Chewy (CHWY) 11 Jun 212021 Q1 Earnings call transcript

Good day, and welcome to the Chewy First Quarter 2021 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Robert LaFleur, Vice President, Investor Relations. Please go ahead.

us XXXX call results. joining our to for quarter first you on today the discuss Thank

Joining Chewy's and CEO, today Sumit me on Singh; CFO, the Mario call are Marte.

forward-looking with ability statements, letter have the financial Reform risks, forward-looking materially are today's uncertainties, today, making are posted statements respond cause call other conference contemplated webcast the Private centers, Such plans. concerning results which investments, fulfillment statements Litigation available of adverse forward-looking our customer prospects, today, investor.chewy.com. to by future be as those facilities, call available related statements spread by section that date. an also we which release statements. business performance. based differ future including risks note future be required to on any obligation results, A any X-K the workforce, and Relations under and actual disclaim including been to are certain operations Act XXXX We industry forward-looking impacts to considered on Investor Chewy's from call On our could will service to Securities information subject this to to except earnings on Reported COVID-XX, Form those law. forward-looking any considered indication on is and us including statements, Also, as statements were today's Our results and not should trends of our to on of update our of filed strategies, of chain, business of our and our the successfully the link SEC supply earlier the shareholders, site. website, to to

with filings to and on on not discuss information today of release in the factors our and X-K shareholders, SEC SEC. these the items provided in during other GAAP refer intended are measures the call, information, financial filed are Investor for non-GAAP our directly our financial further non-GAAP Chewy's today a website substitute this as earlier Also measures. earnings certain in earlier to and XX-Q Form measures filed letter were to please For our and non-GAAP GAAP most we comparable results. Reconciliations These and X-K will with Relations risk XX-Q. other the and in which

unless otherwise Additionally, accordingly discussed are to quarter and against of comparisons refer noted, XXXX. the first results quarter first today all XXXX,

I'd Finally, be this will A being entirety its call in the call like over now to call Sumit. website. shortly. our turn on is of available our also Relations this webcast to on website Investor IR replay

all an XXXX to thanks and joining us and out Bob, Thanks, on of exciting to turning already be us for at call. year you busy for Chewy. is the

and facing are quarter share updated over call on our turn value protect some Mario are to detail update will and guidance. of the discuss to that, business After taking our to and we in share I the experience the will also we full you guidance strong headwinds actions continuity. proposition. confidence net customer and EBITDA I our results, gives of and XXXX pace highlight will today, share customer ongoing adjusted expansion. margin continue. us sales engagement raise year momentum you business further the And new launches innovation Our our our some with exciting strengthen to that that Along for financial and greater first I with you customer with our results

billion. net to Let's increased sales results. $X.XX XX% QX QX start with our

and in in our active behavior results. Continued our purchasing growth customer line strength top drove base

growing online. Until supply-driven estimated out-of-stock additional second in we the is this in QX comes with a quarter, a of $XX the abate sales While headwind net Active actively the situation, we at we as customers sales our Efficiently This strategy. our the are will then, clearly elevated X.X of adding of our or increased net recommendation throughout and persistent by inventory year managing customers key our XX.X first were an new attractive growth million end quarter expect and half XX.X% then part remains find levels help share pleased which to reduced using production million million. to to platform alternatives. capacity and our by to keep their engines customers customers. wallet our a quarter

XXXX customer years, above or tenure average year. the against other New practical anticipated, we customer of Further, this broader is In pre-pandemic steady past under retention a as customer moderated into additions as lifetime second us. base rates years. words, X our increased still platform. Taking our XX%. their by that curve year active customer with have this The active the view, pandemic X.X side just of the our past active weighted of is average on effect on levels left the remained squarely their X levels cohort peak spending matures remained our of and, over base million the is

year. over $XXX us their year compared fifth historically in approximately $XXX almost customers spend their our with in context, For X to and in their $XXX second year

still As to substantial our customer of a of significant that component base. we share from such, have future realize we believe left wallet gains

levels promotional reflecting quarter approximately QX and drive and First XX% of we XXXX, our same acceleration normalizing customer. verticals. or our brands, throughout of that and customer, behavior XXXX freight last goods, a Top cohort, came line result structural which purchase improve of against was margin and COVID-related remainder growth rate. momentum the in is to pricing customer muted positive the our customer performance. and per new into or engagement environment. engagement increase saw from increase, health spike The spend saw the In net year-over-year efforts translated of increased per improved margin in half average trends size QX care hard specialty proprietary gross XXX-basis-point X.X% meaningful costs QX we XX.X%, the the reach year drive NSPAC, over basket kind to helped which $XXX, reviewing active the sales a $XX growth a

these rigor, our few some QX by degree those with shortages labor to in invested did a executed in offset To constraints. companies headwinds, FC faced staffing we and we centers, helped overcome faced incentives, to we concurrently. wages short-term which FCs, fulfillment nationwide. or similar higher As We many things being

disciplines. other also operating We cost implemented

keep flexibility in real-time gross and interval-level We developed at improvements team For adjusted improvements flow-through EBITDA and inventory and receipts pack which million to algorithms, These example, across operating EBITDA and this better to expenses leading optimize And part-time labor in we with discipline, combined QX to in increased adjusted provide and enabled $XX.X performance, basis margin in came points pick network. drove shifts our density activities order members. increased margin strong our meaningful allocation, FC helped check. forecasting more options our XXX to operating when X.X%. as introduced

provider today. things in personalized execution care and most to that we addition now recently And financial has Chewy. sharing a were food, that results, Chewy experience mostly delivering some transformations treats. at X multidimensional these the food on treats, I underway are many spend health like quality of innovation Today, to minutes stronger. the broader accessories, In services. a With a In are going few am we spans just inside of years been XXXX, of that strong I'd our and tremendously also proud of never mind, customer of later, pace and

experience our higher represent they parents and partners with progress about continued our for in to excited are effort these, pet We them. and engagement because improve drive

