Chewy(US:CHWY)2024-12-04 12:32PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q3 2024 financial statements reflect a shift to net income, with slight asset decrease and liability increase, driven by Chewy Pharmacy KY operations Condensed Consolidated Balance Sheets Total assets decreased to $2.96 billion by October 27, 2024, while liabilities increased, and equity declined due to share repurchases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 27, 2024 (Unaudited) | Jan 28, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $506,634 | $602,232 | | Marketable securities | $885 | $531,785 | | Inventories | $858,551 | $719,273 | | Total current assets | $1,615,725 | $2,104,348 | | Total assets | $2,957,897 | $3,186,851 | | Liabilities & Equity | | | | Trade accounts payable | $1,229,132 | $1,104,940 | | Total current liabilities | $2,179,225 | $2,110,877 | | Total liabilities | $2,734,475 | $2,676,607 | | Total stockholders' equity | $223,422 | $510,244 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Q3 2024 net sales grew 4.8% to $2.88 billion, achieving a $3.9 million net income, a significant turnaround from prior year's loss Statement of Operations Summary (in thousands, except per share data) | Metric | 13 Weeks Ended Oct 27, 2024 | 13 Weeks Ended Oct 29, 2023 | 39 Weeks Ended Oct 27, 2024 | 39 Weeks Ended Oct 29, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,877,635 | $2,745,875 | $8,613,949 | $8,321,816 | | Gross profit | $843,873 | $781,856 | $2,541,701 | $2,363,433 | | Income (loss) from operations | $25,632 | $(9,719) | $122,299 | $(1,644) | | Net income (loss) | $3,932 | $(35,372) | $369,946 | $7,694 | | Diluted EPS | $0.01 | $(0.08) | $0.85 | $0.02 | Condensed Consolidated Statements of Cash Flows Operating cash flow was $388.8 million, investing cash flow reversed to $445.5 million provided, while financing activities used $929.7 million due to share repurchases Cash Flow Summary (in thousands) | Cash Flow Activity | 39 Weeks Ended Oct 27, 2024 | 39 Weeks Ended Oct 29, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $388,809 | $386,664 | | Net cash provided by (used in) investing activities | $445,482 | $(237,458) | | Net cash used in financing activities | $(929,741) | $(10,938) | | Net (decrease) increase in cash | $(95,598) | $138,268 | Notes to Condensed Consolidated Financial Statements Notes detail $875.2 million in share repurchases, a $275.7 million deferred tax asset valuation allowance release, and an undrawn $800 million ABL credit facility - On May 24, 2024, the Board authorized a $500 million share repurchase program, with $875.2 million of common stock repurchased during the thirty-nine weeks ended October 27, 20244450 - The company released the valuation allowance on its U.S. federal and other state deferred tax assets, resulting in a benefit of $275.7 million during the thirty-nine weeks ended October 27, 2024104 - As of October 27, 2024, the company had $777.6 million of borrowing capacity under its ABL Credit Facility, with no outstanding borrowings83 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q3 2024 net sales grew 4.8% with gross margin expansion, leading to $3.9 million net income and $138.2 million Adjusted EBITDA, despite cash reduction from share repurchases Key Financial and Operating Data Q3 2024 net sales grew 4.8% to $2.9 billion, Adjusted EBITDA increased 67.4%, and net sales per active customer rose 4.2% Key Financial and Operating Metrics (13 Weeks Ended) | Metric | Oct 27, 2024 | Oct 29, 2023 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $2,877,635 | $2,745,875 | 4.8% | | Net income (loss) | $3,932 | $(35,372) | 111.1% | | Adjusted EBITDA | $138,245 | $82,581 | 67.4% | | Adjusted EBITDA margin | 4.8% | 3.0% | N/A | | Active customers (thousands) | 20,160 | 20,266 | (0.5)% | | Net sales per active customer | $567 | $544 | 4.2% | | Autoship customer sales | $2,300,928 | $2,116,458 | 8.7% | Results of Consolidated Operations Q3 2024 net sales increased 4.8% driven by customer spending, gross profit margin improved 80 basis points, and operating income reached $25.6 million - Net sales growth in Q3 was driven by increased customer spending, with net sales per active customer rising 4.2% to $567, particularly from healthcare and specialty businesses153 - Gross profit as a percentage of net sales increased by 80 basis points year-over-year, attributed to supply chain efficiency gains and margin expansion158 - Selling, general and administrative (SG&A) expenses increased by 2.3%, primarily due to a $14.6 million rise in non-cash share-based compensation160 - Advertising and marketing expenses rose 7.0% to $191.8 million due to increased investment and expansion into Canada163 Liquidity and Capital Resources Liquidity is supported by $506.6 million cash and an undrawn $800 million ABL facility, despite $875.2 million in share repurchases - Cash and cash equivalents totaled $506.6 million as of October 27, 2024, a decrease of $95.6 million from January 28, 2024171 - Net cash used in financing activities for the 39 weeks ended October 27, 2024 was $929.7 million, primarily consisting of $875.2 million for repurchases of common stock179 - The company has an $800 million ABL Credit Facility maturing in 2026, with $777.6 million of borrowing capacity and no outstanding borrowings181 Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes to market risk disclosures were reported since the last annual report - There have been no material changes to the company's market risk disclosures since the last annual report188 Item 4. Controls and Procedures Disclosure controls and procedures were effective as of October 27, 2024, with no material changes in internal control over financial reporting - Disclosure controls and procedures were effective as of October 27, 2024, as concluded by principal executive and financial officers190 - No material changes in internal control over financial reporting occurred during the quarter191 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company does not expect current legal proceedings to materially affect its financial condition or results - The company does not expect current legal proceedings to have a material adverse effect on its financial results81195 Item 1A. Risk Factors No material changes to risk factors were reported for the quarter - No material changes to risk factors were reported for the quarter196 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, Chewy repurchased 11.8 million shares, with $424.8 million remaining for future repurchases under the program Share Repurchase Activity (13 Weeks Ended Oct 27, 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | Remaining Program Value (in millions) | | :--- | :--- | :--- | :--- | :--- | | Jul 29 - Aug 25, 2024 | 774,185 | $24.37 | 774,185 | $448.4 | | Aug 26 - Sep 29, 2024 | 11,038,651 | $29.31 | 834,570 | $424.8 | | Sep 30 - Oct 27, 2024 | — | — | — | $424.8 | | Total | 11,812,836 | N/A | 1,608,755 | $424.8 | Item 5. Other Information Several executives adopted Rule 10b5-1 trading plans for Class A common stock sales, including for tax obligations and financial planning - CEO Sumit Singh adopted a Rule 10b5-1 trading plan to sell up to 1,387,271 shares of Class A common stock, expiring December 31, 2025202 - CFO David Reeder and Chief Accounting Officer William Billings adopted 'sell-to-cover' Rule 10b5-1 trading arrangements for tax withholding obligations from RSU vesting198199 Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including stock compensation, repurchase agreements, and officer certifications