Chewy (CHWY) 2 Jun 222022 Q1 Earnings call transcript

Good afternoon. Thank you for attending today's Chewy's Q1 FY '22 Earnings Call. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Robert LaFleur, Vice President of Investor Relations. ahead. go Please

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

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

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

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

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

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

hello, together tug strong service earnings call is to customer frontline the a why our which was and top business between our and of in the of to results. even as our environment fulfillment lens, Bob, teams operating team March, demand the characterized that war that and bottom different, I'm our XXXX customers proud organization, care at more everyone. our that underpins and much time QX environment. and fundamentally Thanks, evaluated top-up shareholders. I our challenging consumer the and When and delivered not results our through Chewtopians QX came strong corporate Across members, from for line line On

of demonstrate the execute stated against the testament resiliency results ability of capture Our share consumer to our our category objectives. a clearly and QX to are pet wallet and

XX% and sales spending a to QX Autoship sales existing So gross performance. per is with Consumables and net overall the strongest sales all-time Company. increased or new XX.X% that, in were rates. categories $XXX. $X.XX net margin net quarter growth a delivered customer customer healthcare penetration which from sales, high and start active XX% an billion. behavior Notably, top both strong and saw high profitability. to and Autoship NSPAC to quarter, increased We as increased improvements of nature sequential line higher first customers, let's the of reflecting we review as QX good is reached their XXXX for both solid QX non-discretionary off this and our record new

more just The input our acquired have last revenue fully power we appreciated, have $XX within began, to metric you powerful by grown customers NSPAC is growth. Since a indicator XX%. consider of reminder, is been X/X the NSPAC pandemic approximately fact the As that and when years. the active three or long-term our of also a NSPAC

unlock future year, this approximately So revenue embedded with how you data is $XXX oldest consistent $XXX customer spending base, they're spend truly still our a demonstrate our first and by $X,XXX second spending their can lifetime fifth already their potential, year, cohorts we with by relatively early curves spending time, can customers in over Overlaying with of over appreciate consolidating in the tenure nearly their $XXX our less process per active their year, over growth will time. than much which year, revenue us.

customers. on Moving to

and but let year-over-year key about grew will year, model. are few a customers. in cohort Our spend moments a Mario share million. X.X% cohort and of the specific to active engagement details customer that customer business me Each our QX at understanding spending XX.X acquire new remarks, we base patterns his talking

of who customers year, of have time, long strong engaging attrite within moment clearly cohort, streams. While focused those their are Autoship us the cohort in will over revenue mentioned demonstrated time which stay tend purchase data with that will record of to is with anchored by ago. spend a us us These customers I participation. with spend provide increase periods and with a certain percentage They over long-term year each after we patterns the high-value customers predictable are on

every subscription and grow differentiator XXX% not more time, wallet over This patterns, the revenue predictable of ability any over cohort As between customer in original customers adding to replaces for revenue if retention to generates is, itself the model subsequent of drives long-term to flywheel excess cohorts more has a a to time important model, more as revenue each the is resulting of pattern as one back us loss in net a XXXX share is than cohort. which our This growth. repeated revenue cohort result year, so, for going that each fixed-rate of model. In our key progressively these our attrition.

QX. profitability, to showed customer XXXX. QX basis points QX margin engagement XX compared basis line adjusted and year-over-year gross sequentially points gross down Now was XX.X%, from and margin sequential shifting EBITDA up to XXX each momentum and from top QX positive

the sequential in environment margins, gross a backdrop new the freight against especially macro are pleased contract. outbound tough rebound with and our We of

Our promotions. reflects management strength driven price gross product margin disciplined our and pricing improved execution by QX around margins, throughout recovery this quarter and

we that Importantly, been these preserving Chewy. able to maintaining execute in have expect measures position strong and while proposition market from the competitive value our the customers

the in could we XXX headwind that be experience benefits to basis of QX, fuel year. to escalating improved mitigate rate QX performance the year. on-time our customer lower have with environment the zone XX% with customers initiatives supply gross chain still supply card basis and improved the logistics our and to this higher customer costs margin XXX the QX gross persist strong delivery XXX and and and expect macro experience. chain reflects and by Our new approximately margin points better ongoing pressures costs to we a to inflationary shipments we remain undertaken Even improve associated points, freight and also performance, of said In prices, resulting balance which volatile sequentially to long throughout

to conditions new as prepared emerge. are we these as always, or change As react challenges

to gross which advertising and QX EBITDA and was LTV EBITDA our in X% year-over-year Moving marginal a approach million, adjusted we the the points detail points of adjusted of to of EBITDA returns, adjusted execution scaled and different. marketing margins, in basis and strength well optimal level was reflecting decline his as margin on marketing. expenses levels, will XXX from SG&A our spend previously, Mario basis On in QX X.X% was CPA efficiency, year-over-year basis no improved remarks. sequential as articulated focused X.X%, as QX, a points. of improved XXX up I've basis, closely margin negative QX our to net $XX.X sales; XX monitoring

now proposition Moving update of I'd out on our to strategy. experience latest the is our or of customer you our like Innovating of cornerstone some our value financials. improve customers' innovations. to

up our wellness Trupanion a represents in this make step high-quality we've and plans. in more CarePlus, and First healthcare to insurance Recall insurance affordable. launch and these that important bespoke partnered quarter. an which partner develop set to offering, mission with is accessible publicly CarePlus is to wellness pet our

and such offer lab looking plans as parents surgeries. purchase Our comprehensive unexpected plans together. and illnesses cover can annual tests, Pet insurance for our exams, accidents, protection while preventative wellness against the care, parasiticides, plans protection vaccines, routine

