UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 20202, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 001-38936
chwy-20200503_g1.jpgchwy-20210502_g1.jpg
CHEWY, INC.
(Exact name of registrant as specified in its charter)
Delaware90-1020167
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1855 Griffin Road, Suite B-428, Dania Beach, Florida33004
(Address of principal executive offices)(Zip Code)
(786) 320-7111
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01 per shareCHWYNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
ClassOutstanding as of June 2, 20203, 2021
Class A Common Stock, $0.01 par value per share84,224,936104,228,820
Class B Common Stock, $0.01 par value per share317,338,356311,188,356


CHEWY, INC.
FORM 10-Q
For the Quarterly Period Ended May 3, 20202, 2021

TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.




PART I. FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning our ability to:
successfully manage risks relating to the spread of coronavirus (also known as COVID-19), including any adverse impacts on our supply chain, workforce, facilities, customer services and operations;
sustain our recent growth rates and manage our growth effectively;
acquire new customers in a cost-effective manner and increase our net sales per active customer;
accurately predict economic conditions, particularly the impact on economic conditions of the spread of COVID-19, and their impact on consumer spending patterns, particularly in the pet products market, and accurately forecast net sales and appropriately plan our expenses in the future;
introduce new products or offerings and improve existing products;
successfully compete in the pet products and services retail industry, especially in the e-commerce sector;
source additional, or strengthen our existing relationships with, suppliers;
negotiate acceptable pricing and other terms with third-party service providers, suppliers and outsourcing partners and maintain our relationships with such entities;
optimize, operate and manage the expansion of the capacity of our fulfillment centers, including risks from the spread of COVID-19 relating to our plans to expand capacity and develop new facilities;
provide our customers with a cost-effective platform that is able to respond and adapt to rapid changes in technology;
maintain adequate cybersecurity with respect to our systems and ensure that our third-party service providers do the same with respect to their systems;
successfully manufacture and sell our own privateproprietary brand products;
maintain consumer confidence in the safety and quality of our vendor-supplied and privateproprietary brand food products and hardgood products;
comply with existing or future laws and regulations in a cost-efficient manner;
attract, develop, motivate and retain well-qualified employees; and
adequately protect our intellectual property rights and successfully defend ourselves against any intellectual property infringement claims or other allegations that we may be subject to.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our annual report on Form 10-K for the fiscal year ended January 31, 2021, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
Investors and others should note that we may announce material information to our investors using our investor relations website (https://investor.chewy.com/), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on social media could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.
1



Item 1. Financial Statements (Unaudited)

