Chewy (CHWY) 9 Dec 222022 Q3 Earnings call transcript

Good evening, everyone and thank you for joining today’s Chewy Third Quarter Fiscal Year 2022 Earnings Call. My name is Don Tanami, the operator of today’s call. [Operator Instructions] I would now like to pass the conference over to our host, Mr. Robert LaFleur, Vice President of Investor Relations. Sir, the floor is now yours.

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

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

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

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

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

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

provided a our these take enable and growth Chewy a solid to sequential in QX coupled XX.X% and margin year-over-year the were share. Thanks, today. double-digit the throughout We accelerating line we third Building quarter, flow generation. thank all incremental especially Chewy’s a our foundation with a non-discretionary us in active second showed for the joining to The increase results expansion Bob categories, industry growth, from of you free ability the growth. our solid reported the of call acceleration momentum demand second in quarter. cash trends share of categories, and the wallet, demand customer sustained sequential on gross on sales $X.XX across market strong in broader net customers, increase for the grow QX quarter, billion, and experienced again top resilience outperform underlying which XX.X%

$XXX. return made customer, Within sales, net categories, in-stock Our to are as confident years, engagement last term by with rising versus point view, the our environment performance. nearly remain non-discretionary quarter path sales second drivers, our demand the reflecting sales levels. XX% profit sales, like Shifting QX by categories up longer healthcare the growth basis doubled top improvement is Autoship that our anchored We of over to basis sales relative profitability, food primary good into gross improved deeper to little a sales our points XXX X their new collectively gross overall healthy line and and measured XX% discretionary growth margin hard year-over-year high. year-over-year were company the will over to goods as quarter XX.X%, QX core over XX% by expanded up sales predictable basis a results has net a of Digging showed by year-over-year, improvement margin hard XX%, unit and third QX in which customer XXX X% sales declining customer improves. grew hard nearly which points. has and were per of expanded and nature NSPAC, which XXX net quarterly the XX.X% active which economic is gross Taking to good a nearly grew or net

that QX impact fast and of X.X%, line comps drivers EBITDA gross supply of results on realized primary ongoing margins. of adjusted an million $XX chain the increase was basis this without we QX transformation. performance drive and demand adjusted of expand pricing EBITDA showcase from margins logistics simultaneously margin quarter the gross to big ability million scaling fit fast and our continuation the top were trends and reflects respectively. as from our The $XX.X get strong was and SG&A and XXX year, Our points accelerated and adjusted growth incremental we margin EBITDA last growth get noticeable higher favorable any benefits

X% as quarters, attrition away the opportunities we quarters. to with on the X% stable season, compared initial investment pandemic like of work Consistent phases rates through million towards XXXX. to holiday customer our consumers additions the pursuits third era continue increase travel quarter, to QX from we shifted customers, marketing level we summertime saw recent recent upcoming retention focus our sequentially with their In remained of QX as to compared cohorts. active and are customers. Moving Gross to ended XX.X accelerated customer up

invested ROI-positive to philosophy tight, maximize remained payback we we consistent found supply and accordingly. LTV with ad our opportunities While

announced products Health price points me let provided the Now, and meaningful and Trupanion the recently the we Combining to exciting in plans transformation. the expand strides verticals, with and expansion Chewy diversify range chain banner our some in of under you as wellness exclusive of spectrum our into of update across from meet of Lemonade. build the and parents. offerings us a innovations by of our CarePlus, coverage ecosystem, CarePlus latest enables high-margin our needs continue options Chewy suite on out the Starting Health, supply product we full new order pet offerings to of wider to Lemonade insurance and with make

engagement. We featuring customer [ph], are Health, of is from targeting products drive our spring offerings beginning in pet in a in we and remain category. the the Lemonade XXXX. on ability recently deepen Wipeful wellness and nationwide launched our insurance launch joint wellness and Chewy health of private our has bullish of humanization, increased customers space supplements to strengthen We category our first brand with customer line and pet estimated the Wipeful hip Elsewhere trend acquisition and towards a supplements. The this And bottom and to drive another gives focus multivitamins connection on top opportunity to over an billion. line pet non-prescription results. we the pet believe ongoing consumer and to $X.X us given wellness TAM XXXX launch

on to promote select growth, are sponsored ads we placements launched the version vendors. ads that products new of lines product dedicated months Moving recently from program, ahead beta of Sponsored several chewy.com schedule. specific of our

launch last The not progress our and to products XXXX. our to full business. to to to we across highly make margin is least, and believe but supply logistics organization. on transforming will With world class seamlessly turn sponsored ads, contextual and advertise continue us active should advertisements, these customers high revenue ads track chain scale capabilities suppliers operations relevant And plus in customers. for XX excellent enable can our million our developing which our We deliver

the throughout More financial importantly, in these efforts produced meaningful benefits company operational and QX.

