Chewy (CHWY) 22 Mar 232022 Q4 Earnings call transcript

Good afternoon. Thank you for attending today's Chewy Fourth Quarter Fiscal Year '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 question-and-answer session. [Operator Instructions]

to with conference Chewy. like host, to now LaFleur Bob would pass over the our I Please ahead. go

Thank you results for to discuss joining us on fourth and the quarter full year for XXXX. our fiscal call today

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

and Investor shareholders, which release our investor.chewy.com. Relations SEC section with were been have to earlier X-K of Form today, letter posted earnings filed the Our on to the website,

our the to concerning on of today's today, is making call be available conditions On growth, Chewy's financial statements webcast conference our results, industry also forward-looking site. to ability and business to A our successfully call prospects, including macroeconomic will risks. we business strategies, link statements, and respond trends future

Litigation certain XXXX are forward-looking to by Such statements are statements. and considered risks differ contemplated forward-looking cause Securities Act subject materially and Reform statements actual to our which Private under could uncertainties, those results from of the

Also Reported disclaim results except the as by to be indication required on considered today's forward-looking to an should any forward-looking future update not obligation as law. call We based date. available on note of statements us information that any this are statements, performance. of

please in other filed refer risk For further SEC. and with other earlier information the information, the and Chewy's today factors filings and to our X-K XX-K in

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

will its entirety be our being shortly. also of Finally, available call this Investor Relations this on our on website. website A replay IR call webcast in is

the to call like Sumit. I'd over turn now to

call. thanks joining Thanks, us for the Bob, to and on all you of

of partners dedication flow. parents despite backdrop led which in revenue, with operating economic Against offerings macro capped of demonstrated cash historical incredible resilience and record results serving Our the conditions. another fourth a an and environment, of ecosystem Chewy's rapidly share Chewy pet year to year. the free quarter a gains high and pet produced its category, changing evolving once market widening again to profitability

Looking about growth has ahead, for category and addressable cycles. business. pet a consistently market the ups continue we economic that U.S. grown to total be $XXX over the excited downs opportunities is which of The has through billion, our

for both towards and Importantly, high innovating operational we and technological pace and committed as service a well space expansion, continue we white as remain to advancements. at significant across see new product offerings

trusted strategy focused our partners parents importantly, mission convenient remains destination the pet being and Most relentlessly of everywhere. our advancing on and most for

performance our our over greater to to followed XXXX in XXXX full review philosophy. and turn that, share let's will I year operating Mario a detail discuss our results guidance. and of discussion QX After Now by the call our

Non-discretionary net goods. net such reflecting $X.XX categories, growth of pillars of categories including as our the to strength sales sales XX% coming billion, brought XX%. increased and $XX.X from discretionary which remained billion, XXXX approximately full QX hard care annual consumables offset health to with year

wallet as from ability to reflects time. the pricing our share and in customers our our our expansion dynamic environment nature over well line top success of Our model managing as recurring business expand the of

with with our we customer last net to us, generated increase our our active engagement joined year-over-year XX% and our runway representing progressively XX% point day. of QX there year spend XX% for platform per within NSPAC, in customers period. to three XXX We years, sales $XXX reach this sales, further significant our of nearly QX. believe increased more customer, having sales the XX% basis deepened nearly remains the the With customer net longer customers or prior Autoship over a growing

customers. the discretionary modest million on the QX XX.X with experienced believe We and returning broader continued ended the in XXXX XXXX expect impact to spending softness We economy NSPAC sequential as to across We customers of active attrition decline and customers. Moving active as positive growth from residual to will reflects year in well the active strengthen. our anticipate this continue customer cohorts.

favorable line chain XXXX Turning XXX to The expanded to year-over-year lesser was profitability metrics. XXX in improved our basis improvement a Full driven margin by results. relative gross gross QX in significant and in year to of to degree, high enabled strength XX.X%. we pricing supply gross our last to combined transformation. with ongoing points by end long-term guidance, Fourth progress made supply XX% points initiatives the these basis pricing chain continued margin deliver to comps QX year XXXX us with have quarter by and margin the our of

expectation balanced the demand which we In in we wish provide to expected and tailwinds elasticity. remain our gross XXXX, that demand to the goods and stages are work to we excited against expect flexibility contributions these to At in of verticals, in current as ongoing the manage year early of high-margin beyond. grow many and suppressed time, overall hard same are discretionary continued our margin the be categories about to such retain