CHEWY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

As ofAs of
May 3,
2020
February 2,
2020
May 2,
2021
January 31,
2021
AssetsAssets(Unaudited)Assets(Unaudited)
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$192,534  $212,088  Cash and cash equivalents$637,525 $563,345 
Accounts receivableAccounts receivable98,093  80,478  Accounts receivable117,565 100,699 
InventoriesInventories448,756  317,808  Inventories490,887 513,304 
Due from Parent, net11,267  626  
Prepaid expenses and other current assetsPrepaid expenses and other current assets17,149  18,789  Prepaid expenses and other current assets71,234 49,430 
Total current assetsTotal current assets767,799  629,789  Total current assets1,317,211 1,226,778 
Property and equipment, netProperty and equipment, net144,427  118,731  Property and equipment, net233,556 210,017 
Operating lease right-of-use assetsOperating lease right-of-use assets207,146  179,052  Operating lease right-of-use assets339,056 297,213 
Other non-current assetsOther non-current assets3,997  4,749  Other non-current assets8,703 6,902 
Total assetsTotal assets$1,123,369  $932,321  Total assets$1,898,526 $1,740,910 
Liabilities and stockholders’ deficit
Liabilities and stockholders’ equity (deficit)Liabilities and stockholders’ equity (deficit)
Current liabilities:Current liabilities:Current liabilities:
Trade accounts payableTrade accounts payable$782,863  $683,049  Trade accounts payable$804,523 $778,365 
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities466,940  417,489  Accrued expenses and other current liabilities620,463 602,497 
Total current liabilitiesTotal current liabilities1,249,803  1,100,538  Total current liabilities1,424,986 1,380,862 
Operating lease liabilitiesOperating lease liabilities229,560  200,439  Operating lease liabilities371,464 328,231 
Other long-term liabilitiesOther long-term liabilities40,541  35,318  Other long-term liabilities33,054 33,821 
Total liabilitiesTotal liabilities1,519,904  1,336,295  Total liabilities1,829,504 1,742,914 
Commitments and contingencies (Note 4)Commitments and contingencies (Note 4)Commitments and contingencies (Note 4)00
Stockholders’ deficit:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, 0 shares issued and outstanding as of May 3, 2020 and February 2, 2020—  —  
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 66,538,869 and 66,445,422 shares issued and outstanding as of May 3, 2020 and February 2, 2020, respectively666  665  
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 334,922,454 shares issued and outstanding as of May 3, 2020 and February 2, 20203,349  3,349  
Stockholders’ equity (deficit):Stockholders’ equity (deficit):
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, 0 shares issued and outstanding as of May 2, 2021 and January 31, 2021Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, 0 shares issued and outstanding as of May 2, 2021 and January 31, 2021
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 104,207,247 and 97,708,518 shares issued and outstanding as of May 2, 2021 and January 31, 2021, respectivelyClass A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 104,207,247 and 97,708,518 shares issued and outstanding as of May 2, 2021 and January 31, 2021, respectively1,042 977 
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 and 317,338,356 shares issued and outstanding as of May 2, 2021 and January 31, 2021, respectivelyClass B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 and 317,338,356 shares issued and outstanding as of May 2, 2021 and January 31, 2021, respectively3,112 3,173 
Additional paid-in capitalAdditional paid-in capital1,491,792  1,436,484  Additional paid-in capital1,963,107 1,930,804 
Accumulated deficitAccumulated deficit(1,892,342) (1,844,472) Accumulated deficit(1,898,239)(1,936,958)
Total stockholders’ deficit(396,535) (403,974) 
Total liabilities and stockholders’ deficit$1,123,369  $932,321  
Total stockholders’ equity (deficit)Total stockholders’ equity (deficit)69,022 (2,004)
Total liabilities and stockholders’ equity (deficit)Total liabilities and stockholders’ equity (deficit)$1,898,526 $1,740,910 

See accompanying Notes to Condensed Consolidated Financial Statements.

2




CHEWY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

13 Weeks Ended13 Weeks Ended
May 3,
2020
May 5,
2019
May 2,
2021
May 3,
2020
Net salesNet sales$1,621,393  $1,108,872  Net sales$2,135,178 $1,621,393 
Cost of goods soldCost of goods sold1,242,684  854,982  Cost of goods sold1,545,402 1,242,684 
Gross profitGross profit378,709  253,890  Gross profit589,776 378,709 
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrativeSelling, general and administrative320,057  181,897  Selling, general and administrative406,220 320,057 
Advertising and marketingAdvertising and marketing106,138  102,263  Advertising and marketing144,435 106,138 
Total operating expensesTotal operating expenses426,195  284,160  Total operating expenses550,655 426,195 
Loss from operations(47,486) (30,270) 
Interest (expense) income, net(384) 716  
Loss before income tax provision(47,870) (29,554) 
Income (loss) from operationsIncome (loss) from operations39,121 (47,486)
Interest expense, netInterest expense, net(402)(384)
Income (loss) before income tax provisionIncome (loss) before income tax provision38,719 (47,870)
Income tax provisionIncome tax provision—  —  Income tax provision
Net loss$(47,870) $(29,554) 
Net income (loss)Net income (loss)$38,719 $(47,870)
Net loss per share attributable to common Class A and Class B stockholders, basic and diluted$(0.12) $(0.08) 
Weighted average common shares used in computing net loss per share attributable to common Class A and Class B stockholders, basic and diluted401,405  393,000  
Net income (loss) per share attributable to common Class A and Class B stockholders, basicNet income (loss) per share attributable to common Class A and Class B stockholders, basic$0.09 $(0.12)
Net income (loss) per share attributable to common Class A and Class B stockholders, dilutedNet income (loss) per share attributable to common Class A and Class B stockholders, diluted$0.09 $(0.12)
Weighted average common shares used in computing net income (loss) per share attributable to common Class A and Class B stockholders, basicWeighted average common shares used in computing net income (loss) per share attributable to common Class A and Class B stockholders, basic415,248 401,405 
Weighted average common shares used in computing net income (loss) per share attributable to common Class A and Class B stockholders, dilutedWeighted average common shares used in computing net income (loss) per share attributable to common Class A and Class B stockholders, diluted427,597 401,405 

See accompanying Notes to Condensed Consolidated Financial Statements.


