Core Insights - Chewy Inc. (CHWY) reported a strong performance in Q1 fiscal 2025, with net sales increasing by 8.3% year over year to $3.12 billion, surpassing guidance due to strong engagement in core categories [1][10] - The Autoship program was a significant growth driver, contributing $2.56 billion in sales, which is 82.2% of total net sales, and showing a year-over-year growth of 14.8% [2][10] - Chewy's active customer base grew to 20.8 million, reflecting a 3.8% increase, driven by effective customer acquisition strategies [2] Segment Performance - The hardgoods segment saw a year-over-year growth of 12.3%, supported by improved customer experience and faster SKU onboarding [1] - Chewy Vet Care expanded to 11 clinics across four states, with strong customer utilization, as about half of first-time customers ordered from Chewy.com within 30 days [3] - The Chewy+ membership program showed promising adoption, leading to a 3.7% increase in net sales per active customer to $583 [4] Financial Guidance and Valuation - Chewy maintained its fiscal 2025 revenue guidance of $12.3 billion to $12.45 billion, indicating a growth of 6-7% when adjusted for the previous year's extra week [5] - The company trades at a forward price-to-sales ratio of 1.17X, which is below the industry average of 2.17X, indicating potential undervaluation [11] - The Zacks Consensus Estimate for Chewy's fiscal 2025 and 2026 earnings suggests year-over-year growth of 23.1% and 19.5%, respectively, with recent upward revisions in estimates [12]

Core Insights - Chewy, Inc. (CHWY) and Central Garden & Pet Company (CENT) are key players in the pet care industry, each with unique operational models and growth strategies [1] - Chewy focuses on e-commerce and customer engagement, while Central Garden & Pet emphasizes a diversified portfolio and operational efficiency [1] Chewy, Inc. (CHWY) - Chewy reported net sales of $3.12 billion in fiscal Q1 2025, an 8.3% year-over-year increase, exceeding guidance [2] - The Autoship program generated $2.56 billion in sales, accounting for 82% of total net sales, with a 14.8% year-over-year growth [3] - Active customer base grew by 3.8% year-over-year to 20.8 million, with net sales per active customer rising 3.7% to $583 [4] - Chewy Vet Care operates 11 clinics and plans to open 8-10 more in fiscal 2025, while the Chewy+ membership program shows early success [5] - Adjusted EBITDA margin for Q1 was 6.2%, but management expects a decline due to seasonality and increased marketing investments [6] - Marketing expenses reached $193.8 million, or 6.2% of sales, projected to rise to 6.7-6.8% for the year [7] Central Garden & Pet Company (CENT) - CENT's adjusted gross margin improved by 200 basis points to 33.3% in Q2, reflecting strong cost management [9][13] - E-commerce accounted for 27% of Pet segment sales, driven by new products and digital strategies [14] - The company opened a 300,000-square-foot distribution center in New Jersey, enhancing fulfillment capabilities [12] - Financially, CENT ended Q2 with $517 million in cash and no borrowings, maintaining a net leverage ratio of 1.7X [15] - The consensus estimate for CENT's fiscal 2025 sales suggests a year-over-year decline of 1.7%, while EPS is expected to grow by 17.8% [20] Comparative Analysis - Chewy's shares gained 1% over the past three months, while CENT's stock rose 19.6%, driven by strong margin expansion and cost execution [21] - Chewy's forward price-to-sales (P/S) multiple is 1.20, while CENT's is 0.85, indicating a more attractive valuation for CENT [22][23] - Central Garden & Pet is viewed as a better investment due to disciplined cost management and consistent margin expansion, while Chewy faces near-term challenges [26][27]

