Chewy(CHWY) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Q1 net sales increased by 3% to $2.88 billion, exceeding the high end of guidance [33] - Autoship customer sales reached$ 2.2 billion, representing 77.6% of net sales, up 6.4% YoY [33] - Gross margin for the quarter was 29.7%, a 130 basis point increase YoY and 150 basis points sequentially [57] - Adjusted EBITDA margin was 5.7%, representing 170 basis points of margin expansion YoY and 260 basis points sequentially [58] - Free cash flow for the quarter was $52.6 million, with$ 1.1 billion in cash and cash equivalents, and a strong liquidity position of $1.9 billion [26] Business Line Data and Key Metrics - Chewy Health saw strong performance, with net sales penetration expanding in healthcare and premium consumables [40] - Sponsored ads business contributed significantly to gross margin improvement, with plans to scale to 1% to 3% of net sales [37][89] - Chewy Plus, a new paid membership program, was launched in beta, offering benefits like free shipping and cash rewards [20] Market Data and Key Metrics - Expansion into Canada is progressing as planned, with high customer NPS and growing demand for premium consumables [22] - The company opened three additional Chewy Vet Care clinics, bringing the total to four, with plans to open more in 2024 [36] Company Strategy and Industry Competition - The company remains focused on strategic initiatives like Chewy Plus and Chewy Health, aiming to drive long-term growth and margin expansion [20][36] - The pet industry is showing signs of normalization, with positive trends in pet household formation and adoption rates [55][98] - The company is leveraging its Autoship program and personalized customer care to maintain a competitive edge [22] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about the company's ability to execute its strategic roadmap and deliver compelling results, despite a challenging macro environment [28] - The company is cautiously optimistic about the pet industry's normalization, with early signs of green shoots in demand trends [27][55] - Management highlighted the importance of disciplined cost management and operational efficiency in driving profitability [25] Other Important Information - The company announced its first-ever share repurchase program of up to$ 500 million, reflecting confidence in its financial position and long-term strategy [42] - Full-year 2024 guidance for net sales is maintained at $11.6 billion to$ 11.8 billion, with adjusted EBITDA margin guidance raised to 4.1% to 4.3% [60][43] Q&A Session Summary Question: How does the company plan to grow revenue without increasing customer count? - The company is focusing on increasing wallet share through programs like Autoship and expanding into new categories like Chewy Health [24] Question: What are the key metrics for measuring the success of Chewy Vet Care clinics? - Success will be measured by customer satisfaction scores, vet retention and recruitment, and operational execution [63][64] Question: How will the share repurchase program be executed? - The company plans to enter the market both opportunistically and consistently, with the goal of mitigating dilution from share-based compensation [46][67] Question: What are the expectations for hard goods category performance? - The company has seen some improvement in the hard goods category, with declines slowing, but challenges are expected to continue in the near term [48][69] Question: What is driving the gross margin improvement? - Gross margin improvement is driven by product mix, sponsored ads, and healthcare, with continued focus on premiumizing the business [50][79] Question: How does Chewy Plus interact with Autoship? - Chewy Plus and Autoship are seen as complementary programs, with Chewy Plus offering additional benefits to Autoship customers [90] Question: What are the marketing priorities for the company? - The company is focused on full-funnel marketing efforts, with a balance between new customer acquisition and retention, while maintaining flexibility in spend [91][95] Question: What are the expectations for customer count trends? - The company expects active customer counts to be flat to slightly down in the first half of 2024, with potential recovery in the second half [86][98] Question: What is driving the optimism around Chewy Vet Care clinics? - Early signs of success in demand generation, vet retention, and operational execution are driving optimism for the clinics [99][119] Question: How is the company managing churn and reactivation? - The company has seen improved churn rates YoY, with reactivations up mid-teens, but continues to focus on reducing churn in newer cohorts [117][131]