As that and XX/X to wellness of assets we unique on proposition value team built us these enable care seeking customer education Chewy's A together seeking difficult were award-winning offer few include intentional this plans, about bringing for to access differentiated pet Chewy's parents a insurance. we insurance those to examples coverage.

telehealth Pharmacy. purchase after to a offer connect benefit well deductibles as service program insurance as medication Our a to vet Chewy as from with XXX% cash back customers, for ability

to insurance represents X% a incremental $X.X ecosystem. for market a our with opportunity pet than meaningful the serve interaction our practices. part also to direct drive to strive TAM, brand covers experience at CarePlus customer with is less we and pet U.S. consideration and loyalty, see expand We share purchases approximately customers, pet make population. opportunity of payments highly gain Today, even Overall, and engagement of participating health the vet compelling billion and underpenetrated the believe Chewy. greater TAM in the profitable with seamless this and We offering healthcare an

this launch you are and progress up ramp forward We sharing offering. to the our with we looking as new exciting

mentioned I and Phoenix our QX haul expanded FCs. logistics and CFS, start. mile supply our to earnings cover initiative seven Freight on our during where chain, and a to or Services, in portion now call have CFS both Moving the middle own or in operating Chewy centers QX last fulfillment we to our are are market since of network. launched it initiatives that innovation launched logistics a good off within We line is

continue this will XXXX. scaling We XXXX and throughout

we Routing, finally, XXXX. data us in are and international The In serve. batches, were automated the in about strategy and potential thereby showcase fully give performing. This second successfully continue have which QX, can these SG&A innovation up allocation points optimally Import of and our centers fulfillment one. to was FC. leverage to let share of ramp initiative our scaled larger fulfillment the initiative on able me our Pennsylvania that launched our centers in overall this FCs in This to us I'm initiative, in significantly inventory is our AVP cost confidence QX. to that update an section fulfillment Our to be inventory lowering And automated the investing automated enables wrap more improving centers magnitude contribution to will right also to with our route how our

AVP XX% volume XX% at over average of a result, was As fulfillment on FCs. variable X shipped entire cheaper cost, first-generation than a the which network's our

network. FC AVP in overall XX% the that site this X throughput During our weeks QX, than demonstrated approximately throughput higher its legacy average peak of was

by we and thereby as encouraged to of SG&A cash automated strategy network capital operational FCs, flow. leverage results are believe enable these our We this the greater our spend expanding and that in will footprint, network us free scale reduce unlocking FC

sustained ownership, more At spending supply mindset. and investments Before time, diligent on such run penetration, turning and our business confidence scaled our cognizant in in in build loyalty let related values, nor and Innovate secular remains close lifetime are over highly online are unchanged. attract these drive will our and per P&L placing Mario, as towards appropriately share saying confidence nothing ongoing greater In and management and strongly face, shaken customers robustly, many high inflation, and disruptions, environment, to the nurture response, to value of infrastructure even as stresses and Chewy's we our that, we continue uncertainty ever, shaken profitability. growth support with we long-term the remains continues as higher strategy capture today's greater the remain that a operating our flow which consumers. disciplined pet and to compelling challenges approach same that macro of we has long-term engagement, see the current, proposition about with chain wallet. teams by pet as me our

call road towards map future, as we optimistic I'll over remain our Mario. With the As ever. to we strategic as that, that turn follow

Sumit. you, Thank

believe resilient sales increased in a by have achievement net strength quarter which a where remain to flat comps and and the our and categories, environment. demand of goods quarter, $X.XX across multiple sales XX.X% industries. driven been current we sales year-over-year significant while result inflationary in a down Net First such growth hard categories healthcare to billion, consumables consumer pricing pressured, e-commerce strong was as is non-discretionary

to First Autoship $X.XX basis quarter XX.X% sales increased the quarter customer growth billion, total outpacing sales by in net points. XXX

basis of sales quarter XX.X%. First increased points Autoship to net XXX sales customer a as percentage total

NSPAC, or to customer net a $XX per sales quarter First XX.X% increasing reached or new active all-time high, $XXX.