3




CHEWY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICITEQUITY (DEFICIT)
(in thousands)
(Unaudited)

13 Weeks Ended May 2, 2021
Class A and Class B Common StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
Shares Amount
Balance as of January 31, 2021Balance as of January 31, 2021415,046 $4,150 $1,930,804 $(1,936,958)$(2,004)
Share-based compensation expenseShare-based compensation expense— — 23,106 — 23,106 
Vesting of share-based compensation awardsVesting of share-based compensation awards349 (4)— 
Tax sharing agreement with PetSmartTax sharing agreement with PetSmart— — 9,201 — 9,201 
Net incomeNet income— — — 38,719 38,719 
Balance as of May 2, 2021Balance as of May 2, 2021415,395 $4,154 $1,963,107 $(1,898,239)$69,022 
13 Weeks Ended May 3, 202013 Weeks Ended May 3, 2020
Class A and Class B Common StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ DeficitClass A and Class B Common StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
Shares AmountShares AmountAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
Balance as of February 2, 2020Balance as of February 2, 2020401,368  $4,014  $1,436,484  $(1,844,472) $(403,974) Balance as of February 2, 2020401,368 $4,014 $1,436,484 $(1,844,472)$(403,974)
Share-based compensation expenseShare-based compensation expense—  —  42,229  —  42,229  Share-based compensation expense— — 42,229 — 42,229 
Vesting of share-based compensation awardsVesting of share-based compensation awards93   (1) —  —  Vesting of share-based compensation awards93 (1)— 
Contribution from Parent—  —  325  —  325  
Tax sharing agreement with Parent—  —  12,755  —  12,755  
Contribution from PetSmartContribution from PetSmart— — 325 — 325 
Tax sharing agreement with PetSmartTax sharing agreement with PetSmart— — 12,755 — 12,755 
Net lossNet loss—  —  —  (47,870) (47,870) Net loss— — — (47,870)(47,870)
Balance as of May 3, 2020Balance as of May 3, 2020401,461  $4,015  $1,491,792  $(1,892,342) $(396,535) Balance as of May 3, 2020401,461 $4,015 $1,491,792 $(1,892,342)$(396,535)
13 Weeks Ended May 5, 2019
Common StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Deficit
Shares Amount
Balance as of February 3, 2019—  $—  $1,256,160  $(1,592,102) $(335,942) 
Share-based compensation expense—  —  7,230  —  7,230  
Contribution from Parent—  —  325  —  325  
Net loss—  —  —  (29,554) (29,554) 
Balance as of May 5, 2019—  $—  $1,263,715  $(1,621,656) $(357,941) 

See accompanying Notes to Condensed Consolidated Financial Statements.