we surgical experienced the have and already To that to yet magnitude pricing. to elaborate to continue elasticity, approach of experience, considering continue price optimize take consumers will on demand may increases a

these recovering, result of produce ensure we light supply we we our XXXX. the competitive margin on At monitoring neutral drivers in a remain closely impact gross chains in this catalog in are to year, consumer to mindset. point the net current overall with of Additionally, expect

adjusted respectively. incremental points, increase expansion. margin margin brands, and of believe $XX and gross many XXX Health, horizon, such X.X%, was runway a over was and said, on Staying Chewy initiatives, EBITDA QX left million, million the longer more, of nascency our adjusted for That private as profitability. EBITDA basis an ads given there $XXX of insurance, additional including sponsored time is we

drivers adjusted EBITDA SG&A EBITDA nearly and We $XXX primary performance year manifest these margin adjusted and XXXX growth. as the results themselves full margin of over basis key our points gross adjusted quadrupled were same from million, in XXXX saw to X%. XXX levels to expanded EBITDA QX drivers leverage strong The

Moving our away initiatives XXXX plan we let our Star. profitable operating philosophy XXXX, from spend well time that margin-enhancing now some launch. beyond for long-term various Delivering fiscal North and sharing as and growth remains me as growth to

over we four positive X.X% $XX XX% X%. past have from and billion to gross Over while from adjusted the from billion $X.X XX% negative to margins margins revenues expanding concurrently EBITDA increased years, to

scaling ideate high new ways both and improve our partners to testament our launch These our following results customer to ability businesses a for focus are core execution. or through services to disciplined bar to and experience and with customers team's on new

XXXX Our our growth a and scale profits is period. sustainable with over base operating consistent existing cost simultaneously and this drive to strategy multiyear make investments philosophy, purposeful

a improving on our provide we margin transformation have customer existing of business these, few helped we have scaling further cost me and how our us with how Let examples XXXX base. starting we experience. cost leverage plan that gross began simultaneously first expand initiatives The of chain while each in our in already driven supply

as such As import a mile. included areas placement and these efforts middle planning routing, reminder, and inventory

to upside invest in SG&A efforts center XXXX, to leverage left we and significant go. scaling plan in further now and In continue decision is with automation to XXXX drive in providing fulfillment leverage. these our meaningful Additionally, SG&A

FCs, automation close the of starters, benefits the For which realizing both our decision given in have automated oldest success our initiatives are we ramping and two of facilities, to we our three non-automated productivity the are assets. first made

of FCs, allows enable flow Each locations. We are our members operations located XX of of which to and us to SG&A additional the basis expect through which automated will our in action facilities, to believe order this volume ability combine automated the approximately realize incremental we us will facilities to leverage near allow offer new that XXXX. team one transfer points

are track we a to benefiting the Nashville that XXXX, to fourth line on here in in facility first we strategic is years this few The in warehouse open the investments expect in our of just we from made Furthermore, punch ago year. half continue automation. automated

tightly forward, we strong to remain business in operating way. committed expenses the running and managing the Moving demonstrating discipline along

and to on innovation investments operating of our moving philosophy. part the Now

base, In plan areas we term where growth investments areas and high generate will existing for cost we create that Such leveraging verticals, include the in addition in we sustainable on XXXX, ROI making accelerate shareholders. plan growth. conscious believe our our and long to profits to higher-margin our over

time pet parents the the strengthened we outside past proposition value that to and bring our to of Chewy over few is superior the believe our Additionally, U.S. right having fundamentals the years, brand

are next team first our few building international and the launch We capabilities to market the over actively quarters.

to a specific believe with on and customer resonate look call. to and whom development important strongly. we excited TAM, with are to to will plans Chewy meaningful expect QX our We incremental introduce more our discussing this forward we base brand mission We you unlock broader