Core Insights - Chewy (CHWY) reported a 6.2% adjusted EBITDA margin in Q1 of fiscal 2025, an increase of 50 basis points year over year, with adjusted EBITDA rising 18.3% to $192.7 million from $162.9 million a year ago, indicating disciplined execution and progress toward long-term profitability targets [1][9] Financial Performance - The improvement in margins was driven by a focus on high-margin, recurring revenue streams, particularly the Autoship program, and the expansion of the sponsored ads business, which is the largest contributor to margin gains [2] - Operational discipline was evident as SG&A was maintained at 18.5% of net sales, reflecting tight cost control, while adjusted earnings per share increased 12.9% year over year to 35 cents, highlighting consistent bottom-line growth alongside margin expansion [3] Future Outlook - Management reaffirmed its 2025 adjusted EBITDA margin outlook of 5.4-5.7%, with the mid-point implying a 75-basis-point improvement from 2024, expecting approximately 60% of this expansion to come from gross margin gains [4] - Chewy aims to convert about 80% of adjusted EBITDA into free cash flow for 2025, with confidence in achieving a long-term adjusted EBITDA margin goal of 10% [5] Industry Comparison - Central Garden & Pet (CENT) reported a resilient margin performance in Q2 of fiscal 2025 despite a 7% revenue drop, with gross margin expanding by 180 basis points to 32.8% and adjusted earnings per share rising to $1.04 [6] - Petco Health and Wellness Company, Inc. (WOOF) focused on restoring profitability in Q1 of fiscal 2025, achieving a gross margin expansion of 30 basis points to 38.2% and an adjusted EBITDA margin improvement of 105 basis points to 6% [7] Stock Performance and Valuation - Chewy's shares have gained 23.3% year to date, outperforming the industry's growth of 7.4% [8] - The Zacks Consensus Estimate for Chewy's fiscal 2025 earnings implies year-over-year growth of 23.1%, with upward revisions in estimates for fiscal 2025 and 2026 [10] - Chewy trades at a forward price-to-sales ratio of 1.33X, below the industry's average of 2.02X, with a Value Score of B [13]

Core Viewpoint - Chewy's stock has experienced a significant decline of nearly 15% following a quarterly earnings report that, despite beating analyst estimates, was poorly received by investors [1][2]. Financial Performance - In the first quarter, Chewy achieved net sales growth of over 8% year-over-year, reaching $3.1 billion, while its non-GAAP net income improved to just under $149 million, or $0.35 per share [4]. - Analysts had anticipated slightly lower figures, with revenue expectations below $3.1 billion and adjusted profitability at $0.32 per share [4]. Market Valuation - Despite the positive earnings results, Chewy's stock is considered expensive, trading at a forward P/E ratio of almost 36, which raises concerns among investors given the company's single-digit percentage improvements and thin profit margins [5]. Analyst Reactions - Following the earnings report, several analysts adjusted their price targets for Chewy, with most raising their targets, although some provided less optimistic updates. Mizuho's David Bellinger reduced his target from $47 to $44 while maintaining a neutral recommendation [6]. Future Outlook - Chewy's Autoship program has shown promising results, indicating potential for increased recurring revenue. However, the stock's current valuation may limit its attractiveness unless the company can deliver more convincing quarterly earnings in the future [7].

Core Insights - Chewy Inc. is set to release its first-quarter fiscal 2025 earnings results on June 11, with investors contemplating whether to buy or hold the stock [1] Group 1: Company Performance and Expectations - Chewy has established a strong presence in the online pet retail market, focusing on innovation and customer loyalty, which positions the company for long-term growth [2] - The Zacks Consensus Estimate for first-quarter revenues is $3.08 billion, reflecting a 6.9% increase from the previous year, while the earnings estimate remains at 34 cents per share, indicating a 9.7% year-over-year rise [3][8] - Chewy has a trailing four-quarter earnings surprise of 19.3%, with the last quarter surpassing the Zacks Consensus Estimate by 33.3% [4] Group 2: Key Growth Drivers - The growth in Chewy's revenue is supported by its Autoship program, which encourages repeat purchases and stabilizes revenue streams [10] - Active customer growth is a positive indicator, with the Zacks Consensus Estimate suggesting an increase to 20.5 million active customers, driven by improved digital experiences and the Chewy+ Membership Program [11] - Chewy's expansion into higher-margin areas, such as its in-house ad platform and veterinary services, is enhancing customer acquisition and engagement [12] Group 3: Market Position and Valuation - Chewy's stock has increased by 22.1% over the past month, outperforming the industry average of 1.2% [13] - The company trades at a forward 12-month price-to-sales (P/S) ratio of 1.57, which is lower than the industry average of 2.00, indicating a favorable investment opportunity [16] - Chewy's valuation is higher than competitors like Central Garden & Pet Company, Petco Health and Wellness Company, and BARK, which have lower P/S ratios [17] Group 4: Investment Considerations - Chewy's investments in automation, advertising, and veterinary services reflect a commitment to long-term growth, although the lack of a clear earnings beat signal may lead to cautious investment decisions [19]