Additionally, the to and they opportunity capture us. growing well front position us large of in

functionality, page relaunched stack we architecture. the chewy.com implemented a our targeted continue our hyperlocal are other upgrading In This of. QX and that application. website, and us these to make more increase Once XXXX, customer at the allows shopping share technology already experience we shopping take our single First, support to to of experience efforts and and personalized meaningful customized will fully stops and, our improve enhancement which in enhanced across unlock strides to features to funnel customers, their in homepage wallet. we offer shopping through the recommendations advantage starting will revenue-enhancing

from pet Freshpet; segment's are proprietary our with announce fresh into the We excited brand, prepared leading entry to brand, and space and also new our food selections the Tylee's. premium

trained among and patented parents developed the customer highly have platform options personalized food right the increased that new awareness deciding make category, the customer the and given Our coupled best-in-class search and many pet and drive are need this when education our team, date, us sustainable pet already service we in with that to delivery of Chewy packaging allows quality customer adoption level to available To throughout today. features, process. discovery product preserve

geographic currently in to initial we catalog will geographies, and covering are grow scale beta customer distribution approximately Chewy's We soon we XX% X distribution intend fresh And expand base. of our business. in this as launch our mode both and

for with and launch, that new prepared fresh and to recently the our With existing our customers the this the ones. our and a assortment Vet We expand expand on categories are about launched Connect joins TAM. opportunity offerings of enthusiastic growing pharmacy list choices compounding foods serve and Fresh

Health, offerings Over now Collectively, diet, health we effort care and recently innovative the those wide a spectrum vet solutions which them. and most who as and include include Compounding we expanded Petscriptions, wellness and pet expanding of medicine, still recognize to to pet past veterinarians improve consumers our products that health years, tele-health. Chewy every this services, a starting few pharmacy of have OTC and brand the which to now designed and delivers call empower are for

our Connect which which functionality continue Pharmacy over video chat to Promoter of XX:XX text for of a holidays important and is XXX XX days is Recently, with proprietary significantly reach. find. scores. now to Petscriptions, traction have chat its X this on nights, customer our East a with a Vet and the for tele-health gain the upgrades when for customer provides and Scores Vet perfect recently service. we management Vet, often until Connect via higher week driving launched veterinarians. a improved year, time us enabled gave Coast is remained These We XX% service strong, customers Connect video of are care our coverage with who QX proprietary a out weekends and Compounding adoption p.m. system with innovations, and rated solution difficult XX expanded prescription in available days or experience Net

to business as compounding Pharmacy now horses. publish servicing April, SKUs, continues Compounding cats We dogs, and, Our of X,XXX expand.

by gold in recently the PCAB compliance major industry. earning for also a milestone accreditation, the We standard safety compounding is which quality our and achieved

customer customer to services pet planned, to Chewy is our Health, entrance over that are of and growing wellness to including health our XX% our overall. Compounding and As Chewy access new into base. customers Approximately X/X improving are new compounding

veterinarian is Autoship. And partners through are to share over with utilizing I recurring and that the a enhance simplify compounding emerging for pleased to management anticipated, strong shipments This both XX% all product this going costs on also revenue already experience to now outbound veterinarian driver, X,XXX As the Petscriptions, intuitive, friction, and as close to of clinics with prescription veterinarian patient. easy-to-use efficiency, digital solution. reduce improve an helps tasks and and automate reduce am in-clinic customer

in more space everyone. modern Chewy brand pioneering in pet technology is We health this ongoing our innovation blends consumer our in about QX that will for in call only share work the September. and Health solutions

Chewy of health to the the Health veterinarians within more keep pet center and care products services mission value-added and Our by affordable parents pet accessible make and that equation. developing is at

and front for keep in-kind make approximately To to Chewy the and $XX affordable them. quest made accessible operates serve rescues, mission end, Gives that you place to a Chewy of providing charitable the our spirit efforts donations and The our Back. with a they to drives pets We this a Back we started, world make our progress. the on getting on perform important same program last are the we'll under work to suppliers animates also pet care critical better needed and shelter Gives call year, health their that just million more through we communities them lines. updated

and adopt nationwide launched Additionally, through of enables I Adoption Services am excited our to millions customers and last that a not-yet we customers pet Chewy week, Chewy directly you Pet website. discover Chewy's to that share with

signed that this to our find is the to list the will As grow up bar-raising we for conveniently rescues believe and integration, have them launch engaging List an we needed to service directly experience. with shelter on Over already rapidly. with be shelters continues and their customers and X,XXX and full and list have do, everything chewy.com enables discover, The new Wish which supplies to donate to customers supported shelter. shipped rescues

partners with pet being again, our Our harmony service most customers and everywhere. mission parents trusted and continues innovation to partners in Adoption as convenient launch complete with and Service features the how to of extend destination of the for our and our such Wish is community Pet List, shows and

wrap fulfillment Now our let's before networks. across growth up, quickly I center visit