automated shipped our portion at FC lower through XX% nearly QX outbound In last XX% of is our volume year. of our network variable FC we automated an increasingly per progressively up handling cost First, QX, order. larger network, shipping from our in volume

have initiative, efforts has customer our network, Second, and by distances cuts enhanced improving lowered reducing our by announced and click-to-deliver to also costs rebalancing and shipping compared capabilities distance order inventory efforts in-stock been last middle-mile across reducing improved times These software have year reduces our shipping by which experience complemented through costs. and which average average levels accuracy. by XX% planning

import the to reduce optimize import distribution costs. freight further routing network inbound freight our costs, to a our inventory and improve logistics us facilities customer on are leveraging fronts. of to efforts mitigate these begin quarter our Collectively, SG&A by expenses allowed experience ability multiple XX% new have of supply our schedule, FC chain enhances and and on of our ahead which handle Finally, across XXXX, volume end two pace

of broad the incrementally customers. to this that team’s continues Concurrently Let and me trust convenience and profitability personalized proposition their prices, changed build companionship allows relentless this resonate us into excellence hasn’t is cycle. emotional on enables and growing compelling backed market the higher service The long-term pets category unequivocally, Chewy’s outgrow remains to products transform and enduring in sustains share. that much value our our by focus and following. selection flow. dynamic take and our pet conclude with parents of is to share allows evolving. view bond of operating cash competitors us it in execution our phases the delivery how all What through and the pet it environment value and economic a the across low operational to with growing free us take This market

with I Mario, you. to company. share nearly the X Chewy, turn has years important call I would Mario After retire Before decided an development to at like from the to over

next plan or order those things sometime appropriate gold too watch, year. retirement will Now soon to be it’s although party proverbial his the

mind As simply plans. now of in you and for our to inform have specific departure transition right our of today, date Mario’s no we intent is

meantime, for worthy grateful important external and we position. ramp and necessary We as have this have a Mario’s it’s to to services strategic and for or find business a about successor. is search the internal for are In will which over regular updates as candidates top-tier long the successor Please that, to begun plan and as this we I place. matter understand provide that don’t we comment Mario. about we will in With not a to turn have Mario? call a until this usual

forward Appreciate But and time the then, I am until business looking Sumit. usual. as when a to little you, it comes. the kind Thank R&R words is

over a and second increase new XXX,XXX million, which sales XX% million to $X.XX which by collectively active sales net base just versus XX.X% sales, billion. talk reached of new quarter customer company third the of increasing of over XX.X an quarter high or net our sales, growth categories, XX,XXX net Net versus increase $XXX the XX.X% third a approximately an Autoship quarter year. sales. XX.X% healthcare represented of in and and was customer was also for results. Growth Driving NSPAC, let’s consumables non-discretionary QX a our our XX.X% Now, last increased our led in about high

$XXX.X disruptions quarter points third the our adversely last service costs, profitability, third XXXX. chain resulted on includes to OpEx, from XX.X% margin gross sizes of and supply to trends made and the the efficiency share-based totaled came net in year-over-year inflation costs, basis favorable margin. basket corporate to supply of that gross customer greater and quarter comps improvement the is processing sales balance our global shipping our affected million of expanded we and The Approximately logistics points XX.X%. from compared strong quarter and or last to of chain XXX SG&A, cost credit progress which Moving basis have XX.X% fulfillment in against overhead when Continuing result which and in XXX outbound emerged year-over-year continuation in card pricing year the all product fees, third bigger a favorable compensation, of initiatives. QX quarter

net the $XXX.X basis. to of basis XX.X% SG&A share-based Excluding This XXXX compensation, XX flat points third sales. or an and a totaled sequential of was compared improvement quarter is on of million

to As begin pleased costs expected expenses, we these paying I in now leverage exited delivering of on we a on to SG&A off. as how shared take schedule our share-based and quarter leveraging comp efforts be will elaborate expectation. ahead XXXX we previously, a moment this we are to excluding are to

the in expanded and network efficiency XXX FCs. provided improvements from leverage our points greater of fulfillment ongoing First, led productivity basis in by quarter, automated fulfillment center costs variable of

size. Sumit year. QX of in costs area our cost of from remarks, increase As in shipped shared provided variable helped the order from this QX fulfillment with last about volume drive order, coming automated his down which FCs an to per XX% leverage year-over-year remainder XX% This half in the nearly average compared

volume We the also gained an additional of through incremental XX absorbed leverage SG&A those facilities. more shipped points our incremental the carry basis cost automated FCs fixed of of as

costs, disciplined management includes points in we invest the base the second basis the scaling technology we This gains, sequential are a result of contributed continue quarter. these investments points cost XXXX XX G&A in to that future. of spend by to At time profitability overhead tight we half in of the improvement began our scaled addition controls. needed year-over-year XX and saw In is have corporate our the upfront initiatives we as that making QX, same and this on of and the for prior personnel from calls. detailed that support you and we approximately point in to deleveraging the deleveraging and basis second basis which XX the growth This a

margin growth-driving over we today, our time incremental through in up investments the and the line show while be reminder, expansion. realized SG&A make a will expenses growth top gross As benefits