QX by our an our We since active flat to ability QX have we XXXX. or customers, in increased Sumit XX.X of basis, robust customer sustain demonstrating million wallet with NSPAC QX to the in As year-over-year. customer active our X.X% sequential share $XX customers growth across compared XX%, cohorts. of mentioned, increase On of began XXXX, all basically pandemic a were ended

were As We cohort, of one for XXXX believe rates single-digit rates fourth year well in lower the low inflation reopening as goods. hard the of cohort these quarter impact categories is to result we such are as stable XXXX on expected, quarter as customer having the lower retention and than the pre-pandemic levels. discretionary the first compared percentage points retention of the economy of spending remain

in XXXX again retention excess the in than growth offsets that know should we of individual customer customer may revenue that cohort demonstrating any attrition XXX% cohort. for said, All see had any net spend given XXXX, more customer of we in that the

financials. Moving to the

First impact and through compliance XX.X%, product XXXX. logistics better decrease contract and we costs XX between some initiatives. we the In pricing shipping improved quarter basis supply gross QX, surgical mitigate the able the point also placement pricing to gap closed were outbound inventory actions and compared basis margin market quarter, to improvement and a year-over-year chain QX management. sequentially our In a through point was new first of observe of XXX

share-based service first compensation, fulfillment through in processing XXXX. million costs, OpEx sales which or XX.X% to Now and compared first corporate the SG&A, and fees, quarter the $XXX.X of let's overhead our includes go totaled XX% of net card in credit details. customer all quarter

increase basis, basis share-based points versus XXX XXX improved first Excluding $XXX.X an share-based or excluding of compensation, million sequential SG&A SG&A, of a sales, totaled the basis of XXXX. XX.X% quarter net points. compensation, On

deleverage the share-based me both. year-over-year to Three color provide SG&A, on of some Let factors excluding compensation. contributed

and The to be implement we first $XX first estimate quarter and the points. quarter is benefits to full or that year. We higher increase the XX last impact wages through wage year-over-year cost began of the halfway approximately basis benefit million

The basis which, expanded remainder and our in Fresher in operational fulfillment loyalty was and basis meals, technology the including discipline our to The Second, launched and investments the and a XXXX, to SG&A across pharmacy degree, deleverage operational two a teams, in XX XXX and program supply chain. all sequential points in areas with depreciation, service the G&A, point optimally legal contributed strict reserve. of excluding fulfillment and, to prepared reflects in centers along took run small improvement lesser higher SG&A, execution, actions three we support healthcare, profitability and growth share-based personnel of primarily compensation, result we corporate to of the locations, upfront as increase making staff year-over-year. our tight we are release of customer initiatives such the

basis marketing quarter XXXX. sales, XX point by a advertising basis, X% XX an and sequential First advertising expenses was over points. marketing basis improved net On improvement $XXX.X quarter or million and expense of first

in statement, first margin discipline customer X.X%, quarter the million EBITDA our first basis XXXX. the decline Adjusted decline million, quarter spend was the and efficiently demand, in income quarter net $XX.X a million of Adjusted sequential investments year-over-year. operating marketing recovery noted we million, versus margin was expenses adjusted $XX.X result basis of and and to points decline acquire a of the advertising as new of earlier. a basis income make a initiatives. of our quarter reactivation and Our EBITDA positive XXX a $XX.X in Notably, the Net was returning XXX of $XX.X XXX was our adjusted development on million up of Wrapping customers, reflects gross margin from points. $XX by EBITDA year-over-year scaling first margin X.X%, EBITDA points, improved a by XXXX. decline increased basis, to

free to on Moving flow. cash

the in and from between at network, our billion. million expenditures. upgrades recap. $XX That our cash free cash investments fulfillment $X.X availability quarter and primarily our technology. quarter $X.X the operating was center sheet. my of flow and future capital existing concludes first and cash Capital million, with fulfillment and activities equivalents comprised ABL, $XXX on of expenditures to stands on And launches, quarter ongoing cash First cash reflecting in $XX.X million finished were million of balance We investments liquidity flow

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

our environment While volatility remain core accurate forecasting make to fundamentals ongoing strong, macro difficult. in the continues

see opportunities risks reflects guidance the current of we our always, and As the today. balance

quarter be XX% We sales representing second expect net between billion and to growth. billion to $X.XX year-over-year XX% $X.XX

$XX.X of be outlook $XX.X our net for and billion XX%. reiterating are between year growth to full representing to XXXX billion sales year-over-year XX% We

reiterating margin breakeven and for full We to outlook X%. be EBITDA also our adjusted year are XXXX between

your here update are couple you in models, mind. to a of keep housekeeping items As

and expect see sales full of variability, cycles. in unprecedented our line resilient be year will is pet gross the some and full XXXX, XXXX equal that to and to itself While is of continues in proven improving range this of range full out approximately through top year, X.X% gross may with Chewy balance we we expected to face Full X.X% macro to deliver year our quarter-to-quarter still margin durable year X% aggregate. and XXXX to the to normal expect strong we margin net of CapEx CapEx XX.X%. of in sequential volatility execute The has broadly XXXX economic category profitability. across line be in growth

disciplined support contained are the long-term current margin map we strategic our and to economic diligent plan. we landscape, remain navigate expansion growth we in road in the and making As the investments

remain and over that, to optimistic we've with I'll turn with We Operator towards made future. we the the the as call And date are look the to pleased progress

of Mark Evercore. the The Please with first proceed. Instructions] line question Mahaney [Operator is from

That think, questions, sales, think I ask please. a two record that's I and If marketing, advertising X.X% could low. I of

the that. because have buildup a talk kind about, or of a that the about that net now, was that there And please, anything of that onetime-ish Is helped in subscription at of adds. Just the so sustainability are may then forward down normal secondly, point going talk that, is that's new the you -- stay model low?