optimistic continues, our enhance we curve XXth customer investing As stay our growth fulfillment experience. momentum located and specializes the also center to end end and I in bulky expanding opened ship are expansion, capacity our we for news FC the our Phoenix also items my next of comments will we dog Arizona reduce At Nevada that facility, in top fulfillment summer overall customer third new share ship balance line distribution are ahead of that in reiterating network primarily Phoenix, in assortment the further FC Lewisberry, pleased Reno, I'm open facility XXXX. of to items cat will with costs. automated like and that we and and crates along containers. the year. times, original and/or their outlook the our by improve carrying will This Pennsylvania. our center trees experience QX, of reduce in this XXth This help my the

to verticals increasing base, ones. launching our of customer share continue growing by and TAM-expanding execute expanding new against growth We road our our map wallet,

supply will through gross shareholders. determination line in teams line and the and challenging, market proud focus incredibly that, remain cash pace conditions our call adjusted I and while bottom to we improvements Mario. managing and the strong margin, free successfully labor delivering consistently am of EBITDA significant of over ability headwinds of innovation driving turn chain to our With for still and While I are flow. year-over-year our accelerate their results top and these

Sumit. you, Thank

strategy, We momentum execute on continue to our and long-term healthy. remains

growth. representing First quarter net XX.X% $X.XX billion, sales were

history. the Autoship which and increased First increased per NSPAC quarter reflect the we a loyalty fourth and active X.X% first-in-the-industry strengthening pet in to is powerful program's sales and Autoship proposition appeal our bonds $XX $XX include newest with NSPAC And XX.X%, customer quarter XXX the behind maturation first to are for verticals sequentially quarter $X.XX of single watermark absolute NSPAC, the or high largest access company's the acceleration the spending from reached billion. and approaches points of the quarter which a sales sales to or more describability with merchandising, of increase the parents. the of growing our basis growth. NSPAC to XX.X% the Autoship Connect Compared of customer, reach offering, growth customer results in sales customer cohort to $XXX increased XXXX. complementary XXXX in and value XXXX, the fourth in Autoship Improved tool XXXX increased cohort drivers benefits, the tele-health percentage the in the reinforcing primary Vet. net Net as customer marks These quarter. a

Moving down statement. the income

XX.X%, First quarter an points. XXX gross was margin basis of increase

compared we experience in pandemic price to made during protect the promotional we of that the costs logistics year peak quarter normalized approximately the and reflects and this year. increase the elevated last mentioned, and came the of to half muted business the Sumit structural customer activity remainder the As improvements, freight first and competition from saw investments

reflects overhead include operating and all quarter net customer and scaling first basis $XXX.X processing SG&A, marketing, credit of quarter card sales, in customer expenses, and sales, in service basis of we $XXX.X service our teams share-based we of XX First which or fees, of compensation, XX% basis advertising in costs million corporate benefit the in points. excluding labor or first as $XXX.X of well higher necessary address of incremental benefits labor incentives as fulfillment an points. were and current the have the shortages. outlined call and recruiting four made year-over-year increase sales, earnings demonstrates SG&A, that that related by efficiently ability have months totaled includes net capacity the to current for the FCs on XX.X% would wages which additional wage incremental XX SG&A costs, been investments share-based sales, compensation, been our and Launching points. and fulfillment million XX.X% percentage while scaling in totaled market, our or This the a quarter of XX incremental operating fund investments excluding XXXX net across and compensation, expenses SG&A from SG&A XX Absent keeping flat to of recruiting expenses new markets, as the net last the leveraging a share-based disruptions flat aside net impact our to in percentage the as to million sales. persistent labor network. expense, related hiring

versus a $XXX.X basis marketing quarter million increase first X.X% sales, or XX of was quarter and First point advertising XXXX. net

line costs to this of negative of sales costs the COVID-XX improving $XX.X $XX.X reaching In net delivered quarter saw we estimated impact of million had that basis X.X%. a quarter also the the versus from income, high to as quarter on EBITDA of We million, net first this a EBITDA XXXX XX.X% in points EBITDA freight to the first on in net $XX.X reached $XX.X early pandemic. sales new expected Adjusted basis XXXX. $XX of XXX million improving positive we improved percentage the totaling XXXX. QX, a recovered quarter, adjusted million, lows second year-over-year of Adjusted increase our input for artificial margin the million versus flow-through quarter first excluding

XXX Our net point margin basis was improvement. X.X%, a

the the term. over our past, scale, profitability As repeat we expect long of with expanding increasing in and drive benefits profitable have we shared the coupled to business,

Moving on to free cash flow.

was QX ongoing cash chain level primarily of in of which was situation. First additions sheet, a City. positive finished is fulfillment reduction of quarter our flow of equivalents catalog due network, reflecting limited to working We ever hand. first recently cash and million positive expenditures. the to quarter million recap. $XX.X outlays and profitability fulfillment million cash automated in include cash mostly center levels ongoing our Pennsylvania for supply balance from inventory and cash reflects our Capital cash favorable my the highest including the a capital, Kansas $XX.X and activities on temporary capital in facility That which $XXX second operating our in with opened QX quarter in cash on million, flow free operating $XX.X investments The function concludes

let's now and guidance. So our discuss quarter year second full

and moments profitability year this to discuss a are line formulated I'd how we on raising top few guidance. I before We our outlook, but the spend like full details,