XX a XXXX sequential a over and quarter basis increase compared X% $XXX.X marketing the the point second basis or increase quarter of quarter of to point sales, net advertising XXX expense XXXX. was and Third third million of

said from long-term QX, before, maximize our X.X%. Overall, $XX.X our investments saw opportunity and increase sales ROI X% are fluctuate statement, spend market on marketing $X.X million, Wrapping quarter growth. in within on spectrum the line those that make articulated of year-over-year expanded basis of to net third to lean we a active XXX income points we a was call. gains margin of quarter-to-quarter of Net the opportunities top our up to may terms remained have to marketing investments the and income customers driven million. channels net we last X% across range full we into conditions. depending marketing and As In incremental

we and Third million of quarter to adjusted unlocking as we points EBITDA margin that our adjusted scaling are believe XXX basis which we the EBITDA to margin demonstrates clearly expenses. $XX.X increased operating and of accelerated expanded realized higher X.X%, SG&A the benefits gross leverage

flow. cash free to on Moving

in and million, We ongoing million from is $XXX.X projects. the in primarily of quarter than marketable cash Third securities, technology cash finished last FC and quarter and comprised million activities million was balance expenditures. $XX.X operating flow flow free reflecting equivalents capital equivalents end cash cash quarter. $XXX investments cash cash at were automated with in of and the which and Reno investments of million higher $XX.X Capital and our $XX our

the our we of This marketable That from overnight highly notice interest and took our and that short-term $XXX excess quarter quarter, we million QX, debt-free end paper of marketable treasury $X.X sheet cash third rising short-term you over in between at concludes At our bills. commercial advantage ABL currently to of remain includes rates on balance into securities will hand, liquid Starting our redeploy billion. my cash securities. on stands QX, and availability recap. deposits liquidity

full let now and quarter our So, year XXXX me cover guidance. fourth

ever. and in XXXX the remain resilience As consumer the winds spending continues proposition down, category compelling pet Chewy’s as as of value

current Our change in current outlook from for trends material assumes macro the balance no the environment. of XXXX

tighter a QX to and results QX. of We guidance are our year XXXX our range for full increasing incorporate expectations

gross reported and We our SG&A year leverage third quarter. full through to the guidance our reflect as in adjusted margin raising are EBITDA also

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

dollar We net XXXX. and $XX.XX are absolute of representing raising billion full outlook range our compared over sales a to $XX.XX to billion year-over-year year XX% in to of growth growth approximately XXXX $XX billion

margin range X.XX% prior EBITDA We our X%. X.X% year raising X.X%, of up to to from are XXXX outlook adjusted of full our also to a range

points to of As in you approximately year XX year gross housekeeping We gross to to expect mind. XX.X%. XXX expand by XXXX here models, XXXX margin our are full few update your items basis from now a full margin keep

to it like to QX likely amid is margin below due somewhat factors in promotional season higher to efficiencies come seasonal peak and QX While shipping improve to fewer surcharges. year-over-year, opportunities higher and and gross activity volumes achieve expect we freight holiday

of net terms is CapEx, In at year-to-date running of X.X% CapEx sales.

sales of on forward million XXXX, will positive our spending FC expect QX our revised cash into articulated a We CapEx we million as our project year X.X% outlook. given to of As slightly approximately and times. pull now come of XXXX profitability CapEx $XXX We projects calls, will some in XXXX. payments now lead free anticipated position that of centricity, record shifts results expand the given continue with demonstrate full in expect to $XX below reflects previous areas to direct questions. this year the higher of investments execution This on prior in operator net longer in next round generate current flow. of expectation customer for flow experience, and enhance of to is line, I’ll Chewy’s industry-leading over We ability us call customer operational unwavering our sharp expand margins margins pet. that, sustained growth cash targeted in track macro improve extending with enable grow to profitability free our our top And environment. the a our turn combined result believe in the our CapEx making

Thank Sir, you, Our Anmuth the line is the first question [Operator with from JPMorgan. floor Doug of comes sir. Instructions] yours.

the for Thank you. Thank taking you I have questions. two.

guess, and the I that or that just during or the you revenue. just do the seeing of deceleration think XQ versus expenses. on in in Thank there across you’re holidays? overall logistics? talk first Can then scaling you you’re SG&A biggest quarter-to-date about terms seeing the warehouses the Where driving and second, of accelerated is gains you. anything Just anything particular if And and trends automation XQ

I’ll the off start QX with Hey, it’s Mario. guidance. Doug,

demand in holidays. demand we – to hard to the while relatively we remains consumables produced below and piece little look search the to likely soft and the a QX fact that’s have non-discretionary fourth bit we Also us we compared more Seasonally, boost right we our December bigger rates sales quarter, the for discretionary of QX heavily in demand that say tends softer net quarter. that doesn’t the of the QX, up between we’re year, demand all goods what before, guidance that firming So saw, given now, QX considering healthcare. of had saw a some generally January. last in as speaking, Omicron keep growth headwinds that you’ve at when towards it’s take the heard category things a a anticipate those from by sales usually make data as into And show hard like fourth And example, the to seem goods that and QX. for in to in of – consideration recall

comps So an higher regarding impact of that’s last year Omicron.

that last look, said, $XXX at of see our for quarter XX% And quarter guidance million growth good increase is the is the Now full midpoint over the fourth still full double about the if the that years. the look over terms growth year-over-year all suggests than it billion a and in revenue off to is over you year, you dollar and XXXX X guidance year more year-over-year $X.X now start.