4




CHEWY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

13 Weeks Ended13 Weeks Ended
May 3,
2020
May 5,
2019
May 2,
2021
May 3,
2020
Cash flows from operating activitiesCash flows from operating activitiesCash flows from operating activities
Net loss$(47,870) $(29,554) 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Net income (loss)Net income (loss)$38,719 $(47,870)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortizationDepreciation and amortization7,253  6,949  Depreciation and amortization11,426 7,253 
Share-based compensation expenseShare-based compensation expense42,229  7,230  Share-based compensation expense23,106 42,229 
Non-cash lease expenseNon-cash lease expense5,092  4,012  Non-cash lease expense8,365 5,092 
OtherOther386  1,820  Other87 386 
Net change in operating assets and liabilities:Net change in operating assets and liabilities:Net change in operating assets and liabilities:
Accounts receivableAccounts receivable(17,615) (10,246) Accounts receivable(16,866)(17,615)
InventoriesInventories(130,948) (33,285) Inventories22,417 (130,948)
Prepaid expenses and other current assetsPrepaid expenses and other current assets1,366  (3,090) Prepaid expenses and other current assets(27,653)1,366 
Other non-current assetsOther non-current assets680  (159) Other non-current assets(1,874)680 
Trade accounts payableTrade accounts payable99,814  16,716  Trade accounts payable26,158 99,814 
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities59,008  (11,190) Accrued expenses and other current liabilities20,535 59,008 
Operating lease liabilitiesOperating lease liabilities(3,873) (2,121) Operating lease liabilities(5,223)(3,873)
Other long-term liabilitiesOther long-term liabilities5,223  1,777  Other long-term liabilities(831)5,223 
Net cash provided by (used in) operating activities20,745  (51,141) 
Net cash provided by operating activitiesNet cash provided by operating activities98,366 20,745 
Cash flows from investing activitiesCash flows from investing activitiesCash flows from investing activities
Capital expendituresCapital expenditures(42,578) (12,222) Capital expenditures(38,882)(42,578)
Cash reimbursements provided by Parent, net of advances2,114  4,057  
Cash advances provided to PetSmart, net of reimbursementsCash advances provided to PetSmart, net of reimbursements2,114 
Net cash used in investing activitiesNet cash used in investing activities(40,464) (8,165) Net cash used in investing activities(38,882)(40,464)
Cash flows from financing activitiesCash flows from financing activitiesCash flows from financing activities
Contribution from Parent325  325  
Proceeds from tax sharing agreement with PetSmartProceeds from tax sharing agreement with PetSmart14,968 
Contribution from PetSmartContribution from PetSmart325 
Principal repayments of finance lease obligationsPrincipal repayments of finance lease obligations(160) (52) Principal repayments of finance lease obligations(272)(160)
Net cash provided by financing activitiesNet cash provided by financing activities165  273  Net cash provided by financing activities14,696 165 
Net decrease in cash and cash equivalents(19,554) (59,033) 
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents74,180 (19,554)
Cash and cash equivalents, as of beginning of periodCash and cash equivalents, as of beginning of period212,088  88,331  Cash and cash equivalents, as of beginning of period563,345 212,088 
Cash and cash equivalents, as of end of periodCash and cash equivalents, as of end of period$192,534  $29,298  Cash and cash equivalents, as of end of period$637,525 $192,534 

See accompanying Notes to Condensed Consolidated Financial Statements.
5



CHEWY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.Description of Business

Chewy, Inc. and its wholly-owned subsidiaries (collectively “Chewy” or the “Company”) is a pure play e-commerce business geared toward pet products for dogs, cats, fish, birds, small pets, horses, and reptiles. Chewy serves its customers through its retail website, www.chewy.com, and its mobile applications and focuses on delivering exceptional customer service, competitive prices, outstanding convenience (including Chewy’s Autoship subscription program, fast shipping, and hassle-free returns), and a large selection of high-quality pet food, treats and supplies, and pet healthcare products.

TheDuring the fiscal year ended January 31, 2021, the Company iswas controlled by PetSmart Inc.LLC (“PetSmart” or the “Parent”). PetSmart is wholly-owned by a consortium including private investment funds advised by BC Partners, La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP and funds advised by Longview Asset Management, LLC (collectively, the “Sponsors”), and controlled by affiliates of BC Partners.

Initial Public Offering

On June 18, 2019, the Company closed its initial public offering (“IPO”),February 12, 2021, PetSmart completed a refinancing transaction and in which it issued and sold 5.6 million shares of its Class A common stock. The price at IPO was $22.00 per share. The Company received net proceeds of approximately $110.3 million from the IPO after deducting underwriting discounts and commissions of $6.2 million and offering costs.

Prior to the completion of the IPO, the Company amended and restated its certificate of incorporation to authorize Class A and Class B common stock and reclassify the 100 outstanding shares of common stock into 393,000,000 shares of Class B common stock. In connection with the IPO, 47,875,000such transaction all shares of the Company’s Class B common stock held by PetSmart and its subsidiaries were reclassified into sharesdistributed to affiliates of Class A common stock on a one-to-one basis. Upon completion ofBC Partners. Subsequent to the IPO, 53,475,000distribution, PetSmart no longer directly or indirectly owns any shares of the Company’s Class A common stock and 345,125,000 shares of Class B common stock were outstanding. The Class A common stock outstanding includes the shares issued in the IPO.stock.