As call, beginning to and at the Sumit exciting mentioned a of busy continues us. the XXXX year be for

remains wages the current demand remains remain strong, strategy Our shortages our and maintain our execution. faced immune and we to benefits. to benefits bullish with handle U.S. At and our same we attract In to prepare $XX being Even last higher are the the pace and momentum job in intact, fill ability time, wages the remains million as our we we country. to across to business, markets to companies continue not network ramp quarter, in about enhanced future remain vacancies, and constrained, currently across and workers. attempt future that and of labor invest the it to the committed of an labor difficult

recruiting an these the and to we X As may persist, million conditions incentives additional hiring commit quarters. next over choose to $XX

end these extended markets respond to depends in benefits we temporary labor the September. Although unemployment ultimately how of expect of nature, be types on to that expenses in

are we we we to productivity when While When near-term workforce run. are SG&A, and will the guidance. X our increasingly these over automation that our engagement, than positive confident ago XXXX just net initial increase we in issued outlook headwinds pressure scale costs long tailwinds, our our were and higher more these in we investments ability these weeks retention on and may put

in net to to XX% second billion that be and with mind, quarter So we billion, sales growth. between $X.XX $X.XX expect year-over-year XX% representing

growth. We EBITDA adjusted points. finally, between representing are to between our our $X.X raising XX And guidance full raising year billion, and full are XXX to XX% guidance and year-over-year we to net XXXX for XX% basis billion margin XXXX year year-over-year sales expansion $X.X

please for models in you XXXX, following update your mind. the keep As

headwind stronger signs First, this this and XXXX, than year have elevated out-of-stock they were seen levels we not in yet abating. are of a

us and and While exactly is improving provides value levels nature as recurring clearly predicting macro increase, are clear not us XX% What will proposition marketplace. today's and conditions the of post-pandemic consumers vaccination the business how of to is yet compelling is advantages that clear. on tangible nearly in real fully our behave our pandemic predictable front

advertising you disciplined and in Second, landscape. saw remains to changes advertising in as marketing we as in the real-time quarter, adjust rapid our spend the first

achieve customer launched share grew we of sales come to in to a normal remain expected make the more shared ready benefits, third, have short-term that operating patterns net cohort great in We gross and the X over reflect discipline is XX%, epidemic, have and as basis expansion. look first even And XXXX we and second here drove moves XXXX off years wallet. to scale if assets expect we margin quarter our XXX the points start. it from many growing to they first always, long-term XXXX customer at before, and investments past to vigilant by its expense NSPAC additional its net the to of expand as of prior we to the should As as like the XXXX, as XXXX accelerate retention continue they see from did we to the annualize results. year. cohort initiatives which is

net quarterly guidance, EBITDA also sales our reiterating view ever. We XXXX And our adjusted market and the and our with over playing highest we see balance delivered Chewy's out. how are By on of that, increasing to turn the operator. bullish we position call the I'll Operator? adjusted EBITDA

Instructions]. [Operator

with Mahaney Mark from come Evercore. will question first Our

year or I issue, that acquisitions The adds not. the levels. the new please. your abate? will that And what remain help to just in level to above statement half year? continuing. of can your ask that's Can know customer about pre-pandemic And Mario, about you of abate sounds then net want of do that, below this in on had 'XX. the quarter during Does mean churn all adds were you've elevated that quarter of net misinterpreting to this got want new adds customers back just your this that in you COVID issue to want net be XXXX. I or whether of like just I if to like, hands they related The about talk am brought in questions, customer -- out April get don't the that, this that's you can you actually Two the it? it first I out-of-stock back I year to the confidence completely were

Sumit. indicated the This earnings I and the the we've we're primarily we're out-of-stocks, question. constraints capacity first Any that other is take out-of-stocks On facing, one. second will will or remains capacity Mario believe, call, food where we was extensive QX a industry-wide canned this given take started industry-wide, there. is in of constraints felt as production within are the hard substitutability goods on and area being consumables. discretionary thing, issues to or out-of-stock fairly able mitigate, such an catalog that size this the categories our is issue, not The the Chewy as -- actually is given supplies. vet this primarily

improvement going why, is of with abate So will that from we and back rate half which of yes, starting in is investment now, unlocked have we that is have The is as and and that suppliers right is and the the there's continue expect headwind bit coming a health we've this. consistently, year. vendors one from heard this incremental our in, said should don't And perfect is in have capacity impacted this we be year. monitor. perfect we QX, available little also no and what visibility, incremental that is a unclear confidence being is this But half partners to we care of to obviously, while data and why deeply do it back strategic not

the of the million And we've in you're ended And quarter, mentioned active question. I'll couple for XX.X what that XXX,XXX over our of net QX. in first, and the second in active added customers line was customers answer calls. right right, expectations first And we the with at quarter your earnings last part

the then I else So know know paint this I'll to adds. into gross and break down of it dynamics retention the you picture. for everybody customer full