is Hey, Sumit. take question. the the Doug, I’ll second of this part

what’s accelerated SG&A. contributing to said You

take of rolling kind logistics. logistics but You through. go through as I’ll I also I’ll explain are said margin, up both gross initiatives

to On the couple SG&A we scaling, a starting so benefits rolled ago here. getting automation, the that are things really which that of come are through in years now. from One, play we’re out

what physics the we into kinetic flow you’re talk system, me conserved in heard I unlocking the kind kind seeing energy you of in if said start there which is analogy once through. potential a and of where energy that’s So turns of lot about past a

the leverage of just ramping under still So the and the work ramp two half volume helped a positioning network. volume our to is The We we year a as of of pushed or third levels. of improving last We is that know by our also is point XXX one accelerated our of centers. both of fact realized inventory tenders ramp ramped. and the our result result fulfillment are basis fulfillment as improved third in-stock our the we that nearly XX% that fully little a through basically, launched

centers stable. when has labor you the that, fulfillment you and so allows density that fairly And more productive actually be been create do situation in to you the

leverage our planned we that or you essentially network So built in together, begin it it manner of that all when with. a us put allows to to it

basis fulfillment result that And manner. portion. about operating that. basically also is So as over component in, center leverage G&A that’s the as through, strong higher built today. And kind to that team the of anything controls sizes. disciplined of getting the of then all a The XX on that’s headcount, spending, incremental talked points is that travel, the OpEx course, flows Underneath strong in company management volume of run basket you Mario relocation, that, need third, we’re a

So that as contributing to SG&A.

margin. it cartonization logistics Number and extract that into allows we middle and helps which position with move in routing with deeper and orders freight Again, the we’ve allows us allows are us freight us three work work to there better carrier is up also positioning be the lower our that our our to lower essentially We’ve distances for order side, consolidate One, us effectively, us On per zones initiatives, inventory Number package two gross gotten more that to us then networks. with ship to centers more inbound inject hits the shipping rolls that And the basically that about. are contributing. allows density to to allows that improving inventory to us efficient mile allows cost. that initiative talked improve benefit. inventory. inventory also three,

freight of a side, So SG&A to comments and these of leverage four, relative side. you’re as the result the cost were seeing the on kind previous us the

that. both. you, Appreciate Thank Great.

Sure.

Thank you for your question, sir.

of floor the questions with line now is of the yours. Mark comes from Mahaney Sir, Our Evercore. line next

thank Okay, you.

me try questions. Let two

the of of which a of quarter the the there net you little of to more quarters that moving kind this expect gross customers? the that of two of is back and that to in which at the now of First, consistently ongoing sized in this interpretation before? kind beyond customers, the is high know on had across just COVID would and here, to talk bit. normalized the active you kind should advertisers Should bring of you’ve platform? And levels ad kind factor opportunity, stay sponsored revenue that be then you. we customer a you’re kind you expect growth Thank the active the TAM now a churn And net tunnel And after end have about decline. terms growth base the cohort adds I

Hey, Mark, I’ll Mario take will second the take one. the first one.

on benefits. So beta, ad, compare of still single haven’t launched The fully category financial think since shared or other sponsored just it’s in the we in would kind run way and ourselves that we we sponsored to about single ads companies it category. is

become that powerful ROI, the of an Autoship So the then than in the think which is different to loyalty allows us I we’ve more repeat us build purchase program would of would allows into that And brands a that kind just consider reference. and we seen also and power industry.

direct products So can on standpoint two that all basically that whether where loyalty, to of whether build you from index consumables, itself of lends the right you now. it’s website. healthcare, put we’ve response together, search kind it’s seen great from those partners products the type demand, And

So we’re those too. prioritizing

the of number of really a in customers. customer a and expectations. churn your customer account on reduction our the by increase quarter, in XX,XXX adds XXX,XXX you in customer in did of number the Mark, year-over-year. was uptick that Hey, is result That active and question second a The increase in the growth, up with about small the small we gross saw about third line active about quarter

to that ‘XX. point, your acquired in continue the large and we we cohorts lapse As COVID very to ‘XX era

consistent obviously, said on fourth our in we that, active as guide customer don’t to all like. calls. prior customers NSPAC. the don’t we generally active provided into expectations just for quarter, for reflected and growth know You we that going to we sales what guidance said, the that’s guide remain with And But the