Economic Overview - U.S. consumer confidence has declined for the fifth consecutive month in April, with the Consumer Confidence Index dropping to 86, a decrease of 7.9 points from the previous month, falling short of market expectations [1][2] - This is the weakest level recorded in almost five years, indicating growing unease among consumers due to economic pressures such as trade tensions, rising tariffs, and fears over job security [2] Consumer Spending Impact - The Federal Reserve and financial markets are closely monitoring the decline in consumer sentiment, as consumer spending accounts for approximately 70% of U.S. GDP, suggesting that changes in spending patterns could significantly impact future economic growth [3] Company Adaptation Strategies - Companies like Sprouts Farmers Market, The Gap, Chewy, and Stitch Fix are better positioned to navigate the current economic challenges due to their solid business models and focus on value and essentials [4] Sprouts Farmers Market - Sprouts Farmers Market is focusing on product innovation, targeted marketing, and competitive pricing to expand its customer base and meet evolving consumer preferences, particularly in the health food segment [8] - The Zacks Consensus Estimate indicates a growth of 12.3% in sales and 28.8% in earnings per share (EPS) for the current financial year compared to the previous year [9] The Gap - The Gap is leveraging its broad brand portfolio and enhancing operational efficiency while driving digital transformation and investing in product innovation to maintain competitiveness [10] - The Zacks Consensus Estimate suggests a growth of 1.5% in sales and 7.7% in EPS for the current financial year compared to the previous year [11] Chewy - Chewy is enhancing its position in the online pet retail market through innovation and customer loyalty initiatives, such as the Autoship program, which secures predictable revenues [12] - The Zacks Consensus Estimate indicates a growth of 4.5% in sales and 18.3% in EPS for the current financial year compared to the previous year [13] Stitch Fix - Stitch Fix is improving its inventory management and expanding private brand offerings to enhance profitability while focusing on personalized client experiences [14] - The Zacks Consensus Estimate suggests a growth of 64.7% in the bottom line for the current financial year compared to the previous year [15]

Financial Data and Key Metrics Changes - Q4 net sales increased approximately 15% year over year to $3,250,000,000, resulting in full year 2024 net sales of $11,860,000,000, representing 6% year over year growth [8][16] - Adjusted EBITDA margin for fiscal year 2024 reached 4.8%, reflecting year over year expansion of approximately 150 basis points [9][20] - Free cash flow for fiscal year 2024 was a record $452,500,000, converting approximately 80% of adjusted EBITDA into free cash flow [10][21] Business Line Data and Key Metrics Changes - Autoship customer sales increased by 21% in Q4 and nearly 11% for the full year 2024, representing 80.6% of Q4 net sales [8][18] - The sponsored ads business reached approximately 1% of net sales for full year 2024, contributing significantly to gross margin improvement [10][44] - Chewy Vet Care Clinics opened eight locations in 2024, with plans to open eight to ten new clinics in fiscal year 2025 [11] Market Data and Key Metrics Changes - Active customers reached 20,500,000, marking the first year over year growth in eight quarters, with a 2.1% increase year over year [9][17] - Net sales per active customer (NESPAK) reached $578, representing a 4.1% year over year increase [18] - The overall pet industry is expected to continue normalizing, with Chewy anticipating to gain market share in 2025 [65][66] Company Strategy and Development Direction - The company aims to achieve a long-term adjusted EBITDA margin target of 10%, with expectations for further margin expansion in 2025 [13][26] - Chewy is focused on enhancing customer engagement through improved marketing strategies and app experiences, which are expected to drive active customer growth [32][58] - The company plans to leverage its first-party software for sponsored ads to enhance media content and expand its advertising capabilities [44][48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver active customer growth in 2025, driven by strategic initiatives and improved marketing [9][34] - The management noted that the promotional environment remained stable, with minimal inflationary pressure expected in 2025 [70][71] - The company is optimistic about its growth prospects, expecting to continue gaining market share despite a normalizing pet industry [66][70] Other Important Information - The company repurchased approximately 32,800,000 shares in 2024, reducing BC Partners' ownership by approximately 16% [22][23] - Chewy ended the year with approximately $597,000,000 in cash and cash equivalents, remaining debt-free [24] Q&A Session Summary Question: Can you unpack what's driving the change in active customers? - Management noted that the momentum from Q3 continued into Q4, resulting in year over year active customer growth for the first time in eight quarters, driven by improved marketing strategies and customer engagement [30][34] Question: Can you help us understand the momentum on the gross margin side? - Management indicated that the fourth quarter gross margin was as expected, with EBITDA margin expansion driven by improvements in gross margin and operating efficiencies [35][36] Question: Can you talk about automation and the path to 70% to 80%? - Management confirmed that over 40% of volume is currently automated, with plans to ramp up automation in the Houston facility to achieve higher efficiency [41][42] Question: How do you see the landscape for net new customer growth versus reactivations? - Management highlighted that new investments, particularly in Chewy Vet Care Clinics, are driving new customer growth, while existing programs like Chewy Plus are stimulating reactivations [54][56] Question: What are you seeing from a promotional perspective in the pet landscape? - Management reported a stable promotional environment with a significant portion of the portfolio being price protected, leading to minimal inflationary pressure [68][70]