Our vertical U.S. pet new the growth now a in Today, the is is capital that four track operating contributing Chewy and of such a powerful at profit making history Pharmacy began record operate ago allocation behind a demonstrates decisions. and years of pharmacy investment and we largest execution strong scale. example superior

them highly expectations. investments continually As and we and plan have of that past, in disciplined seed commitment the our we about evaluate to remain the support demonstrated we our of level to will against

strong deliver team's over that has our course results dynamic In of closing, relentless I'm year. the of us to proud another enabled execution

we XXXX, our As I map enter ahead. optimistic about remain road incredibly

call Mario? that, turn to over the I will Mario. With

billion, Sumit, Fourth all today. sales you, were $X.XX year-over-year. million $XXX Thank increase us joining you XX.X% quarter or for and thank net a

categories XX.X% quarter rate health of Our total sales strength had and collectively year-over-year. care represented of as they at in XX% combined and a grew non-discretionary continued consumables demonstrate net to the

offset modestly goods sales These favorable trends our decline hard category. were a in by in

year, XX.X% $X.X full $XX.X reached billion sales the For or billion, year-over-year. increasing net

the parents basis Our increased year the QX convenience XXX benefits to $X.XX exceeding sales pet the Autoship Autoship overall sales our increasingly customer of growth as program. growth business value of pace saw XX.X% of points. by billion, another and strong

sales percent customer reached XX.X%. net Autoship of a total as sales quarter, the For

or the pet a up $XX XX% with Autoship with In wallet Chewy new NSPAC record to who XX.X% sales QX, high parents For to a $XXX, net from consolidate increased $X.X high year-over-year. us reached shop year, customer representing annual total record XX% full basis. sales, of on billion, customer as new sales share an of ownership of continued

we In our increasing the while As acquired line work an active pet cohorts attrition previous record-sized customer on spend. by portion through we preceding top over flat years. in retain calls, ability growth Chewy remained XXXX, our is annual of and of relatively for our to as their short-term shared versus attract the XXXX, have capturing time driven count two

our but their our spending two most continue consolidate cohorts, over existing our same the revenue time, believe shopping of in fully tremendous we base. customers and us to spending the us oldest differently, to with each Said of with a customer all potential cohorts $X,XXX $XXX. recent opportunity ahead At over unlock XXXX, three remains

financials. quarter and XXX XX.X%. initiatives, XXXX. other QX to half of gross continued More leverage The comping favorable Moving packaging and margin transformation one-time came our now the Fourth to to due basis expanded supply result balance freight of from to chain increased than the sizes relative improvement was true-ups. in points basket

on that to holiday were outperformance our lower-than-expected XXXX fuel quarter. expectations, approximately points one-time this the in basis gross year margin to spend points the full contributed new drove items season, year XXX margin. of promotions high. Relative in a gross to QX The XX record basis our XX%, increased Full benefit nature the and

achieve noted relative inflation, chain Collectively, Sumit continued the hard his and through outperformance maintain work QX. overcame the they our year. margin across comments, our beginning cost logistics to strength persistent gross As supply team's ability and our at helped expectations initiatives pricing various also to in of

million a to to OpEx. SG&A, compensation, service scaling share-based fees, XX credit due of XXXX. higher sales, share-based net quarter which full or deleveraged the corporate processing fulfillment points XX.X% XX%, points by basis, fourth basis the compensation. basis year Moving SG&A to and of $XXX compared fourth sorely overhead all quarter XX On in costs, to card and customer includes totaled XXXX

SG&A, SG&A totaled This of basis, basis sales. compensation, share-based is improvement to leveraged compared share-based an or fourth quarter XXX $XXX.X of compensation, year to points XX On net XX.X%. the XXXX. basis Excluding a million XX.X% points excluding of full

compensation of were share-based moment how the to I'll SG&A, through able details to excluding a take Now scale we in QX. walk

fourth customer SG&A Variable quarter. and points XXX of basis costs year-over-year in service the fulfillment provided leverage

Our variable volume system-wide result order. our year-over-year a productivity fulfillment and costs collectively drove cost declined of facilities, into automated continued as variable shift fulfillment a which reduction per gains XX% in

care customer fewer position, chain across deployments in-stock technology experience, contacts. improving and Additionally, our in have improved organization resulting our customer initiatives supply overall customer

reduction our these fulfillment management We absorb with per basis costs customer service carrying additional led incremental cost centers through our more year-over-year of order. in Partially alongside are points and the many year. the corporate the This you XX gains support they to leverage as in drove launched XX% began with the as fixed shared expenses. personnel to D&A facilities we making a technology with XXXX last offsetting as higher ongoing of automated throughout the investments in we year associated initiatives QX in well costs we the

over will Altogether, of those areas growth consistent fund profits and philosophy, initiatives further that year-over-year gains the revenue with time. of operating redeploy points stated These approximately are profitability contributed grow these scale-based XX additional into we basis and our believe new from costs, and areas results drive some deleveraging. new initiatives,