Thank Mario. on Okay. Thank Mario, great of execution. success years X you, And congratulations in much. you so

the all best. you wishing So

Mark. you, Thank

your Thank sir. you for question,

yours. Our comes line floor & of next the the line Company. is with questions of Anna Madam, from Needham Andreeva

of and approach afternoon, great Good that. I have Thank us. congrats Great. quick so towards guys On Two you results. portfolio managing know more higher from much. you questions pricing, a

still couple your of you advertising is fluctuated relationship the on for Just we should for advertising, as last start talk any quarter? lapping versus we price how initial in the on right fourth price the as you year? ‘XX. secondly, And look think quarters. X% unit thoughts Can increases think this what’s And X% it’s the implemented about then the And the you. to business out? about we for level Thank implied should range into

to This Sumit. is Anna. in Hi, you’ll anything if and I’ll here. Mario start, has jump add

through year, So grew next but elevated first in meaningfully this so sales equally to and one, And of QX QX. in grew through about unit growth terms contributed also pricing all, move We pricing, QX. we QX. lapping we seen obviously, units we’ve as from as year, of increasingly pricing we moved

favorable be of comps lapped. first And half there year, positive still to is so the

we as as therefore, expecting through industry shared in we’re the previous more Number inflation to we So XXXX. calls, that’s expecting incremental into two, costs, the and are we’ve be one. incremental enter passed cost

similar of different first half how industry price. believe at then, grew that’s in which than of and actually in of industry price. on growth But into we units And QX, the growing would So growth is occurred environment occurred get where look we a course, QX. Chewy structurally as the XXXX. like In of units manner out primarily back the QX how pricing we’re

do as to that expect in QX in well. We ‘XX

X% percent as sales X% we net in we similar of the QX your where part be are in and marketing Anna, to Yes. given question were range, year-to-date. to to QX a to spend, that on marketing the year the of for second to be

Thank you questions. for your

of Brian comes of the line from Our Fargo. questions next line with Fitzgerald Wells

is line open. now Your

as what the improvements then should Thanks, NSPAC that you’re Any efficiency drives a order a guys. we by network? or positive ramp in you XX% across automated logistics And and on you you terms of from these the automation the direct and realized of network FCs. that? experience, doing so impact frame volume drive And up seen as it right? you result of have to cost savings better engagement, then up update anything handled frequency the to user how

is this Brian, Hey, Sumit.

So think there. the improvement in about how do we potential

you question. between favorability We’ve and somewhere asking seen think I So to XX%. a were XX% cost

So the than volume fulfilled network. legacy we’re two, center. And our that into still volume to one out XG roughly the ramping network fulfilled volume of cheaper the first fulfillment XG the XX% XX% from we third was

So incremental volume continuing and scale we’re there costs. to we leverage that gain, our to expect is still

would is we improvement there So that expect our network. from incremental productivity

there. story positive all So

seen the – mean, the improved of both the impact CX. an it’s as This an reactivation number. adds improved in gross positioning number is seen in terms acceleration as both In science. also our not inventory that reflected we’ve we’ve we’ve have. exact we in and we’ve It’s I reflected

numbers and to down see little getting in of way our clearly it work is out a hard, yes. network can net and the kind plays that gross you rates, our out bit So but specific there, so, ownership both

can more SG&A of saw recounted of add more three reminder, we the today, And as we meter, from Brian, in we terms have less one thing second reported look quarter. – we if or a these end you benefit you And are at opened Reno the numbers just I in if the at where FCs.

ramping. still it’s So

open that the we’re a three next FCs, is there out automated. couple months, more a or to FCs is year, of of ramping over also up are of And see XX. which one XX So year going

before, these we automated as and of So of get more we our profitability, time. over these facilities as through more volume are said layers

points utilization XX improvements add points two, Reno capacity, give certainly XX to up, is has also basis you points operating there to we Brian, of when basis XX like several The leverage, if it released. to these ramps. which size of is that get said to next XX basis

add that lower So the the of expect fact improvement, is come. continue we with with along more when to there more kind volume push so to far. we’re you that and satisfied journey cost

you. and Sumit Awesome. Mario, thank

Brian. Thanks,

Thanks, Brian.

your Thank sir. you for questions,

of with questions the Our line comes of next Corey line Jefferies. Grady from

open. now is line Your

sort expecting you’re and about next And follow-up the and of more pricing Hi, then XXXX. thanks to about you’re the in terms how leading off you my demand? taking commodity look and for goods, of pricing hard pricing brands to in are wanted questions. so thinking you that in a And good on come Can about Thanks. talking a and at gauge magnitude about in indicators say you recovery of recovery we costs the segment? year? hard I are what hearing the cycle recession potential COVID think would adoption what additional from on as you’re what and XXXX,

Sure, sure, sure.

conversations, to pricing or magnitude. on it’s define put early range So the a to

March. that a when So little call perhaps on meet we have next we the discuss more in when earnings clarity we could

to pricing QX in through expecting are rolling the frame. start time We

up will this and clear kind the year. more become next as we wrap year So into actually of get

So far, pass more we of as multiple we we’re definitely not information, get on. will again, rounds increase. hearing then But of that

through of that the starting If you cost four of half next of multiple had needs increases cost of but is XXXX from the look rounds cost first rounds pass at certainly over increases of last don’t to incremental XXXX, expect XX we’ve QX year. months. system through XXXX. QX there We coming,

on the to the tied discretionary consumer’s One hard Your it’s longer. is refresh consumer inputs hard pullback is the are spending goods on cycles lag to and Number here. hard that second from a two directly mindset typically categories. are to goods are essentially pressures inflation couple driving question goods, mindset

much So all refresh, etcetera. last new a you for America example, every say, the create, in bad years, got pretty – got to if let’s X puppy every recall bed

refreshed example. would, to so And quickly refresh as as don’t long, get toys these they for are cycles XX XX and as months refreshed generally

there play of basically slightly are perspective. third relinquishment, a is to they that, lapse have down pet options these kind And is the here. bit we the When flat from So at a household on very formation. the one year-over-year to you look we of little timescale as