of issues the in in had sequentially. I your know came I think that, but year? normalized churn out adds we -- big you've which should the was How cohorts, having to in do we that some of attrition coming net about leading this that? balance the see we of And first normalize about still When that? think how and to the against declined the COVID was growth the talked should expect you past, high through net So the adds numbers. out terms of -- What's quarter

at to consumer to the area. a the will mind as March can second hear discipline. spend ebb be to not of interesting a share of out going guiding first this I'll the and take we figure patterns through. super if Mario trend the economy marketing, these the We different. of executed question. is to specific And I'd XXXX other as that level continue reopens was of I from macro some tell sort nice said with in the factors on we're Mark, you, rigor and flow and On and you. no spending And QX call, recall, one. take March so -- the you year, Mark,

spend, and the when quarters our engagement We will comes time, helps. and -- on seen being that to at intend higher, will that remain time. any to we investments others acquisitions expect hope it or I remain with time, I of You've same And but over making will opportunity the current being to might don't table range some the lower. over scale intend leave drive disciplined. line within

from one. a Great to Mark, Look, it's you. I'll you this of color bit Mario. give hear on

basically revenue with XXX,XXX year-over-year. first, into a mentioned in were of remarks, increase customers, that active and to customers, prepared our the X% sequential the So is flat. as continued On QX, we active grow. of over first XX.X% quarter million we our We ended and an basis, customers retained XX.X customers

both can active dynamics top the me You down and NSPAC the break customers we that But provided. as see in line that well the again. let of the

You would was material the QX that, start rates. historical what said we nothing anniversaried cohort, which changed. and our a for there line now retention level but year, lower and last with levels, have from the one on with the retention cohort. than No call. full in it XXXX stop. expectations, change was That's In Single-digit retention that

that Google acquisitions, customer the the that new to well. acquisitions with year. active with in we be net first longer lifetime stickier or categories, first by can more and I it's the long-term us basically and down in things. that is the line Chewy. because -- they and the searches was look customer by categories expectations. those One behavior, data that of industry, two of show in terms and goods adds in like also in that should down our They customers muted were came initial half pet for in would in things on year-over-year. adoptions correlate in and like into see higher, the connection, retention first to quarter, we favorable that That's that as recall add were purchase just data. And was bought quarter, And line we category. that said hard the said us at that discretionary the the values. double-digit softer not And telling And a we which way, In less that acquire categories percentages did we

think So about that's to it. the way

expect increase active case we still to in customers. we in in NSPAC. QX don't we Now to -- to said I'll don't quarter. muted, should net we how active for the course, year. We a expected don't the also half more second -- said, and first adds we customers, the and is guide say thing, the But -- first guide we, as did you of it year-over-year call, about be of that's said think add to the We you rest of do active which be one believe I going all,

active So on we the net from NSPAC increase to increase. on flat continue that provided But guidance standpoint, would we still our a customers, even sales. on based

So picture adds else. everything hopefully, the think we NSPAC about you and that gives how of full net and

question of line with from next Anmuth comes the Our Please JPMorgan. Doug proceed.

given the some the in you're could about other then maintaining that full of talk you the for hoping proactively the Just talk considerations the XQ some high-value to customers, just COVID EBITDA, about And LTV on in X% engaging X% within can outlook year. second, those you of ways upside the who have greater cohort?

Doug, Mario. start first the question the take I'll and the So part. second that But quarter. Sumit so pleased we're the results saying will first is I'll this -- answer of certainly by with

Company. see that a I a can in QX we to made material EBITDA and into one $XX million improvement that's ton member just We think EBITDA. by the quarter, quarter-over-quarter, and team work positive, returned progress QX, adjusted of on every had from we you in just

start, it's So, a we good but one quarter. off to just are

go. So, we still have year to of XX% the

we're And so year of our year, somewhere the -- on about the way to between full and we're the still the rather reiterating breakeven being holding thinking EBITDA. for guidance X% we are

Doug, I because caught need that repeat to we question driving for LTV with engagement the high second may you are question? Was customers. And that me was, how your

LTV higher proactively you're how customers cohort? COVID the those just within engaging was It

sure. Sure,

grow as from NSPAC I'll I how And well. we at understand So, both -- is think standpoints. important we come it this to

CPAs is to LTVs. spend is to them marginal us them science grow level and philosophy externally engaging or spend and to martech and right our these of improve customers way continues sophistication monitor the to money customers. we to terms category capabilities these we that spend approach said, incent acquire our we of then with target in to towards to as spending our there the customers, propense from And invest and as In and highest the

over at customer basis. materially the rigorously sort year-over-year capabilities takes segmentation point, our improving a a are there site and targeting once and and is now So acquired, on of this

who points the in at towards these under of XXXX the you ratio this are like of data, at customers our in that. healthcare point that when X% the which internally, data just propensed that, with is has look grown to category being propensed of that of customers, the some from shared I've So past, number in you a customers to our way are XX%