of points as marketing. versus marketing expenses XX increase marketing sales, see Sequentially, XXXX. normally advertising XX of or point from sales represented marketing points XXXX. efficiencies $XXX.X to QX X.X% a Fourth basis and by advertising was scaling net the basis, XX On result full X.X% fourth of in and and marketing year advertising the basis net a million on we quarter. Moving basis quarter a scaled

spend $XXX For quarter statement, $X.X was Wrapping our net to quarter in in XXX both marketing a improvement X.X%, income, the first fourth million our versus a million and net was the We up of of income with a and our income net GAAP positive full X%. XXXX. expectation with marked year, year-over-year in year million margin was improvement net line X% $XX.X of points. basis reported income XXXX

by margin XXXX. Our XXX expanding versus X.X%, reached net points basis

basis both EBITDA new $XXX.X of in margin for reaching for reflecting gross Chewy. year EBITDA to third adjusted expanded momentum quarter points $XX million XXX year-over-year Fourth row, and basis positive points adjusted million, which adjusted was was EBITDA year expanded are EBITDA margin X%, X.X%, SG&A leverage. adjusted and margin XXX a the and Full to records

now on quarter million, million launches. in The free the quarter future capital free cash in cash flow. majority $XX.X fourth capital of $XX.X reflecting net were and our Turning to center flow automated flow of Fourth operating focused from was million cash $XXX.X expenditures. expenditures activities fulfillment

For where the the we end before generation is year, generated through free our breakeven. cash cash our were turning free XXXX flow was of neutral, in in we our cash XXXX. flow first full million which flow. XXXX, materially positive in Full was free meaningfully XXXX history the above essentially line From $XXX.X year with positive year strategy, of growth

Over balance and accomplished year free. equivalents initiatives. sales, six million new all new XXXX. cash of on and without two debt of and We this while the cash marketable the consuming securities remaining that tripled than cash finished net with growth period, opened we dedicated centers, nearly million We sheet, higher multiple any $XXX.X $XX pharmacy fulfillment and service service customer scaled one launched centers, other pharmacy locations, customer center new added our three

ABL with accordion between recap. our fourth it. total cash XXXX That over full hand, securities availability of on quarter exercise newly $XXX our the $XXX million give boosting million $XXX will should liquidity liquidity an expanded additional choose liquidity stood fourth incremental our position marketable to $X.X year-end to million my year us At expanded by in we ABL, quarter, Further billion. we and concludes that year-end, and at

discuss let's our year and quarter outlook. first full now So XXXX

expect year-over-year view XX%. billion of that, a net sales growth model, $X.XX first billion, some also reflects XX% of to of With an balanced against between guidance strength economic Our $X.XX backdrop. and flexibility and representing the uncertain quarter providing that business while our visibility incorporates we

$XX.X between full XX%, of $XX.X to Full year adjusted net XXXX and of growth XXXX be and billion year-over-year full XX% representing billion, below margin of to EBITDA points our EBITDA X%. basis year adjusted margin flat XXXX XX year sales to

the a Our EBITDA impact approximately investments XXXX other result marketing initiatives. to guidance SG&A XX the basis of growth margin as adjusted XX international reflects launch and to related points of and across

be initiatives, impact adjusted XXXX the EBITDA expected these of growth around margin Without our X.X%. would

other keep models update mind. are to here you As in few for a things XXXX, your

adds, and our uncertain we attrition Regarding view light the long-tail large of cohorts. the balanced for maintaining net backdrop are macro a COVID in

adds Therefore, during returning growth this second net half year. anticipate to the we of

loaded expect of overall back we this to driver front-end through adjusted growth NSPAC be margins in primary customer the of the revenue to half year to half with expected anticipate the be the such, before a growth growth in shifting As blend our half EBITDA We of of NSPAC first the the year. second to year. investments reaccelerate and of

range to of year to approximately X% in CapEx full share-based taxes, target historical related and X.X% XXXX our XXXX million. year $XXX return expect compensation, to We including to sales of net be full

factoring that XXXX, we Finally, free generate twice XXXX. to in make cash positive we flow expect meaningfully in we at in to after the approximately investments intend level the generated

our day-to-day fast. To unwavering by our fit highly of the value encouraged of conclude, alike. focus ongoing maximize to millions big results serve, the and Meanwhile, execution remain XXXX ahead and map growth demonstrate we shareholders team our get opportunity and ability parents fast members our for an pet to on our and we whom road us,

to the With that, I'll the operator. call turn over

Thank you.

