Chewy(US:CHWY)2025-12-10 14:00Financial Data and Key Metrics Changes - Q3 net sales grew over 8% year-over-year to $3.12 billion, driven primarily by unit volume growth rather than price increases [5][10] - Gross margin expanded approximately 50 basis points year-over-year to 29.8%, supported by growth in sponsored ads and a favorable category mix [7][10] - Adjusted EBITDA reached $181 million, up 30% year-over-year, with an adjusted EBITDA margin of 5.8%, representing a 100 basis points year-over-year expansion [7][11] - Free cash flow for the quarter was approximately $176 million, up nearly $70 million sequentially [7][11] Business Line Data and Key Metrics Changes - Autoship customer sales increased 13.6% year-over-year to $2.61 billion, outpacing total company growth [5] - Active customers reached 21.2 million, up nearly 5% year-over-year, with improvements across the customer funnel [6] - Net sales per active customer reached $595, up nearly 5% year-over-year [6] Market Data and Key Metrics Changes - The company continues to outperform the pet category and expand market share, with profits growing faster than sales [5] - Marketing efficiency has improved, with enhanced mobile app functionality lifting direct traffic and increasing app customers and orders by approximately 15% year-over-year [6] Company Strategy and Development Direction - The company aims for a long-term objective of a 10% adjusted EBITDA margin, with ongoing investments in automation and health services [5][19] - Chewy's health offerings, including Chewy Vet Care, are driving strong utilization and customer loyalty, with plans to open additional clinics [8] - The acquisition of Smart Equine is expected to enhance Chewy's premium health and nutraceutical assortment, strengthening its position in high-value wellness categories [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver consistent, durable EBITDA expansion over the next several years, supported by a unique operating model [18] - The company anticipates a structural unit volume growth year in 2026, with expectations for pricing improvements to be slightly larger than in 2025 [40][42] - Management noted that the active customer growth reflects both improved acquisition and retention strategies, with a focus on deepening customer engagement [32] Other Important Information - The company repurchased approximately 1.5 million shares for $55 million during the quarter, ending with $304.9 million of remaining authorization under its repurchase program [13] - The company remains debt-free with total liquidity of approximately $1.5 billion [13] Q&A Session Summary Question: How does the team continue to evolve learnings about customer lifetime value? - Management discussed the strong intersection between Autoship, Chewy Plus, and Chewy Vet Care, emphasizing their complementary nature in driving customer retention and profitability [22][24] Question: What are the drivers behind the strong active customer growth? - Management attributed the growth to higher direct traffic, increased engagement in the mobile app, and improved conversion rates across platforms [30][32] Question: What is the outlook for demand in 2026? - Management expects 2026 to resemble 2025, with low single-digit industry growth and a focus on share-taking strategies [40] Question: How should gross margins be viewed going forward? - Management indicated that approximately half of the long-term EBITDA margin expansion will come from gross margin improvements, with several levers available for growth [58] Question: What changes have been observed in retention after raising the Chewy Plus fee? - Management reported that conversion rates remained strong after the price increase, exceeding internal expectations [65]