Chewy(CHWY) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q2 net sales grew by nearly 9% year over year to $3.1 billion, exceeding the high end of guidance range [5][17] - Gross margin reached 30.4%, expanding by nearly 80 and 90 basis points sequentially and year-over-year, respectively [7][17] - Adjusted net income was $141.1 million, representing a 34.8% increase year over year, with adjusted diluted earnings per share of $0.33 [18][23] - Free cash flow for Q2 was nearly $106 million, with a robust liquidity position of approximately $1.4 billion [8][20] Business Line Data and Key Metrics Changes - Autoship customer sales reached $2.58 billion, representing 83% of Q2 net sales and growing nearly 15% year over year [5][6] - Hardgoods business grew over 15% in Q2, driven by structural volume growth [6] - Chewy Plus program showed strong growth, with approximately 3% of total monthly sales attributed to members [10][74] Market Data and Key Metrics Changes - Active customers increased to 20.9 million, reflecting 4.5% year-over-year growth [7] - NESPAC (Net Effective Sales Per Active Customer) reached $591, representing 4.6% year-over-year growth [7] - The overall pet industry is expected to grow in low single-digit to mid-single-digit range, while Chewy is growing at a rate of 7% to 8% [61][63] Company Strategy and Development Direction - Chewy is focusing on expanding its Chewy Vet Care network and plans to open 8 to 10 new practices in fiscal year 2025 [9] - The company is investing in its Chewy Plus membership program and private brands, including the launch of a new fresh dog food line called Get Real [11][12] - Chewy aims to mitigate tariff-related costs and enhance customer experience through strategic pricing and inventory management [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in Chewy's ability to gain market share and deliver strong growth despite macroeconomic pressures [15][22] - The company expects to maintain adjusted EBITDA margin expansion driven by improvements in gross margin [22] - Management anticipates continued growth in active customers and NESPAC, with a focus on enhancing customer engagement through programs like Autoship and Chewy Plus [63][78] Other Important Information - The company repurchased approximately 3 million shares for a total of approximately $125 million in Q2 [19] - Chewy remains debt-free with a strong cash position, allowing for continued investment in growth initiatives [20] Q&A Session Summary Question: Investments required in the back half and increasing awareness of new offerings - Management indicated that they are focusing on existing members for Chewy Plus and have not spent additional marketing dollars externally, relying on organic growth from existing customers [26] Question: SG&A deleverage and expectations for the back half - Management expects SG&A leverage to improve in the back half of the year, driven by the ramp-up of fulfillment centers and structural growth [34][39] Question: Drivers of gross margin expansion and advertising environment - Management highlighted that gross margin expansion is driven by product mix, increasing Autoship penetration, and a rational promotional environment [44][64] Question: Quality of customer cohorts and growth in Autoship - Management noted that the quality of cohorts is improving due to better retention in programs like Autoship and Chewy Plus, leading to higher NESPAC [78]