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 brought on 208,000 net new customers, lifting the total count to 21.7 million. Net income rose 30% to $80.5 million. Recurring Autoship orders made up 84.6% of total revenue and climbed to $2.8 billion, up 9.3% year-over-year.

Chewy is rolling out AI software in customer care, pharmacy operations, and its veterinary clinics to cut manual tasks and lift worker output, the company said. Management expects the tools to save costs in the low tens of millions of dollars this fiscal year, then deliver roughly $50 million in annualized savings by 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 operations, AI software now handles record extraction and verification tasks while making quality reviews more uniform, Singh said. Inside certain Chewy Vet Care clinics, a tool called Callie now manages appointment confirmations, booking, and standard patient check-ins.

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 brought on 208,000 net new customers in the quarter. CFO Chris Deppe said 43,000 of those buyers came through SmartEquine, the equine-care business Chewy acquired earlier this year. The rest came from the core pet business and the Modern Animal acquisition.

Revenue per customer hit $602. Stripping out the SmartEquine and Modern Animal deals, organic revenue climbed 5.7% during the period, according to the company.

Singh called out Chewy Vet Care and the fresh and frozen product line, saying both posted triple-digit revenue gains in Q2. The equine, farm, and exotics category notched its seventh straight quarter of mid-double-digit year-over-year revenue growth, he said. 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 climbed $43.4 million year-over-year to $226.7 million, and the margin widened 90 basis points to 6.8%, the company said. Management lifted the floor of its full-year adjusted EBITDA margin forecast to 6.7%, tightening the range to 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 category posted its seventh straight quarter of mid-double-digit year-over-year revenue growth, but Chewy did not say whether that pace picked up after the SmartEquine deal 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 said the company saw no signs of recovery in consumer spending on pet products during the second quarter, but also saw no new weakness. Demand patterns held steady with the trends Chewy tracked at the end of the first quarter, he told investors.

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 held its full-year net sales forecast at $13.46 billion to $13.57 billion, implying roughly 6.8% to 7.7% year-over-year growth, the company said. For Q3, management projects net sales of $3.323 billion to $3.358 billion, up roughly 6.6% to 7.7% year-over-year.

← Back to the Newsdesk