will Schindler the from of first line question Nat question-and-answer Instructions] now is with [Operator the of America. We session. The Bank begin

A couple of quick questions.

how acquisition, improvement growing, margin would -- that your result coming and has than And EBITDA? your EBITDA than that down not recently your going it in So of international result slight and considering would revenue you in meaningful in guide looks other, that NSCAP it's it growth, customer growth. mostly customer given cost investments one, actually as fact more driven looking guidance is Despite be going the -- NSCAP other be is this revenue is how growth for flat at by to like marketing year. there been slightly to have to not

on is that's for orders orders Second Any what's a and on three on larger row this really simply changed and and time question, question, basis. fewer and what cohort just seen maturation, driving that are of to And sorry does in year-over-year Is first decline it shifting guys replacement do there? like I'm the stop? doing that update succession? last a here. just you're is to you've anything CFO it part finally, very you that the Mario's Or -- look there

Great Mario. it's from Nat, to you. hear

So talk one. Sumit question first, the first on will about second take and the -- then I'll

the not about it's asking not You're declining, order case. -- that's the

you're you're -- the what it's So XX-K, way more seeing about ship XX-K in about we packages pretty that the the XX-K. We've out. consistent to explained it in referring in the been it we

costs, The to experience. more reason are are an meaning as therefore, our why at and able packages freight well we you order fewer of because can a we can lower we get the out cartonization, our costs packaging package, and to as is improve fit better imagine, ship continuing single into customer

we because placement. just because do we're and So at and better network inventory getting we're our better that expanding

of scenes. the So behind And first the Sumit question. done answer will a good lot been has work

that Nat, out. for how think year this EBITDA has XXXX is Sumit. margin, of important that kind and result SG&A frame played And When the EBITDA a of I we was drove. you performance margin of strong look context up XXXX, to margin leverage gross mean, to XXXX I added at it's in

supply gross margin, offset strength, on that side. of result our by freight the work that look pricing chain and you particularly with a headwinds we at on faced transformation, when logistics the was So combined

an as a continued float for driven pricing monitoring we efforts Further forward not around. So recall. time, the cautiousness gross months, pricing reflects a of are the move XXXX, the pricing in did cost uncertainties performance you that current where risks mean we to constantly by higher-margin same if appropriate expect in, opportunities which benefit few -- including our we expansion I when expect margin that XXXX, verticals. benefit, we you backdrop, and given assessment leverage associated in of we've do with level exceeded macro At nuanced baked guidance this and

goods for to reacceleration last and outlook. material And than any extent potentially margin. guidance. year. bear update also be happening leaving both should not XXXX as macro slightly that that Like currently promotional to a upside out, reacceleration the not category And in hard in always, we'll our more assuming room we're example, hard We're could the to to this goods, there's actually should And sales that any degree. for impact create

guide driving EBITDA when And guiding to in so there's leveraging we're then our back are reinvesting but point in, neutrality. built basically to And out side, gross the which that that of as this kind into are we're assumptions growth. a guide year net margin come way we're those SG&A, us like down the you essentially And SG&A leverage of the a comes result, at today. having

but how almost is putting costs? Makes the in So much expansion there in revenue. international no in that's are in sense, I assumed you assume

Yes.

-- haven't of including the not in broadly it's we're contributor of largest in investments We to initiatives, to XX basis quantifying separately. to growth XX the say international. is the speaking, that But XX safe the international, two XX but

when it those then active the NSPAC, not we launch impact to point. from at for top Nat, assuming comes this And are customers material any line,

well. we're Yes. as to assuming impact Any impact any -- Yes. not core

from The with Anna Needham. next Andreeva question is

proceed. may You

and international I the past, In Great. expansion Two think growth you about talked margin questions. simultaneously.

the typically a you to while And could scale of profitability. about in buckets specific So 'XX? domestic international investments takes to talk

mentioned your that business improving adds question. this to improvement? give for you any for single-digit net backdrop does then back quarter-to-date the goal my in longer-term So half. confidence And high improvements seeing Are first any secondly, the That's change in you you EBITDA margin?

the to see answer to Mario. of in is one. marketing. this going first and that when second I'll take Sumit you're in SG&A it But question, most Anna, and international, investments the will comes the

of line, international us times. cetera, launch. that be basis As is portion to going you'll The few XX of say for a impact that margin, points, top we gross material largest terms said, the international. in No investment XX hear et to real

going there, ramp the opportunistically. gross add, market your of to Anna, top be -- is we view today. may there into our impact an but there line, all drive the demand, opportunity invest we're is margin ahead. to there And question thing if -- as is go up second then that built at top And to guidance to only The some

Okay. That's helpful.