So hold these to inputs as pet hard which to normal. growth goods tied household correct back formation we is themselves, normalcy, returns to expect environment, as the inflationary return to again

Thank you.

sir. Thank your you for question,

next Deutsche the Our Bank. line questions from of of line comes Horowitz Lee with

is Your line open. now

pass-through, forward to a NSPAC a just comping But the a year, cohort you’re you saw we say, next pricing again. call on know NSPAC, going it, can have, big this for wallet quarter in was from bit ‘XX high share some will pricing I one Thanks obviously help and quarter, inflationary and much of general year. for us versus we the Maybe you just growth it’s quarter the environment? Great. inflationary how path then level, think but have about you don’t at that’s when work a next year conversation unpack that, And question. for have path necessarily the next the will big NSPAC another of paces gains in be rapid NSPAC the

much. how thinking for Thanks growth year? next the inputs are you So NSPAC so about

for on our This the while we go another at quarter in But third – did mentioned I let is reach of in high Mario. a on one. kind take look, that give things, there was remarks, NSPAC the answer. prepared this all-time as a of me couple $XXX. purpose I’ll can

XX% number over increase of to you If that’s a last so of couple there. significant grain that take increase share years, back XXXX, QX of in the wallet

versus if that from The you’re We’ve for a spending a we last long years the been other similar during they that more customers. seen stay just customers simply they with couple time is added The perspective, acquired have with is displaying means back us. customers pandemic. thing the more comparing we several spending of customers recent us to the what And years. are that longer spend patterns that to for they to

less. at it today. today in $XXX. we is, about or cover year we’ve to the us mean that XXXX of NSPAC with customers our back I fact, And to look the as $X,XXX to spending if about current first cohorts projected that our fact Also back I for Add you In have cohort that first out us. XX, XX% seen consider a they oldest to today. said, as X been XX, And with years the XX, are

– So, and think $XXX $XXX, cohorts a about is are about $XXX. average first the our basis, what And to today, on that weighted NSPAC means, takes about there young you average, on $X,XXX. from our is curve cohort this long year fairly is that

So, there is gain a tremendous over amount of upside potential to how much from more share can of those customers. time wallet we

like growth drive by we help expand We healthcare. course, product Of catalog. our new NSPAC adding categories

at look with nice with us, the the they share you they of easier gain Now to add we long to more spend there? Sumit, it customers that so shopping, of to catalog. these have But have cross-category these curves product wallet. you – XXX,XXX And stay in doing all us. discover make again, for products over also as are drive years, anything want things over we back if our that to to cohort-after-cohort, and continue we they they more longer stay,

Yes.

I think hit it. Mario

you you healthcare, when We factors customers If & level, still the we are growth TAM an are less if at rapidly NSPAC to a customers. a and $XX billion contribute business that’s than Fresh there you just And at sales. scale look unit I positive and category, XX%, private growing opportunity several developing mean have is that XX% at in look which development. our deliver that to to high Prepared active label, launched of is look ramp NSPAC driver up.

are customers nascent And kind BXB initiatives these Hub, of connect really proposition deliver in our life platform. On pet etcetera, and we They services, premium early the specialty engagement top with we – new kind have the plenty telehealth that remain this, and cycle compound of vectors full such output, shelters, such ads, businesses can of believe on that and and compounding, of insurance. all sponsored them. as Our early stages. then offer are all in value our of Practice BXC with of that, capture as stages top or front event all runway

So, super about we bullish this. are

helpful. Very much. so Thanks

Sure.

Thank you for sir. your questions

from with Our of the questions Steve Forbes line comes line Guggenheim. next of

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for on Forbes. [Indiscernible] Steve

give on you Any us is I automated. in And into that on color what additional automated can facilities give might any the either additional you question see or like on quick shipped look maturity? a mentioned Thank from at FCs, color of investments Just XX% XXXX? volume you. you Reno can

months. terms about to we launch XX fulfillment launching two will in additional investments, new of centers, next So, XX in have the months talked which

automated. we So, perhaps them are more ‘XX. one center the to will towards hit definitely have with might end and launches, fulfillment months, of months shared the But hit next in you XX early two XX ‘XX, both of one ‘XX,

by of there. point, that terms the of the be volume would XX are but linearly, In course, we of would already fulfillment fact X XX XX% would we that say have the of of the at and entitlement, automated nature volume, centers we

fulfillment and as volume much with as shift much to you closer possible. customers can what tell to is centers pack region densifying the able as them up possible that So, we these be are place then to as or

foot we If us output giving in XX% throughput scripts, to per overall these the square said improvement you expect the one buildings measure. is unit recall we previous – have XX% per in full full or kind are CPU fixed that improve of of cost efficiency at

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to come continue as we So, more scale this. to

for you question your Thank sir.

