Revenue Recognition
Chewy primarily recognizes revenues from product sales when the customer orders an item through Chewy’s websites or mobile applications via the electronic shopping cart, funds are collected from the customer and the item is shipped from one of the Company’s fulfillment centers and delivered to the carrier. Certain products are shipped directly from manufacturers to Chewy customers. Chewy also recognizes revenues from certain pet-related services including telehealth services, loyalty program memberships, and veterinary clinic services. Revenues from these service-based offerings are not a material component of net sales. For all of the preceding, the Company is considered to be a principal to these transactions and revenue is recognized on a gross basis as the Company is (i) the primary entity responsible for fulfilling the promise to provide the specified products or services in the arrangement with the customer and provides the primary customer service for all products sold through Chewy’s websites, mobile applications, or veterinary clinics, (ii) has inventory risk before the products have been transferred to a customer and maintains inventory risk upon accepting returns, and (iii) has discretion in establishing the price for the specified products or services sold through Chewy’s websites, mobile applications, or veterinary clinics.
Chewy primarily generates net sales from sales of pet food, pet products, pet medications and other pet health products, and related shipping fees. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. To encourage customers to purchase its products, the Company periodically provides incentive offers. Generally, these promotions include current discount offers, such as percentage discounts off current purchases and other similar offers. These offers, when accepted by customers, are treated as a reduction to the transaction price. Revenue typically consists of the consideration received from the customer when the order is executed less a refund allowance, which is estimated using historical experience.
Taxes collected from customers for remittance to governmental authorities are excluded from net sales.
Gift Cards
Customers may purchase gift cards through the Company’s website and through partnerships with third-party retailers. Outstanding gift card balances do not expire and are initially deferred within accrued expenses and other current liabilities on the Company’s consolidated balance sheets. The Company recognizes revenue upon redemption of the gift card or when the likelihood of redemption is deemed remote and the Company determines that it does not have a legal obligation to remit the unredeemed balance to the applicable jurisdiction. The assessment of remote redemption is based on historical redemption patterns, with approximately 90% of gift cards redeemed within one year of issuance.
The Company periodically offers gift card promotions that provide customers with a material right and are therefore accounted for as separate performance obligations. The relative standalone selling price of these promotional gift cards is deferred within accrued expenses and other liabilities based on the amount expected to be redeemed, net of estimated breakage, and recognized as revenue when the related performance obligations are satisfied or redemption becomes remote.
The following table includes a summary of the activity of the unredeemed gift card liability (in millions):
| | | | | | | | | | | | | |
| Fiscal Year |
| 2025 | | 2024 | | |
| Beginning balance | $ | 49.5 | | | $ | 41.8 | | | |
Redemptions and breakage | (137.3) | | | (149.5) | | | |
Activations | 148.7 | | | 157.2 | | | |
| Ending balance | $ | 60.9 | | | $ | 49.5 | | | |
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.