And to and agents triggers their lie purchase approach conversations our to to et Company. flowing of incent the able and technology recognize this customer an back across our that be cetera. should developing get the and allows per so We're to enhance We're be that's engaging category combining existing participation customer us kind customer them engine services. to into to be way developing where cross-category right to complete able customer purchase we care what able having, to how do be be us customer, to a able to the their the consideration, care for

complementary which we're the developing say, many call last one we thing would in last that I is, a customers but we customer then or relationship of mentioned or if our have enhancing that large sure that last helping capability just complementary underneath such make also capability or in -- I we're new customer are file, developing CRM those then are to given ways. discovering. not, we discover, them management, and a offerings, So offerings And fact huge want net are the for the future. categories And March network which

it XX-month period handy of going come and be within in fully is CRM to live year. a really will So kind

next Bank America. The with of is Schindler line proceed. the of question Nat Please from

of don't annoying probably know and you're you question, challenges -- looking to looking I but trailing XX-month to Mark to want and this follow an but sub the question the is guide I want know a subscriber. just I this, that adds, of I because asked up on Yes, at earlier at -- net on

have So to don't QX than know, customers did answer. it QX? actually more gets in service very you that We you did in hard

it We have be whether QX an the could -- answer that off fell and at those of people year. of last end of

help can or moved subs of timing have the us guide you So around -- users? when us those

absolutely. Yes,

more we Nat. did -- did service course, we So customers of in QX,

actually levels, at kind off not the rate of to in adds you costs we're input think qualify questions on sort some gross mentioned as right? might it's is view, kind of demand about a kind at the the more, of of and rose we look that of marketing little for QX being you In search follow-up fact, this interesting what dynamic, type double of ebb the end adds acquisition, bit CPCs in here. net pre-pandemic this point you seeing it down it this, when and kind as the a I See, so And of searches. category click answer -- Mario from was of pet materially because also now. Google when come or just customer softened. a of This really it And flow saw search certain let me of right

search so in resulting it pool softened, in And pet category as shortages on. demand saw of the saw to ad what we bid the also was,

previous sit to if and in if March-April be this and just articulated you earning So back call about -- you you'll our just it also. April logical think I've -- find consistent what to observation,

a now. right is of factors broad result this two essentially, So happening that is

result, specific. categories needs from and rationing inflation in And discretionary get a as like to higher them their applied First, categories. discretionary customers -- they're result, a kind declare pool non-discretionary is And a industry -- spend per to degree incentivization were are and customer. are minds, consumers' to that result non-discretionary statistic. you as the is that from factors spent away of be be on weighing of to a of And smaller more required to actually this shopping purchase. to not the an just that This is in dollars of intent is Chewy QX have

is back actually the but reopening, the towards us, normalizing and as retail that traffic clear This of is it's stores. that, that back such but To purchases is going retail, customers it into if reads an is fact if of not into all dining. the economy again holding other intent. redirecting portion is traffic exactly as indicator categories is Second as some travel

and those And engage and engines having work harder acquire so marketing -- to customers. then to retail

and consumables categories categories. clip healthy non-discretionary shortage seeing healthcare. from are -- dynamic, customers as coming we're So that primarily amidst any this And we're is a we discretionary at adding on really such

customer with And top our of patterns strong. engagement spend so and on existing remain customers really that, their

a doubt. customers, no servicing larger we're So batch of

inflation just And harder the effect consumers discretionary the limited facing spend more getting to on further this are other -- across clarify and as on categories. and Okay. being

you back are look category Or seemingly this affected? changing? recessions. this Do parts of you If category dynamic impacted by isn't historically, see is it that just

The indicates hard which category, which that in consumables, subcategories treats healthy being that rest very is overall flea staple believe in the to tick tick, QX. degree, by non-discretionary I market QX such from discretionary. in industry share as goods, is healthcare, from was as is macro pet med clip, at healthcare. the through of the the of non-discretionary and at is and Discretionary OTC and and even in we in pushing So which the grew categories. flea environment. seeing, we consistent are counted Even as with current suffering seen way, general a the where resiliency These food kind are some we're core that seeing level, primarily took the well, is pressure categories in resiliency including and soft essentially

The Please from with proceed. the Fargo. Fitzgerald Wells is of next line Brian question

couple questions to pharma ability there? the kind wins. you potential plans question What increase current the some Chewy among among a differentiation your of macro the of and substitution offering, hearing of trust trade going weaning potential you label? of terms and of savings? share in do brands? to CarePlus Any ways had are and about wellness I customer are gains, is I brands whether in on or private customer Where We've off base you label pet of plans missed the base. can -- of drivers product some second premier color talk if talk today? awareness Could of to you you wellness insurance think that's cheaper strength seeing there? of the you stands reading been And private wondering penetration Anything to then current penetration through people can on about, the highlight the

Sure. Brian.

