volume. Customer care, pharmacy data entry, and appointment scheduling are all tasks that grow linearly with customer count unless you automate them. Chewy is automating them.

If you stock consumables and compete on service, subscribe to PetRetailNews.

The acquisition contribution and what it does not show

Chewy disclosed that 43,000 of the 208,000 net customer adds came from SmartEquine buyers, but the company did not break out how many came from Modern Animal, the veterinary care acquisition. The equine, farm, and exotics business delivered its seventh consecutive quarter of mid-double-digit year-over-year sales growth, but Chewy did not say whether that growth rate accelerated after the SmartEquine acquisition closed.

The fresh and frozen portfolio and Chewy Vet Care both posted triple-digit revenue growth, but the company did not disclose the base those percentages are growing from. Triple-digit growth off a small base is a different story than triple-digit growth off a material revenue line.

Singh told investors the company did not see a meaningful recovery in the more pressured consumer backdrop for the pet market during the second quarter, but importantly did not see further deterioration. The environment has broadly stabilized to the trends the company observed exiting the first quarter, he said.

What changes on the shelf Monday

Chewy is setting the service-speed expectation for the category. A customer who gets an instant answer from Kai on a Sunday night will compare every other retailer's response time to that baseline. The independent store's advantage has always been the human relationship and the product knowledge a generalist AI assistant cannot replicate, but the bar for response speed has moved.

The AI deployment also signals where Chewy sees the highest-volume, lowest-margin work in its operation. Customer care, pharmacy data validation, and appointment scheduling are all tasks an independent retailer or a small chain handles manually today. Chewy is automating them at scale. A store owner has to decide whether the same tools are available at independent scale, and if so, whether the savings justify the setup cost and the risk of losing the personal touch that differentiates the store.

Chewy maintained its full-year net sales guidance at $13.46 billion to $13.57 billion, implying approximately 6.8% to 7.7% year-over-year growth. For Q3, net sales are projected to be $3.323 billion to $3.358 billion, up approximately 6.6% to 7.7% year-over-year.

← Back to the Newsdesk