On net in improvements half. the add the back

you're the improvements to confidence in there? give you any business seeing if quarter-to-date curious, Just

Well, what that stepping still to into of there's half. from to said remarks to the into long base we of cohorts year the the active discretionary grow tail second 'XX begin carefully on half through. early for it in work of first expect the XXXX, demand we was -- net We in half the second the still improve adds have subdued hard that attrition categories, course, customer the goods. somewhat the to the for year. And in We're some

year. there be of in the second expect will we the So more half

And, strong. our gross continue high also mid- to be pre-pandemic adds continues single Anna, rate at than our digit reactivations to higher and

take kind considered could answer out think be into extent the could that I rounds you signals, those then So account, of to that the and Mario's perspective.

Yes. Sumit, that, for said the what I in add basically is with we have in line the retention those past. would cohorts to

good So are on us that that's that also a stable end. things for indicator

Mahaney is line the of from ISI. with Evercore question next Mark The

You may proceed.

is Li This Mahaney. Great. Mark Jian for

international. on just I ask to guess, on want I question the First, higher-level --

what's game the going of considering expansion. Are you is you like what for through you can how expansion? talk the kind inorganic? plan And thinking -- TAM like opportunity are you the international see market? be you -- talk it Are for through That's sounds And you going it's organic of about first. just to regions? key can about my mostly kind If it if

it. Sure, Jian. take Sumit. I'll is This

as prior long would been if we've it was our superior a So new into when, international a calls, proposition part matter our not geographies. on expansion strategy, Chewy has noted of of take value

attractive We initial account and that among markets entry we're factors, similarities to about now. our talk about of behavior thought as for into U.S., possess the international to size consumer expansion the geographic other plans. So excited the TAM, took we characteristics it proximity

And an is yes, se. an play, at this this acquisition organic not point, per

our one. would say, track operationalizing pharmacy In terms of be could operationalization, with as of such I consistent investments, record

responsibly international plans milestones about the are will pace expansion. thinking We that our govern with certain of stages our and

and contributor core. Mario the more We a a material then or our share excited And earlier, to of of guidance the active sharing in those as launching revenue today. for noted as NSPAC we -- operations is international customer and fully details impact few as much minutes reflected can already is QX in our any about on items that's We're guidance not call.

one more the Great. And margin. gross on

Beyond this long-term your high the the is, hit that I quarter -- you third margin. think, of this year current end gross

the So how gross some what should mentioned And think we are target I year? this -- an think drivers about that? this kind margin year you going beyond of updated key long-term the to to accelerate higher-margin verticals.

on expand if that? can of kind you So

Sure. This is Sumit again.

between journey on businesses, we continued gross is that mid- area. to the our the private business ratio, about points that and our higher excited hundred we want that business At margin to sales. core high gross to net single work to continued do expect basis our as achieves continued level. that XX% to expand digit, have XX% it to brand of we the we're several margins. or we're In get core Private brands So premium penetration and on

Number margin in particular a our two, our is we NSPAC driver fueling categories as is And expansion in more look area. value stages Health, tremendous as a impact Chewy consumers their category customer gross growth to and for performance. online, also Chewy It proposition this both delivering its on leads tremendous and and in us that preferences to in pharmacy. Chewy such and shift have more Health is mix relative at early when you runway

details then into that, that of quickly their pleased nascent verticals is there anybody progress the top click with ramping happy more But we're in up, categories. to we next Sponsored there. if On ads interested. are the which is are one are

expect at a to will XXXX. We bring sponsor scale ramping year live this into more fuller

arc like have and can because therefore, well. is there to arcs customer as Behind build our and consideration three-year be slightly contribute meaningful that margin conversion to arc which insurance, are opportunities gross to one- on a the longer is might you and those longer, on expansion categories slightly consideration

And opportunities then benefits, expanding not towards that Autoship us on work we've last supply about, chain continued provide least, talked in our future. loyalty initiatives either but working or our continued the tailwind programs