important -- will few the over don't kind marketplace. of launch offerings of call me our launch. believe curiosity just first on And We a officially your So as few the we to just believe step. next see things, we insurance, preparing weeks, to I this bringing and an satisfy right? are the bespoke today, we're excited say We're -- but I for let on CarePlus since all,

towards. for And that So customers. are obviously what backwards might plans with are our a high-quality curated these working actually hand-in-hand consumers they were our created be as partner such propensed Trupanion from

ability the compounding large to are Number and team. believe care really, pod two, we raise actually team have we loop customers conversations kind of customized, our of demographic can with where our and the opportunities when to quarter. close just in. to direct stool. a about drive have is And veterinary of two, appeal that trust us call hub, fully one-to-one have which trained very It service notion and we actually active the file to provider high segmentation practice of a these customers the our will the the products. products obviously, curated concierge leg connection. like design it's And or Number our One, So that do education awareness. be customers we is for right earning insurance customer complementary this standpoint, highly really allows last propensed of specific third to care offering important is in from particular to several was a a have embedded awareness, partners Number we be three triggers the of finding engaged able have ability this. then the that type a first customer we've to

levers the are of brand, of as make funnel at I upper kind the teams brand down marketing into both think kind built our hard the working all down to thinking the we very level, level. of full sure is we're which also with, to So that but build funnel --

will on builds construct trust of consideration. we will that the we strategy So, which conversion is likely which actual is few of the -- we is roughly follow. from have drive that awareness fairly awareness believe is points, we in you that we Today, probably insurance the familiarity teens. back low well-thought-out see teens a that single-digit should believe generate the reflected awareness, is Consideration, XX% how customer conversion, low essentially of XX%, but And of levels, a propensity in today. insurance penetration is

clearly that are previously, and servicing challenge of have second the an your So And as substitution. our in space I've in our our vertical to uphill with to we macro ability partners, help we private on on front then this bullish unlock way. question about of customers us. trades commercialize the and articulated But was label

business. away in brands speaking, in not are side. just So reasons There also private brands. are possibly the generally this shift any from on seeing highest And any not mind. with trade-down this the we're discernible private brands built our we're two noticeable material two quality for or there towards or is effect are national One our reasons seeing for

can on anchor space, it conversion you point on can SKU we're way a there certain -- competing be attractive and bring the quality, pricing out highly price. back hold certain and our not valuable national attractive subcategory, desirable labels price and As recall, that are essentially and highly a or certain their one private whether we on a and believe -- We for SKUs in they brand. drive or we

not And brands. really of behind do building private consideration terms I private So two, then we're offering really believe we brands." in to "cheap have work our

to do when to brand And private we particularly have so is known, consumables, in the there. and work brands essentially well folks migrate

next Wissink Jefferies. the Steph Please line question proceed. from Our with of is

I you question like-for-like had a for on pricing.

sense the need just having? through much still could has based you're and been you through may on much to side passed the the pricing conversations vendor give of on us passed to how a the business, consumer how If consumable be

Steph. Sure,

if and -- saw to this And the of look about volume XXXX. give pricing that In QX, we in I SKUs was versus contributed to had really at growth QX. that think both price take you idea, QX you down to it's an or we our half QX, flat So, data in helpful point. a

in earnings all articulated of the our in converted expectation, broadly through, low line speaking, the was digits right, has to which March prices our mid-single So with been call. it across average that catalog, And had increased pricing. as we cost in has into nearly come

the some and be Now we're and that to going what really of there costs to that that competitive to fiscally when a position, takes erode time, we if don't we carefully might which case. stand demand our And ready to getting into at act in is, seen same indication are that be the through, manner rounds are is future that from responsible happens. consideration watching are flow partners remains be we supply going

in out a just I of don't Can the helpful. question really the on we which out loop ask want stock. follow-up your might actually close recall impact prepared That's to remarks, of about you on of sure other I stocks? be talking I good one thing. much it make

projected. or half didn't out as the recovery of we'd And out yet towards stocks that of year, of inventory, about we cost be of latter material right of already around positive the stocks, within And our two, talked essentially the to lower Sure. impact indicated that remains I the deliberate three, as sustainability to seen. did greater our that expectations that remarks see in drive beyond signs was in prepared us has QX. and that helped be any of work remains the availability as mentioned we some mean positioning seeing experience improved today, number we're helped some I -- then has zones or for customer also we we've better

with from Carden line Please proceed. William question comes Blair. Dylan of next The the

what to launch, back that see a that's that of you broad any and of sort the the meaningful grew guys broader in And Trupanion in Yes, starting trend? do just of space confirm I point. on overcorrection even online have necessarily sort some revert to right? whether maybe or you're quarter, maybe the the retail this start not to guidance industry just to Is sense quickly do of the strokes of at pet channel a to that then kind -- level, I have wanted not capacity

right is Dylan. the one, that Starting with second

retail landscape, understanding E-com landscape those of as When refresh pet grew you XX% I'll growth not What overall pet look with X.X%. retail, couple the QX. no is year-over-year a there so is overall and triangulations sales, as specific we question, points in way the that your in of at share e-com the you. different grew data. well have pet, retail, data overall of part retail first we're The

XX%. put So you're retail traffic we data points, of clearly, Chewy e-com of grew and into seeing you in this economy back reopening When some on going top case. clearly, particular impact these

is pet the we not Nielsen general. to data, fact such the of as up you Of an course, consumables that trend categories XXX apples-and-apples than When this it is look But at grew industry. we can what is see continue in basis indication that we -- to data roughly the XXX points higher point. an consumables,

you -- type and also in our pet we medication, flea tick data also materially industry outpaced We QX. spaces, similar see the in where