First, X for us, rates retention for customers a that see us with rates multiples our that very we year long that we X year into retention after that before any platform. attrition then time. years than stay traditional higher remain said And happens X. us e-commerce And with are

about to let's then drive talk of because going the cohort, that's QX year-over-year what's 'XX the So really some here. impact

we this First, months higher we this rate was the -- customer But at first that new was and over cohort year the we that higher retention what ago. a past just higher retention, for adds this look quarter. XX with Then quarter for retention rate normal if that 'XX, than saw not than it the than expected only adds large to quarter customer pre-pandemic, average customer but was is couple so even attrition cohort higher years. of also that last a the created headwind net

it pre-pandemic. was 'XX, back pace months, first our quarter out we higher projected XX what into this than and than dial then adds higher So far new of

clip. customers very fast So at we're still a acquiring

it gross of did in in in the it XXXX in any that think expect don't years, still another a of the perspective, demand was you XXXX from finally, pull-forward we new revenue we a take saw adding future the believe then we from So first customers. XXXX way, lot let's full they all a than more And revenue we more generate through they this say, at they year their so cohorts, than fact, our did And XXXX, revenues produced year XXXX platform. year. mature on to last look when cohort of

our thing the cohort XXXX into coming expect same So we XXXX. for would

Bank Our America. next with question Nat Schindler of will come from

longer-term and conditions enter and you your similar of more what Europe, would look go some where to to markets, about the would U.S. particularly to wondering actually international I'm expansion what on growth and how and areas you plans new size your

Sumit. is will question. I take This that

servicing plans, of obviously, opinion, our the squarely effectively should word there, parents now we've And most all, the and back destination our the are first not manner, gone achieving Our pet partners be have been believe and pet convenient are that trusted, added in centered for everywhere. to high-quality a in on past. in mission we communities in because we serviced service statement

the given the we given and in growth being our on be believe the same continue focused be is to International, personalized that, online everywhere. earnings accessories, that talked present of on services. driven parents to than the that script, United multidimensional last will mission United we capitalize So are plan States. across the more the pet we States, and We is a food, care about driven have experience believe word And growth, investments to we ton that health fully different. there statement in treats, and of our is

also how be working that. enter. internationally. believe to said, focus plans and outside the still infrastructure, that we're how assured, behave, be and our explore years, you how would on explore to We've that a us. point chain, matter approach our important the been -- be diligent, But the we'll and options of possibility. supply investments our terms we and work to behavior, our of do we're to through would that being do brand going what we enter able customers United markets to has country are When that, going customer in -- and do at of it that and would backward and of had rest statement are, markets And what specific open keep about we the X international be is marketing, We we're IPO, international, it we that's out step all availability, And figure and do from said disciplined every explore true. thoughtful, we remains going U.S. we been focused said to we've is And X That States. extensible roughly capability between how

with will from question next come Our Erin Wright Suisse. Crédit

those you that seeing the to some as clinics you out that you're traction you're And in last COVID from is according What of with -- Can pharmacy getting the that clinic? going clinics you it dynamics of speak you're of vet lap the across of Chewy? scripts stickiness to that that business vet the the business? playing the to do plan of sort across Is some are year, -- through at now. we back filled share -- working mentioned percent have X,XXX terms

to believe things We a couple of Sure. true. be

to These encouraging Chewy. mentioned, present favorable us. I And from the and with number customers I'll and all, core XX% retention to And working to independent be Petscriptions, the that us points our is are X,XXX of indicates data which with a recently into verticals stronger pharmacy conducted veterinarian earn verticals care other this suggested would scripts and data into open that remain A of refrain these credibility into connecting health community of Autoship as mention what positive. clinics. the the subscription but penetration veterinarians Mark, net than this at in rates I the proud by will is veterinarian equivalent we're work X,XXX research, U.S. roughly XX% is is remains point, is our clinic our which in the and you that that asked, veterinarians strong. tremendously to of business, driven space. continues of. trust something First in

Erin, more me one thing. And, let add

point as all XX-Q, back growth part you'll It's twice our pharmacy, of proprietary overall the to business. because the to specialty, speed for segment other which revenue, revenue. So growing includes you of of that see and fast the our as notice brands, other the that

these you think of verticals. that So give an how indication should we about newest

the associated union incentives, the Okay. just follow-up on spending with $XX Great. And higher million. quick incremental one just

that's guidance is not or embedded an in expense? So your Or is -- at this incremental that that point?

in fully It is embedded our guidance.

Fargo. with Brian Fitzgerald come Our next from will question Wells

about We size with maybe around market? It current happens is entry of with really context what move uplift adoption you traditional that Freshpet the on And the the some food margin quickly ask provide then pretty rapidly. want the like And maybe the to to market. as us what Could stood spend opportunity, there? the maybe fresh fresh, service. from you sounds consumable up into you

you on, nice look how cohorts already those investing there, You've job early differ then with from are and cohorts? And that? shelters. of know early We done cohorts maybe what's integrating awareness and any with traditional build opportunity really learnings to behind maybe kind what like attach rates there? a the but it's the And the adoption

very more shelter get humanization believe real is a try always distinct to Fresh service to to at foods given that unpack hear and into and educate attractive and and customers then fresh adoptions. engage high-quality as for areas, to lot foods, with let's them ability to in -- understood opportunity to we've we ability pet become premiumization and in and an as packaged least you. Nice us customers -- a and and there, our our categories customers given them foods aware, manner. and their natural their prepared is from packaged pets, so Okay. two such of fresh believe There's

that us are the and for with motivation engaged isn't is the requires And if model believe drive care educate category. category that customer is customer as believe and as our we to educated. bring fact personalized in or that the barriers this a Another high customer we that can the adoption to education, we adoption effectively and building, the pet customers focus therefore we well care there on industry experience

category now of there's to also right we between in available. that. it's see drive terms The hard able with effective that predict, rates to again, the Growth job perfect data to believe high-quality market size. billion And you'll that drive not be size, an are an $X we us In adoption because connecting customers to $XXX is likely not on to focus do products adoption. into. in easy can And million