2.    Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes include the accounts of Chewy, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. The unaudited condensed consolidated financial statements and notes thereto of Chewy, Inc. have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) accounting standards codification. In the opinion of management, all adjustments necessary for a fair statement of the financial information, which are of a normal and recurring nature, have been made for the interim periods reported. Results of operations for the quarterly period ended May 3, 20202, 2021 are not necessarily indicative of the results for the entire fiscal year. The unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q for the quarterly period ended May 3, 20202, 2021 (“10-Q Report”) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2020January 31, 2021 (“10-K Report”).

Fiscal Year

The Company has a 52 or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that year. The Company’s 20202021 fiscal year ends on January 31, 202130, 2022 and is a 52-week year. The Company’s 20192020 fiscal year ended February 2, 2020January 31, 2021 and was a 52-week year.

Reclassification

As the Company is no longer a subsidiary of PetSmart, balances due from and due to PetSmart have been included on a net basis within prepaid expenses and other current assets on the condensed consolidated balance sheets; corresponding amounts for prior periods have been reclassified to conform to the current period’s presentation.

Significant Accounting Policies

ThereOther than policies noted herein or within Recent Accounting Pronouncements below, there have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in the 10-K Report.


6



Use of Estimates

GAAP requires management to make certain estimates, judgments, and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates these estimates and judgments. Actual results could differ from those estimates.

Key estimates relate primarily to determining the net realizable value and demand for inventory, useful lives associated with property and equipment, valuation allowances with respect to deferred tax assets, contingencies, self-insurance accruals, evaluation of sales tax positions, and the valuation and assumptions underlying share-based compensation. On an ongoing basis, management evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

Accrued Expenses and Other Current Liabilities

The following table presents the components of accrued expenses and other current liabilities (in thousands):

As ofAs of
May 3,
2020
February 2,
2020
May 2,
2021
January 31,
2021
Outbound fulfillmentOutbound fulfillment$263,791  $182,589  Outbound fulfillment$328,148 $310,700 
Advertising and marketingAdvertising and marketing62,317  96,836  Advertising and marketing90,436 85,835 
Payroll liabilitiesPayroll liabilities47,468 72,467 
Accrued expenses and otherAccrued expenses and other140,832  138,064  Accrued expenses and other154,411 133,495 
Total accrued expenses and other current liabilitiesTotal accrued expenses and other current liabilities$466,940  $417,489  Total accrued expenses and other current liabilities$620,463 $602,497 

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement. In August 2018, the FASB issued this Accounting Standards Update (“ASU”) to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update became effective at the beginning of the Company’s 2020 fiscal year. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued this ASU to amend the current accounting guidance which requires the measurement of all expected losses to be based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables, loans, and other financial instruments, the Company will be required to use a forward-looking expected loss model that reflects probable losses rather than the incurred loss model for recognizing credit losses. This update became effective at the beginning of the Company’s 2020 fiscal year. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued this ASUAccounting Standards Update (“ASU”) to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This ASU also clarifies and simplifies other aspects of the accounting for income taxes. This update isbecame effective at the beginning of the Company’s 2021 fiscal year, with early adoption permitted.year. The Company is currently evaluating the impact that the adoption of this standard willASU did not have a material impact on itsthe Company’s condensed consolidated financial statements.statements and disclosures.




















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3.    Property and Equipment, net
The following is a summary of property and equipment, net (in thousands):


As ofAs of
May 3, 2020February 2, 2020May 2, 2021January 31, 2021
Furniture, fixtures and equipmentFurniture, fixtures and equipment$74,935  $65,329  Furniture, fixtures and equipment$104,819 $91,496 
Computer equipmentComputer equipment34,719  32,259  Computer equipment44,999 43,347 
Internal-use softwareInternal-use software35,832  30,222  Internal-use software67,304 56,977 
Leasehold improvementsLeasehold improvements40,876  39,447  Leasehold improvements90,910 80,641 
Finance lease assets2,861  2,565  
Construction in progressConstruction in progress31,920  18,927  Construction in progress41,198 41,914 
221,143  188,749  349,230 314,375 
Less: accumulated depreciation and amortizationLess: accumulated depreciation and amortization76,716  70,018  Less: accumulated depreciation and amortization115,674 104,358 
Property and equipment, netProperty and equipment, net$144,427  $118,731  Property and equipment, net$233,556 $210,017 

Internal-use software includes labor and license costs associated with software development for internal use. As of May 3, 20202, 2021 and February 2, 2020,January 31, 2021, the Company had accumulated amortization related to internal-use software of $17.1$25.3 million and $15.9$22.5 million, respectively.