Chewy online as mentioning, All take not for this all indicates and of into share. which grow, to search a continues or of that, of grow combine data what is you what yes, there this e-comm indicates to -- level finally, top retail. and continues when And then going traffic is was this and to on Mario point and that, sure share, back ebb flow proxy intent

you think what far And that two ownership intent -- signs that, here? real kind early had of as we've as an exhaustion, Understood. just on of given mentioned you it adoption, of from do just expect from sort that's years do had so quick. like The some the things you pet

you data and see we relinquishment, QX. is we look far, data, have I this saw obviously what so at on pets mean, adopted and exact, what When XXX,XXX, one-to-one Yes. been but in roughly QX, adoption that a adoption XXX,XXX that's pet not is in

with which and is is propensed actually now income that continuing to category, double-click so able be point interesting to coming it's you kind to seeing, higher adoption we income of fact right the towards corresponds -- underneath adoption our correlate see to through or relinquishments medium to is to be data of when Now from our obviously, income. would corresponds low the our the -- income push is pet profiles are data if the whatever what that, actually

Stanley. next proceed. is Please the Lauren Schenk with Our question line Morgan from of

could magnitude then contribution on the discipline with and And out initiatives? commercial what pricing half weaker the you're a I then and May? pricing, XQ as the to commentary your second the seeing improve second you the goods enter if sort of we will gross promotions search what back Wondering margin is any and the of the XQ. that sequential then gives improvement between question, And logistics improved of pet guess parse hard in commentary just trends around in year? and confidence adoption those you

second Lauren, will this is Sumit. the out I'll one. take take one. Mario the first

of innings discipline part part, passing the again, lesser terms I the curiosity, that sequential magnitude a but the and here. pricing you played bigger that directional part promotions in on logistics a material played your So or early won't initiatives out in of given fully satisfy a improvement, give we're and still I'll a indication

us kind indication the it promo that environment, the changing. just And May. a then also that. gives I asked far, And at that, on expecting year I balance think think, Lauren, rational for We're So nothing and of is of pricing. so leave I you the would

Lauren, your half us so in of question what about was the year, growth second part second yes? the gives the of confidence the for

maybe pet that goods specifically hard Yes, around and and adoption improving?

Yes. Yes.

a So question. good

growth expectations second in of our are of there half. the drive a couple think that I factors pickup in

said, if second we easier comps, a look in goods. First, mainly, little you half, hard as in the get they at

year-over-year than you quarter that roughly mean XXXX into at part and hard the faster first look I the half was in business moderated then half. first of XX% growth second the grew second goods half. If in XXXX, the

So easier. comps get

in is, of be part year. year to second the we QX half expecting as in-stock the call, this of we're we time that spoke, the versus is last half on the better the levels articulated The so relatively first second

what spoke. out we those question the they're roughly and said we stock in line expected last playing we and expect what out, how play earlier where time in with we expected to levels we about So is

first So be growth to the we half. it's second a the versus combination of those two factors in expect higher that half drive why

have watch competing where develop, Now, all that's naturally product, fuel, trends and I that continue think to in going to inputs obviously inflation share is consumers other how of -- our are of wallet much to the for We're opinion, and system the But from how of customer. looking watching more can inflation demand. much how the ahead. obviously inflation impacting in without left specifically, absorb part -- that and the we're that

Wolfe Mathivanan the Research. line Please from is question Deepak with next proceed. The of

year? more How this sales you I'll are the injection pricing little models What then the you with going additional under initiatives. that? Sumit, bit question the And percentage that that import that you this earlier is or served do of gross forward? and inflationary of currently potentially conversations volumes piece is specifically sort vendors logistics of cost kind of on Can And of differently, elaborate the on where on MAP into do So see of the you on the side. your kind cheaper margin time? the about another indicating at noted on trends products. on think the a end certain What the go towards compliance type routing delivery SKUs ask those?

Yes.

that through. this core are the the cost passes So going We the that is and take broadly but to essentially across be have fundamentally visibility, that one perfect given I'll inputs Deepak. second the catalog absorbing don't first, it's

from goods from vendors, we've heard vendors. it So less it's hard obviously, more primarily -- we've this consumables heard

into of that here. indication inflation gives of perhaps core So through you the the inputs an kind flowing

helpful of terms a grounds I QX, minute understanding to the in and spend changes or -- pace, what from think your saw dynamics baselines I we in think between question perhaps MAP keeping different quarters. it's In see, also the it's seasonal

in price saw during the from and delayed what to especially holidays, the product that's e-commerce tends cost, normalization given QX channel a true be like for transparency. So we and price

and you One, or reasonably to take play into of demonstrate action at we season, we so then actually quickly. it when expect don't QX so to do to look our escalates the MAP, kind pressures ability holiday And And during QX. on as or kind which second, our things. of two get exacerbates to results QX

effecting the can work impactful The pricing and well that be second surgically in we as to fact technology our change take decide action. as when

pricing could So in the we're customer question first lot eroding that demand. of customer shape going we'll about your and trust long looking actions surgical the will way really not how And then pricing changes right impact responsible amongst and considering this be going part at to we're how those is without be But we're pricing to There's making within through thoughtful your -- a margins. going customer deliberate play and now. on the perhaps fiscally blanket logistics out. lens, on gross trust short term, a and and actions