So of through off, play time, not have easy, work as continue work far team's the There's in at beyond. clear be and us. a front will hard paid and we will and lot but focused This we XXXX so a same excited. has road map of resilient the we're to and we remain

if Great. follow-up I is any I ads that. might full year how just one of sponsored you there Is the quick And in much quantify like can guess, embedded guide? -- to

this still expectations it's ramping not where year. just small a Yes. is fairly yet. we're about the it's It's on, point, meaningful trajectory for and -- driver At it We're this still excited small. a but still it's

is next The question Doug the JPMorgan. of Anmuth with from line

proceed. may You

international And strong in So Just looking just customer that's approach on to assume terms then it customer that to service? differentiated you'll of be expansion, replicate the second, is number the the back 'XX. to growth in the one. safe at and core, circling

of like really what cohort really building sounds product coming understand working macro you're over some or last or back the to couple there really in improvement that drives given just years. It the big not discretionary trying either much. the Just confidence it's improvement through

Sumit. is this Doug, Sure.

all and actively going XXX% we on And are to components from that. your our backwards of market. of same launch time, customer So to We the our the at the to listening bring value right. and assumption very is expect international plan voice to the be working proposition designing international,

nuances dissidence the that brand international that market. we way is So Chewy's in up as enters cultural the no show there the in

brands' of the and outside balance, the we On and States about extension se. confident our are resilience excited United per

So that's one. first the

on that website. it several but In customer optimizing terms there as you look kind our when at improving conversion, results, search that maximizing -- lands our particularly to are These our programs. comes not working search particular new of adds, way the they're of we're we we are traffic site, about programs excited inside macro, -- the on Company, which dependent despite internally are are these the the that are macro,

we're XXXX. not talked past had we're two, goodness in XXXX capability, some building than fuller the CRM CRM Chewy about to in this very a And capability there. early, type Number out much we've more where signs extent our invested seeing and in actively early in we is of

the recognize Now that at through will us accordingly, them cycle to be incentivize, track But through be Chewy programs and to able them their degree. again, life reactivate continue propositions XXXX. to allows offer then are to these work towards to motivate them or either greater able segment a customers, target

of gives kind is than combination of of the Chewy. these is that confidence those life to inside us through. the market to them more But So we there and that play just happening bring two have course,

from is next The Grady Jefferies. with Corey question

proceed. may You

I wanted to FC ask about the automated initiative.

of bps running but that in did can of fulfillment think apologies then missed this, that percent year? XX currently? volumes centers do you get what And the I through So end what's say leverage? if assumed automated of by are SG&A the And you where the

is Mario. I'll Yes, this this Corey, answer is that. --

we're increase of certainly in we our the So, meaning said end where we same a time the target point, an was from at year. volume going QX year, last that that double the at this XX% of we've through through the were third the But quarter 'XX. quarter automated the which almost and haven't going facilities is given about volume by

we're of couple see of Nashville our But once four facilities from of three that having XX the months. next out having going to automated are we now you launch XX out in can

-- we continue automated into to reasons. the volume for So, are facilities we move many

lower which to then SG&A cost them, and flows order, obviously, variable a through EBITDA. of per cost to is One

those So Sumit? to into push can we as Anything as add, facilities. we'll to volume continue much

Or have follow-up? you question? main a did the was that Corey, No.

how follow-up. Yes. any can, feedback? And if you're just I to ask timing more I about love a you If quick learnings, customer don't would I'll share mean thinking know I speak any long-term initial about the launch? for you update the sponsored can I change in beta? opportunity? ads Any full around of to say

Sure, sure.

launched expectations. pleased the building original half that in the of the continued vertical. product, as progress in with QX per to of we're XXXX expect towards has have first sponsored So beta The we full which the ad live we

great brands and our reception right and is customer from of on the now ROAs with a framework. hard positive, where supply The the side improvements the continues partner team including at on to Our we has work deliver been expect serving, to relevance. platform, tracking ad and reception experience be in

looking we're XXXX. into So forward and to then and launch the in half first XXXX program ramp continuing to throughout