now, investments requires as our investment investment. business the -- into And The any on of X% right is as launch negligible. -- business CapEx baked be impact is or margins we spend really that that the scale CapEx any the P&L. scale all and dilution as would to we guidance drive in to to expect business. then our we already side, the business X.X% in course, the immaterial new And Of well we of the into -- modeled

fresh giving back across to this the serve community who of to life. and community X to in our yet of shelters a pets And On and likely this our shelter and repeat on and XX% rescues. are our Services, connecting customers, of are bring way again, Over very to loyalty and to where engenders adopted Adoption which is the to the way build who proud visits parents, Chewy, their greater those Chewy foods. awareness the communities towards platform. brand consideration via yes, Chewy Chewy journey the is U.S. to future XX% to be Pet able customers that's purpose work consideration top-of-mind to It bring to and So are not again, packaged pet and connecting begins. drives, then

So back enhance in more continue this come share our we'll grows. to work as and space and program the

will next Our question Steph Wissink from come with Jefferies.

I Sumit, Mario, basis you, we but, ahead want this running margin is a advancement, little at of where hundred jump expected these because please stage. best several would be in. about the talk for might bit it gross model have points to suited

as the curious for about should was what was the So enhance And cash a that's bit of the cash And priorities, benefit I'm think you outstanding. still leverage. know continues that I on cash build or But think that the if quarter I in through to Mario, cash also year? you talk we for exist little capital. to can sheet? flow mean your on balance cash. mix the should about how we therefore, about further a the some a how flow working margin, whether opportunities then, of question

with would the margins. to road I calls, first have customers map cash. All you gross in and believe wallet, incremental and point buckets great gross sub-penetrated improved questions. on progress growing shared Mario services. will in making margin. our on and bucket second we connecting Gross on newer proprietary of one margin growing et of take and then to Yes, often we these I are improvement: encouraging that will acquiring bucket take our X; gross verticals, growing back health X one share like merchandising -- margins, discoverability, one; the investing care, the cetera, the destination I

continue above now end we muted we that gross the exposed less sitting believe in of surpass of behind customers We XX%, environments. of long-term us even health guide than the than to X/X XX% We perhaps are as achieve are build ton to pricing a of be net and Less headroom of is We Chewy about able are today our care. X/X customers have exposed of slightly of are there's to at proprietary brands. right still believe front margin guide. low the long-range And margin. to to go today which we the --

you've time, opportunity headroom develop us time, by and full customer shoppers market of we as addressable with to At lot our funnel the their us And so there's that same sizes. expand base launching at on for basket become increase and seen a And fresh our uptake future. packaged newer categories in foods and focus and services such same to describing great today. we're Compounding the the as potential that us tele-health, which starting with have we're

We're out. on disciplined. calls. the I improving a is laid on will we as any there's And on the targets that so future of we when net-net, focused high confidence company. to to So talk updates the in give about we're we've want customer that that engagement And inside margin our innovation can achieve future, discuss the that gross end you then ready very rapidly lot of going we're

This Mario. is

part of question So terms the cash. I'll in answer second the of

we able end, year So would would And year, be cash. and the the without you look of for over EBITDA. rapidly consuming $XXX you us for over if seen at have any margin, very net high grow to provided sales see, adjusted this guidance produce at million you adjusted the we EBITDA

we two for Certainly, some in components to right, would So that, -- intention, what is, But drew this the year. guide I'll inventory One was explicitly our that free of the say we draw I you you're cash benefited two that. a cash. to supply otherwise given not that cash of generation things flow, been high are quarter. fact from not would those obviously, means that's that out-of-stock don't good of we we let that and more down -- we about to degree working a expect result a disruptions chain. what the first conclusion the other how on for since have in capital,

have up had we've throughout with year make right, that to customers. ended available the back the our build inventory serve look the we quarter would at cash that you're you to to the we you sure our cash in history. can the Then And us us. level expect highest we So

ended also We untapped. a facility the of million that's quarter with $XXX

both and expanding That balance of flexibility automation, $X TAM. our and forward for gives going billion and verticals sheet dry roughly So potentially in M&A in us growing investments technology, strength also like new incremental powder. the things

place terms good it's I to So in the cash. flexibility, right of and in think we're have the

Our Anmuth next question will come with from Doug JPMorgan.

know First, expansion, the raised obviously, outlook. year you margin just for I profitability. the full on

is on a that million the $XX half, additional then back seeing is more EBITDA for basis? are essentially exposed the think 'XX? the private secondly, I the not flow-through that on there year customers just just said about Or thinking full in you about about for something on reason or should potentially Just we be label, X/X there. of And thinking else

over a a that toward percentage in time? where and, net as of terms perhaps that frame you past you've I Just curious if relation XX% to mentioned can ambitions the perhaps think, sales you in in maybe help your are of to XX%

second Mario will take Sumit. the the is take one. I'll first This one. Sure.

private with is, of customers of starting nearly mean or private we our the acquired that Chewy, from bought I brands. label million us. or that from brands by What them now have XX proprietary on us So X/X have