So weight it's pin two put or the down to much hard too actually on initiatives. specifically

impact margins. points right, by let improved to -- in that we give on contributed we me right, rates, you pay rates utilization QX, a roughly of we XX% gross basis. And So of an where roughly XX% basis XX contracted levels essentially example. spot our beyond to year-over-year Like

And the what change that? tools developing -- basis. and That's impact us an is transparency on planning, so changing it's appropriate and to better to in measures able the through inputs the -- provides reactionary tech that be of play

basis, through quarters. the longer-term example, I've for this talked The of scales is Chewy will a of initiative mean launched import our volume perhaps XX%, this, Some Freight actually XX right? But scale quarters. over other XX% Services, X next over an these that that see to four like about, ones could that I entitlement we on service we XX%, flowing

likely guys So margin played of the XX% several you can you now, into you and say, in through improvement basis of in that's have hey, gross that the entitlement flowing saw QX. right points

the prepared zone, saw improved placed sure bit the mention overturning by in don't long in costs, make zone to that the to that long how to zone been team of right lever. that appreciation the by at so that in I'll technologies remarks. customer, So each is a looking as ebb improved our mentioned hopefully, which actually you gives XX%, shipping XX%, order the is we also we've the and an incur closest flow for you routing developing inventory

essentially plays that entitlement margin. context All gross that of freight to this our and flows Hope through lowers helps. through

question line next Our Justin proceed. from of Please Baird. is Kleber the with

at it's look $X recognizing today. I the or wanted business ask Autoship, probably about just profitability you of to -- business the annualizing billion a in But that don't at silo.

model. ad helpful. you the what's margin to guys that, sales your share I with EBITDA be curious given marketing It's perspective related profile low those think, and like spend would retention? just on on So look can Any fairly

the without away AOV, to obviously, Justin, I'll why build values, staying helpful mid- your numbers, Autoship to Autoship is from are on, One, order orders over intuition for higher kind high-single non-Autoship specific average orders. of digits us.

starts help -- So it dormant it engaging. Autoship engaging the order, build there. and their It's not And very to we peripherals build an because customers our able baskets then just to not consolidate fact not Autoship customers. are top that or build around put much they're They're that, attach, them actively like on multiply attach. or we're to you get that of customers baskets

actually lower those that, fixed need an leverage you we've you because that fewer Company, around of Autoship Autoship holder runs kind might the leveraging. for through that cost are is Underneath number that gives perspective us because build of costs the base Autoship built, a entire how the we clearly, again, to the that, allows people. structure infrastructure of and AOV So how that provide through fixed of order order the

versus that predictable. can You of business trying tons a repeat using and plan is humans plan algorithms to

the levels, labor to the baseload in level of network rates staffing routes, can build our We to mile You provide middle draw right? taking optimal most planning One or last have predictability better mile levels. right? favorable -- We carrier to initiatives, on reasons industry. better We in leverage us allows better that effective better staffing delivery. the to needs freight favorable to leads the productivity a we're

through kind our us network without really -- So, and specific allows of to really giving impact, broadly operation. business a just you a and efficient disciplined it it's run permeates

that So context helps. hopefully,

helpful. that's No,

Just a follow-up.

Sorry, Mario. ahead, go

helps business add Sumit every up I I that now think over that What billion Justin, of run our a you that right. $X brought is that that is was Mario. our of flow to exactly order this it that consistent And is mentioned, that warehouses. through -- flows wanted I rate. business products as part is the point single mean

power So, there's program. in Autoship real the

great. Yes,

terms that to mix, it on headwind marks point mentioned, a in on any given that low gross follow-up And XQ? then just quarter the X% hard first here fair is margin start goods, to unrelated, year-over-year think change, of the over there for Just balance year? was goods but decline comparisons, XQ you the the hard ease of during the assume you given from just as the in and in

Yes.

or goes is year. not providing of constraints waiting alleviate just the watching to to The yet part year to rest and actually not mindset change, about those trends and interesting how the the kind on an feel of Mario's how speculating half point consumers' -- how and second of continues and guidance the macro of we're the remain we back to of this. back one. pressured when we're kind question not It We're your about

QX share we'll that. results So, in on more our

Yes, other all be fast see your part to will revenue to I if the into of mix, pressure. stream. shift a in of that the was if more other the part grew about happening the there would notice you revenue is the going say I mostly business, it consumables of you the mean, point But how the mix quarter, our can

about margin you say the of that terms on we the not gross flows gross this how about provided least margin. the So in or I that's year. through margin would That's the I And of necessarily gross QX year. rest throughout at should think quarter-to-quarter color ebbs Think full case. project and the would guidance not year sort of

Q&A the I now hand the concludes over Sumit session. to will closing call remarks. That for

you Thank quarter. everyone. safe, Stay and see next you we'll

That for your concludes participation. Thank today's call. you

your now lines. disconnect may You