line Sachs. questions Sheridan of line Eric comes next Goldman with Our the from of

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taking historically? inflation of have guidance is the much activity way see competitive in have the holiday competition what the there you quarter there are might Thanks compared seen what is for any you embedding next or to frame dynamics if different for seen in quantify consumer much over sense or to color. so the can, And Thanks historically, bent a And intensity questions. the maybe any and so what to a two-parter, the dynamics forward I you the versus period in wallet industry broadly? some that you there given for out promotional

yet periods. believe year will a to of forward, looking fact fully itself, haven’t into levels the industry, this or with intensify the remains we every secondly, QX, aren’t levels context QX, think given we are see on seasonal holidays. previous question, I holiday the promotional what in in we inflation. pattern your second – healthcare [Technical the we do seen the to QX promotions Difficulty] the line competitors compared chains Eric, normal And current expect recovered. less The add heading side that rational beyond of we differently is don’t that environment we a within more market. is And supply we is and in expect But promotional elevated primarily the consumables and have environment in discipline mapped, seeing. it the On allows

sales. be So, generally then elastic are positions they much but third, elasticity that to of point goods plus back mindset the category, the it normal are the makes And at expect able doesn’t look to there are driven hard sales look there, to of up a view, you isn’t about our hyperactivity. you contribution XX% in consumers’ – overall be when given from it improving, to stock certainly like contribution currently, not when at the inventory

from of view. So, insured there we are little a point a spend more

question your Thank you for sir.

line Blair. the of of William line with next questions comes Carden from Dylan Our

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are a could Practice trade any quarters any Thanks seeing today in update trending? in on the down sort last a of several you particularly with the I if other you guys I of decide broadly to lot. guess there or know are is or parts Hub the label line on detail couple the revenue moving provide more any item. benefit how space? Thanks. vets pharmaceuticals partnerships And private there,

part will the that. is Dylan, first of this Mario. take Hi I

of in other other type our item. peptides. our only all But we private product, pharmacy, also proprietary that our – line but item, you not include revenue brand we there, don’t know, as anything non-cat of So, meaning specialty, sales that other desegregate is meaning

context to goods, you the though of specific saw I numbers. goods, are But improvement lot as hard in hard will give quarter-over-quarter you would in that in the the private going saw rather sales an decline, expect, terms that in space you goods. hard As of brand than a be our you was

hard or like brands third-party just year-over-year. we national sell declined with So, goods

expected other brands and would similar have on private You thing. the something

of offerings, rest and especially grow continues pharmacy the to to really well than the our perform healthcare business. faster Our

So, say I will that.

seen downs. have not then And trade we

think I that part your question. was of

initiatives. or the update. the the with last quarter-over-quarter is time pleased wet on you. Your Hub we Practice second part of are from question we Hub Practice Look, up met XX% scale updates was

a So, our vets and penetration deepen the to with with positively we well. oriented scale Connect vet a continues our presence, in continue and to engagement manner. our

We are pleased with insurance.

very in insurance. early are We

certainly we it arcs in pharmacy generally that the increments, beyond we are we these verticals of XXXX, back just as that when did of ‘XX are middle think are These of So, timeframe. launched in terms X-year X-year mark.

we So are our the out about way overall, ecosystem, bullish are we this. place building but healthcare and the pleased with that in we – are

Thanks lot guys. a

Thank you for your sir. question

questions Our of line the with Baird. of from next line Justin comes Kleber

Your line is now open.

Hey, good evening. guys. Thanks

so us promotions. understand If ‘XX. follow-up are question we points margin, how about you look end you Can at Just on gross help past what these normalization beyond? a margins for Just if more does in above the years can X backdrop? in benign over a from happen to has gross assess to four this year we much and promotional mean the benefited it this environment ‘XX going could margin

Any add, It’s Mario? immaterial that to the showing. gross we to are context margin progress

right. think I No, Yes. exactly that’s

it we outbound, materially embedded it’s the the inbound everything not bigger, margin higher-margin is drivers about. hard have is benefits is where scale. affect is see business vendor improvement doesn’t but the here. gaining our all de It categories, I gross the across think promotional is expanding goods. It healthcare, talked time into getting over or sharing and would there, entire our say minimis really getting I and it gain environment and It not supply those you

guess I there and gross promotional a it I implied why in in not that margin, big this XQ always like promotions holiday. holiday, – anticipating on Okay. you it’s So, a down guess step the there are is change year-over-year is right? sounds

not in the here benefit, in I relative XQ in to So, I am the down XQ? XX.X if step margin a understand why been trying it’s big guess to

margins a period. mean I of is Sequentially, QX seasonal course,

you seeing activity. are would promotional And that. expect we increased So,

We same have quarter, relative of stronger On out relative QX to move year. we QX. basis, quarter we the an seen increased sequentially into quarter this promotional last activity will as be last annual to

Yes.