And actually assortment yet we in exposure. are making. haven't them proprietary that the and efforts of we're We're discoverability in search improvement newer or provide with us and X/X shopped will our -- So pleased to progress launches brands. continue that

expect business, have us improved a -- platform, last about Gross favorable to that of the believe, roughly from over goal goods. in between on in consumables. the of bringing hard goods, the more hard is which makes points that margin building penetration for is SKUs net XX% As you so, and XX% doubled more XX% balance XX% towards new coming proprietary up more XX% in we assortment XXX to or squarely about. basis assortment to and, We X.X sales proprietary year-over-year And about. them And the we've that might basis, gained in able a in continue number penetration, reach and goods, on previously X/X gone That XX% talked recall proprietary. And shared therefore expose we're closer hard to core we the gross -- that in years. build should of talking out XX%, to we're our P&L reflected to ranges added buy XX% share reaching us be overall fact, XX,XXX reflecting proprietary of from margin and we've overall should the customers improvement you to the results. the we've

And I'll take question. the first part the of

of to me So with in billion $X.X off expense quarter, start level QX let us. first sort in the set first line. year-over-year. discipline had we increased we the But margin, added We gross and

full was $XX tax saw, a year, versus means think of reported, we in about higher quarter than the million. EBITDA first our all if adjusted that of last if EBITDA XXXX, out fourth what record so quarter you the you adjust onetime And XXXX. And in year benefit you as

that fourth combine if our the -- full the quarter sales the our provided quarter quarter. X% you line to XX% adjust for which you very us about year. of out for saw if -- in adjusted you call, you first in that tripling first full XX a year, much benefits we XXX margin the that we've flow-through And in would the with take in increase the called we to in we saw get with to to for what wages you and explicitly and EBITDA and Now full projection EBITDA guide basis that the points, year, mean an the

So it conclusion. get you'll think think about terms, same I to about and the in Doug, those

Our Wedbush Securities. from next Seth question Basham will come with

to sales as X%. were question this you advertising My we around think How around of about advertising. I is do previously a commenting X% percentage think And year?

even to than have that You grow opportunity first that in gross quarter. to and range you better move your expect more adds aggressively? to the did Do the

levels plus points by believe about and the in in we efficiencies, will X% we is This marketing if with be that QX. XXXX, we plus the up range, XX and line driven and Yes. We likely Sumit. like And minus. advertising pick right minus, basis saw did in

input we plus further new degraded. up to in or the is by in at came become if driven costs see X.X%. So And pick we the more marketplace opportunity customers if

net of levels, million given In continuing line still the to pandemic demand. on XX% basis, due we out terms to higher of QX sales the in $XX actually on X.X% expectations. to spend it's basis, year-over-year on from scale quite XXXX, XXXX a overall And net that million pleased, of coming we with been advantage we're organic our marketing $XXX added. albeit in a We've some incrementally levels

opportunities spending appropriate So basis on an we able overall, to and ensure absolute to customers, customers be efficiently leaving that I we're table. believe the remain on to levels not to open we're acquire

Relative to to XXXX, costs be higher? you XXXX are in acquisition expecting customer

It's a very question. good

is had how We've predict have advertisers. through opens also -- If as behave customers it that to you recall a hard country end the platform to changes up. might year. QX is discussion the predict several where really it lot that we come yet this had, marketing yet of might across We've up unclear

of levels -- So guiding spend. flattish our or to perspective should situation, that bit account. in we're my we And I'm an but evolving providing I'm therefore, XXXX on guidance still that a net into takes be

Peter next Piper Sandler. from will come Keith question Our with

provide around you specific bit the examples new some how customization you of the experience. that hoping features customer you on was Maybe have. around homepage some little the a more and I discuss can improve launch think just localization could that just

Sure, Peter.

personalize target. their that and to our showing the life journey you content pet inspiring improves to in a the points, So it that needs ability dynamic of state experience specific and by with or our directly parent and cycle meta It pet. their improves speaks relevant ability their to emotive their is

of us so we customers. a a virtual And that that grow and offer and obviously wallet of allows digital allows this which provides -- high-touch us targeting model. then which basket development, share sizes allows And in efficiency basis, already standpoint, development efficiency with from actually conversion personalized on a that -- and to customer

how it. we're approaching that's So

recommend have you, the if buying, specifically ability to type be If obviously you have we tying knowing of could to where might dog now et dog, a cetera. go and today, we're parents you target other homepage cetera, et the knowing into it what we what back to dog what

So behavior-driven that experience experience in think offered of and we an it as past. unauthenticated rather the have a than might data-driven

run had that The interesting. would was below XXXX the unrelated call. or around earlier churn QX. that customer or my net gross very for good sheer think XXXX asked a about question in adds. net That's follow-up magnitude. I adds was the just Okay. I level a incorrect, Is add I to know you up basis? on think thinking levels, back But this just the picking from come as did slowing to and XXX,XXX year maybe referencing rate kind and in customer in the just is cohort progresses of moderate the

Yes, Peter, I'll answer that.

what I adds active We net dynamics look, before. it's of customer is cohort large exactly very acquired we mentioned headwind of So year. I the the do had a -- think last have very,

other year. key customers that us this the how So just can retention, large adds conclusion. seeing, of we a I see think we're -- at that the lead many take longer very about reactivate of the levels -- even to of of The trend net the is, year-over-year, have how net going to is headwind active to than the to adds The new you piece, is think we year a is over it have period time we to still that customer side in year. period last headwind. would retention There's still gross to more is have additions. them impact going But is time, cohort a this add, are high, you wrong just a which many so which one of it's over

question from will with Schenk Lauren come Morgan next Stanley. Our

already COVID spending that that customer, expand at the spending second-year I a sort a $XXX is in about seeing kind what just perspective. ask cohort over year you were spend of of that gives the the wanted continue here, COVID of the you're from in they case, and previous if If of what sort same will to as cohort you see to one, confidence that cohorts? rate sort typically

