Chewy and Petco Sell Growth From Opposite Ends of the Track

Chewy has expanded gross margins from 18% at its IPO to roughly 30% today — and CEO Sumit Singh spent his September 14 Goldman Sachs appearance arguing that the number proves his company has outgrown the label "online pet retailer" entirely.

Singh's fireside chat pushed a platform narrative rather than a retail one. He attributed the margin expansion to the Autoship subscription program, health services expansion, and supply chain improvements. Chewy Health — the company's push into veterinary clinics, pharmacies, and insurance — was framed as a major growth engine layered on top of core retail. The unit represented about $4 billion, or 44%, of Chewy's $9 billion in incremental revenue over the past six years, alongside newer investments in artificial intelligence and automation.

Singh acknowledged the headwinds. He said Chewy is dealing with a harder consumer environment and lower spending on discretionary pet items, while food and medications remain resilient and the company continues to gain share in several health-related categories.

The appearance carried extra weight because of its timing. Chewy (NYSE:CHWY) shares had fallen roughly 12% from their September 8 close through September 11, including a sharp post-earnings selloff. Evercore ISI and JPMorgan both downgraded the stock.

Petco declares "Phase Three"

The same day, on the same Goldman stage, Petco Health and Wellness Company (NASDAQ:WOOF) made a different argument: that its lengthy turnaround has finally reached the growth phase. CEO Joel Anderson and CFO Sabrina Simmons centered the presentation on a specific inflection point — two consecutive quarters of positive comparable store sales — which management sees as a credible signal to shift strategic focus away from cost-cutting and toward growth.

Petco says it is now in "Phase Three" of a multi-year turnaround called "Reach for the Sky," after preceding phases focused mostly on cost-cutting and business stability.

Anderson ruled out competing on price with Amazon or Walmart. He positioned Petco as a specialty retailer competing on service depth, integrated in-store veterinary and grooming offerings, and staff expertise, promising to stay "close to price" without making price leadership the primary strategy. He cited owned brands as a specific lever for margin growth heading into 2027 but declined to give detailed forward guidance on margins that far out.

Diverging institutional positioning

Hedge fund positioning split between the two names heading into the conference. Petco's hedge fund ownership held steady at 22 funds in both the first and second quarters, with short interest elevated at 13.12% of float. Chewy's hedge fund ownership fell from 53 to 44 funds over the same period, with short interest at a still-significant 10.54%.

The bull cases differ in maturity. Chewy's margin expansion from 18% to 30% since IPO is already in the results, not a projection, and Chewy Health's roughly 44% contribution to six-year incremental revenue shows diversification from pure e-commerce is in place. Petco's case is earlier but backed by concrete data: two straight quarters of positive comps, and a differentiated positioning that avoids a direct price war with larger rivals.

The bear cases are equally concrete. Chewy faces a deteriorating discretionary spending backdrop, already reflected in analyst downgrades and price target cuts. Petco is only two quarters into demonstrating sustainable growth, and while margins have improved, some of the latest gross-margin benefit came from tariff refunds; gains from owned brands and other self-help initiatives still need proving over coming quarters.

For now, Chewy remains the more proven growth story. The test for its investors is whether the wave of downgrades marks temporary sector softness or a deeper reassessment of growth prospects, and whether Chewy Health keeps driving incremental revenue. For Petco, the tell will be a third consecutive quarter of positive comparable sales — evidence that Phase Three is a durable shift rather than a one-time positive stretch — plus measurable progress on owned-brand margin initiatives into 2027.