in and see quarter. holidays, expected, more the that seen wouldn’t that we that fourth the have We would peak between quarter. and the are the third in it happening So, surcharges during that’s

exactly. there, drivers different are there So,

was, be we year are we ask, came broadly at think expecting anyways the answer at will we question to full I other I part said your line. maybe didn’t what this you it Now, looking year, basically and for of if look into the in you

more And We gross we on margin. less in a basis or basis year now full XXX expect be point basis. flat it to year-over-year to to point guiding a end XX improvement are

seeing year. we a So, lift we there are as go through the certainly

sustain pushed we system. I Thank Got If just increases think of you do over an increases you unrelated to deflation period round about be that’s it. pricing to guys in decline, price need cost And in few years, question, here ability past this eventually mentioned therefore, another the consumables as how all input enter been particularly you. – guess price the that a taken category? the the of, costs and

applied pricing and sustain industry are sticky. in we the MAP will Yes, MAP through translated think prices or pricing generally pricing most the because is of getting

you So, more less see time. stability the variability same at therefore and

So, we be expect these to sticky.

luck Alright. Got of it. the Thank Best you in holidays. both.

you. Thank

for you your Thank question sir.

BNP Chris Our next line Paribas. of questions comes the from line of Bottiglieri from

is line open. now Your

Hey guys. question. Thanks taking for the

broader of You you about made gives into capabilities healthcare acquisition Technologies this what in bolt-on talk you your ambitions the small a space? PetaByte in more and it fits Can November. how

Sure. Yes.

a small November. provider So, for acquisition cloud-based of technology in a vet PetaByte we solutions the sector of completed relatively that is

PetaByte’s portfolio broader has PetaByte today, technology in service – to welcome are with begun, team associated because more but the of into the come. to there we sharing opportunities And comment significant are we forward healthcare just we more the is early And family. with not and excited it’s adding to you to quarters Chewy much look work to We – offerings. see opportunities our stages

Got it.

can I – more you about the is then And seeing are next the is guess It what Thanks. seeing your basket there? like talk discretionary sounds the just under size you has pressure. grown. Are size Okay. is, you guess, basket question I

that’s it’s more and is are order to money this healthcare more more like What’s the driving unit like stuff sizes bigger package ways what’s that, in save just you like to people discretionary. are inflation, basket per So, you – is sizes, driving? bigger are adding into trading attach and finding or products

on growth strength the our complementary healthcare side. combination a and pricing of It’s

several simple and purchase. add complementary come supplies to with We products up consumables different have to the

telehealth, such are for than higher ship basket So, discretionary attach is increase. highly toys, ownership have categories the has as rates impacted, sizes to attach as as such insurance, near-term right. all continued products basket our orders percent and additive perhaps to pharma size. Autoships other non-order for The these drugs,

So, that’s sizes place. this is all basket as the in well. contributor But in improving

Got it.

you. Okay. Thank

for your you question sir. Thank

the line next of questions Basham. Our from comes of line Seth

now sir. Your line open is

question and good is a customer lot afternoon. My Thanks on acquisition costs.

that your know sequentially, gross and You customer XX% sequentially. adds X% increased expense while increased advertising marketing

on expectations ROI So, your the new last were on quarter was that from customizations sharply, your maintain expectations to changed customers? to tax quarter up much this LTV

Seth, Sumit something. our customer, this start up gross off Hey The X% were said cover I adds quarter-over-quarter. Mario. maybe you and is can will that

make trying expand on So, sure to one, correctly. am I that question I that your answer

you the what letter? that’s said believe in shareholders I in and script the

adds, new reactivations. customer that and customers Yes, the gross both is

adds. back also and gross coming lapsed to is try directly wouldn’t the it I and both So, combination a that of together. are tie two customers

We they shouldn’t They count way. on disconnect marketing. have to gotten the comparing sort not – customer to But and – tightly you two. of have increase that active before say are it’s the connected this somewhat question would in that investments be I similar

This is Sumit.

We see LTV growth. are continuing to NSPAC growth,

gain of So, lull the on actually the when remains current that consumer mind you or typically gain consumer were to ad CPC as in everybody of increased there areas environment in in as share in spend of QX, QX, cost increased do pool which the – we see a kind top at tries QX coming shallow. out a multiple look the that you you of went where

to to different areas we that, saw So, CPCs have did. invest beyond But continued increase. where in three we opportunities

increasing development, and customer expanding on engagement First NSPAC. focused is

Number then of of designed was And two, some in part saw we season a brand prudent customers that churned gain we double-digit with in broader of we in is thing doing three, that and drive So, increase QX, the is Chewy traction reach new reactivation. a always and do. more front are the experimentation and investment. to positioning awareness previously reactivating there as just channels testing our are customers. holiday And that right that year-over-year with to customer

satisfied we kept all-in-all, in way the here. spent that have we we So, X% that X% with – the to it we range within outcome the were talked about money, and we are the we – before,

it. Got

Okay.

and So, with but in you was ROI your TAC customers line in last? to to relative the expectations acquired quarter up sequentially, maintain this

right. That’s Yes.

Thank you.

Singh question the for you for to like back I to sir. Thank remarks. pass Mr. Sumit now your any call would closing

holidays Thank joining a and you Year. Happy all New for happy us.

quarter fiscal year with And call. third for your conclude will earnings participation. you that, we today’s Thank XXXX Chewy

You may now your disconnect line.