Our Seth with next question Wedbush. Basham from is

proceed. may You

hear growth single-digit My your mid- there. on question high Good continued is to to adds. gross

that advertising continue, mean XXXX, does what growth for to look to expecting that As you type of and growth? you're

this is Yes. Mario. Seth,

adds So yes, so in are to pre-pandemic. the strength continuing we versus gross see

the fact, talk continued take, we've that in increase all about -- X% same been XX% QX. that us XXXX, the range, versus In give in to or somewhere into quarter and the heard you've year

that's a platform. of for indicator us, good the the So strength

and out let 'XX, to me initiatives. gross For not and retention try net between split adds

customer year. to to explain But is a certainly and it our of two -- to and project keep But our happen those going the platform. customers we expect reactivate ones think half of things, is the to it's second to in you've the to on are work continue going heard be we base to hard that brand-new we us going add active what the combination happen grow to and how

the about cohort ago? Fair XXXX, And with the Okay. follow-up, rates. churn is XXXX expected then rates enough. three a those purchase just XXXX even months how And trending? just thinking churn as behavior you than cohorts Are repeat higher the

about than still been remain for been have The when more that see me comes if to point. expected, retention it 'XX two for separate the -- lower several continued into digits, but to this and can 'XX decouple Let or quarters at less what I single And it's the pre-COVID talking have the several levels cohorts. now. cohorts, pretty quarters questions. we low that has we steady High, and

in repeatable the of cohorts. consumables, more categories, health Well, categories, heard repeat our 'XX non-discretionary say behavior acquire us we probably to into The the you customers that XXXX were trending early purchase care.

And the year. so that's -- the behavior has proven throughout out

question Fitzgerald next Fargo. from with The Brian is Wells

may proceed. You

discretionary growth you improvement? to discretionary and first are in Have a is give this think thinking trend has provided some about point been XXXX? you could the for weakness time you how some tracking? How non-discretionary. if any seen on back at We us cycling specific growth potentially breakout color the getting Wondering you

Brian, this Mario. is

Let question me here. clarify the try to

about we just is we to saying part, specific You're provide -- recently, guidance. to on Are would seen talk you be trends how about specific that that the expect how we've -- you discretionary the break about? when talking

time first the discretionary kind broke is of versus non-discretionary growth. this out think you We

through and how we're So wondering improving think discretionary on to cycling kind it on the back gets tracking? How when And the side? that side, stronger been you of about has discretionary weakness discretionary are trends growth? do

Sumit. Brian, this is

to at When was half to at better look and suppressed was primarily seasonality hard continues half. pressured. because easier than discretionary goods, So look ramped QX When be second expected. sequentially, due goods comps. you was That of hard you and first

not a comes this we're reacceleration we're and material discretionary at hard creates like things to 'XX. baking So time, as it and that, in goods, expecting in like categories, stuff

course, to or this prepared we're And material stand inputs macro alike. That's cyclical invest category improve, level, mode. not hard of what's into and as But reacceleration we that guidance to now, to and of expect its opportunities right inputs to macro considers not further now. specific goods, we the growth those believe it the the specifically expecting we baked the And we're is historical as providing as revert environment. hard such right see and at we categories tied the goods deterioration as Ultimately, 'XX. if in guidance, of

Schenk is with from Our last question line of Stanley. Morgan the Lauren

proceed. may You

Great.

couple I if a Just margin, can. gross on

optimize first secondly, And there are Was mentioned you your to and year then one prepared what letter, of price really shareholder perspective? assuming a Are in you you pricing a be Sumit, you this the around talked inflect First, proposition. color manufacturing remarks, to looking current helpful. increases from about quarter? categories? in increasing pricing sort approach this Any lower in value would surgical there

So starting are we no, with one, actively prices. not the looking second lower to

to positions are of heightened price we catalog, to stand ready respond not We that. that to are market ensure we to supply to increases or But the looking vigilant low are a there have down. that price or result through, range. across those of that mid-single-digit the no, as particularly two, if competitiveness certainly is activity improving market come actively in expect in terms we Number chain

this? accept you of Any when timing would

Sure.

our is The as overall good we're we seeing experienced pricing. and market well, is increases have and QX, has compliance, Lauren. So cost in this anticipated, adjusting in and math reflected already adjusted

taste at that at receive cost increases of largely we point, more suppliers, more we're point. us. So the that course, expecting on, of balance and for But frequency pass the not believe but our cost as this is the behind increases from we this we'll of year information

turn We closing. call questions, over end I the for have reached now for our of the will time allotted Sumit and to

next see you joining. appreciate we'll Thank all it, and for time. you We

Fourth That your Thank you 'XX participation. year Fiscal Quarter concludes for Call. Earnings today's Chewy's

may your lines. You now disconnect