-- as it. Sumit. Lauren, take I'll we this is

and connecting their subscribe indicate improved that engaged cohort. new to As And driven these rates, purchase. continue as Their by, frequency we positive Their verticals I've basket see into in believe we've mentioned the Autoship, in in uptick the rates script, our and discoverability, size, together. mentioned, momentum. positive all from is behavior growth merchandising, attach our we of the all work

So not is might marketing ask. spending planning Nor your to spend we that important on don't time them. if we're lose now. follow-ups, going to you development still are retain answering not please or in an unnatural indication believe question believe deploying If an we're customers, we right which if customer that on have manner so. initiatives drive other I'm We

similar above of you was that at the of X look think cohort already is phenomenon normal spending do their cohorts? Is year you the their is that where cohort of year-over-year COVID? spending COVID if -- just customers, opportunity there in year to would a spending? because that guess, I sort a the Yes. previous be is of still sort Or growth --

Yes.

year think X, second X. year it cohorts, is understanding follow your the to Lauren, historical greater I -- expect would than same if question pattern where as is I first to be I'm right,

I already. first first at cohort quarter So a we year, we're higher In in look remember, even year. previous XX% just and first this last really. year, spending last that quarter acquired spend bit fact, year's their of would last that you there the above than the it cohort. seeing And loading, if buying call pantry And quarter cohort, panic was is was some year's

those seeing customer first in and a quarter in lift sales cohort. the curves overall we're So even new of the

end. Hopefully, we're So on your positive question. answering indicators that

of wallet customer older doing the base. is newer we're mature capturing at same cohorts. all sooner than customer the the believe our LTV we that Lauren, faster we share our that And and were the to we stronger, expansion and their of believe assortment the -- develop given we're with launches, the or potential work time,

question James. will Nick from next Bacchus Our with Raymond come

pace, So continues do How about those a the you lot new some think a acquisition each drivers of So about you kind be about how come of do growth accelerate. top of moderating but strong, from year that? longer headwinds from going think term? to customer to X How these at retention, continued the in talked of to but is line drivers? your NSPAC X-year-plus plan, much you

Yes.

try Let going customers shown in us, spend. they with because to the the sort the to of want right your longer of time the anything. the models. answer, miss down me answer that's not tenure into right, -- with the or that's it less for sense I a about that question, average we've give if to if that the you right the customer more not then we first, more give and us today over the I But add Think it years. get it active stay has can Sumit than you customers wrong, NSPAC, even anything won't break And X

time do some is. we've fact, only not seen So cohort expect $XXX spending as more and the customer over and mature base to cohorts spend a more and we -- older customers our today, that in $XXX,

customers We also more the would attract over expect us platform to to time. continue to

capturing working the growing maturing at find and hard X to you've you Add grow proprietary more that continue more new wallet years our to attracting years and specialty verticals. spending to we once: just platform. base that us more; So us fact the had the last of ago, just time, at the launch we X and overall, customers Pharmacy. categories. X had and ago, catalog, innovate over years, of the brands. tailwinds point the X actually years, seen we couple launched just goods In in we especially this launched launched, had share

it add to faster. to of and and more more our continued us share of for more categories we wallet and So more to shift customers shift products the

tailwinds, attracting customers shifting actively doing, and catalog. things of normal is also and customers and their you would and to have categories I spend more adding with we're combination the So say, time that sort a our which of over of maturation more site to

about think idea gives we So of it. how hopefully, that an you

quickly just That's gross And very helpful. on then margin.

by You and talked year, about, obviously, from et of onetime promotional proprietary a et very efforts kind of brands, engagement, more cetera. of to cetera, some the strong increase quarter. Half -- effects remainder driven the improvement the was from customer or normalization the environment, last onetime

the a that's perspective, up year, move as from coming... compares do the how you So half line through where that comparative

does cut Are still at quarter? were paraphrase Yes. I over but you the Nick, lose Nick, sort it out think of you. Did gross for how develop right? hopefully, bit, we we if first look didn't at, getting you the you I margin last there? time

and of the kind year. comparisons Yes. from as Yes. year And to prior of the look balance you the

Yes.

started one remember, quarter about things year. the year-over-year fact the the in costs you right, quarter that seeing of which freight that that came out, of not did first We is If it we part we the new. same the of called half fairly environment, we improvement competitive you're XXXX is have in muted higher the last fourth did that is and of from

we demand, an surge 'XX, therefore, costs. experienced higher inventory. the had in significant backlog, a freight a And you we If imbalance in quarter recall, first

repeat, aligned our not demand. with because our more inventory customer is did balanced that So more today,

-- it continue. and that a XXXX It said was pricing, We've recur, and onetime, that in benefit, to did be that that expect expect event and the onetime promotional comes I a driver to a right? forward. don't would we depend. we just promotions out-of-stock environment expect not So not to or half will It was the it Then going that don't a would that state. the as normalized more the But in out-of-stock to Timing normalized more also we second year. back and is to potentially continues situation, could into into a move online come less of more we -- TBD. to state, see capacity move pricing

temporary. think might be That it that So way. about

back like our turn I question-and-answer over concludes for remarks. closing conference This session. Sumit any would the Singh to to

with care evening. Chewy having you. our a Have Thank The take was customers. excited team to rigor and great busy great It execute and Thanks. XXXX of remains about you.

you has for The Thank presentation. concluded. now today's conference attending

now You disconnect. may