Construction in progress is stated at cost, which includes the cost of construction and other directly attributable costs. No provision for depreciation is made on construction in progress until the relevant assets are completed and put into use.

For the thirteen weeks ended May 3, 20202, 2021 and May 5, 2019,3, 2020, the Company recorded depreciation expense on property and equipment of $6.1$8.6 million, and $5.0$6.1 million, respectively, and amortization expense related to internal-use software costs of $1.2$2.8 million, and $1.9$1.2 million, respectively. The aforementioned depreciation and amortization expenses were included within selling, general and administrative expenses in the condensed consolidated statements of operations.

4.    Commitments and Contingencies

As of May 3, 2020, there were no material changes to the Company’s legal matters disclosed in Note 4 of the “Notes to Consolidated Financial Statements” included in the 10-K Report.Legal Matters

Various legal claims arise from time to time in the normal course of business. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

The Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. The Company does not believe that the ultimate resolution of any matters to which it is presently a party will have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

International Business Machines Corporation (“IBM”) previously alleged that the Company is infringing 4 of its patents. On February 15, 2021, the Company filed a declaration judgment action in the United States District Court for the Southern District of New York against IBM seeking the court’s declaration that the Company is not infringing the 4 asserted IBM patents. On April 19, 2021, IBM filed an answer with counterclaims, alleging that the Company is infringing the 4 patents by operation of the Chewy.com website and mobile application, and seeking unspecified damages, including a request that the amount of compensatory damages be trebled, injunctive relief and costs and reasonable attorneys’ fees. The Company filed a motion to dismiss IBM’s claims against three of the asserted patents on May 14, 2021. In response, IBM filed an amended complaint on May 24, 2021 that included an additional assertion that the Company is infringing a fifth IBM patent. The Company filed a motion to dismiss IBM’s claims with respect to the newly asserted fifth patent on May 28, 2021.The Company continues to deny the allegations of any infringement and intends to vigorously defend itself in this matter. The possible loss or range of loss associated with this matter is not estimable.



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5.    Debt

ABL Credit Facility

The Company has a five-yearfive-year senior secured asset-backed credit facility (the “ABL Credit Facility”) which matures in June 2024 and provides for non-amortizing revolving loans in an aggregate principal amount of up to $300 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility provides the right to request incremental commitments and add incremental asset-based revolving loan facilities in an aggregate principal amount of up to $100 million, subject to customary conditions. The Company is required to pay a pay commitment fee of between 0.25% and 0.375% with respect to the undrawn portion of the commitments, which is generally based on average daily usage of the facility. Based on the Company’s borrowing base as of May 2, 2021, which is reduced by standby letters of credit, the Company had $272.8 million of borrowing capacity under the ABL Credit Facility. As of May 3, 2020,2, 2021, the Company had 0 outstanding borrowings under the ABL Credit Facility.

6.    Leases

The Company leases all of its fulfillment and customer service centers and corporate offices under non-cancelable operating lease agreements. The terms of the Company’s real estate leases generally range from 5 to 15 years and typically allow for the leases to be renewed for up to 3 additional five-yearfive-year terms. Fulfillment and customer service centers and corporate office leases including exercised renewal options, expire at various dates through 2034.2034, excluding renewal options. The Company also leases certain equipment under operating and finance leases. The terms of equipment leases generally range from 3 to 5 years and do not contain renewal options. These leases expire at various dates through 2024.2025.

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The Company’s finance leases as of May 3, 20202, 2021 and February 2, 2020January 31, 2021 were not material.material and were included in property and equipment on the Company's condensed consolidated balance sheets. The table below presents the operating lease-related assets and liabilities recorded on the condensed consolidated balance sheets (in thousands):

As ofAs of
LeasesLeasesBalance Sheet ClassificationMay 3, 2020February 2, 2020LeasesBalance Sheet ClassificationMay 2, 2021January 31, 2021
AssetsAssetsAssets
OperatingOperatingOperating lease right-of-use assets  $207,146  $179,052  OperatingOperating lease right-of-use assets$339,056 $297,213 
Total operating lease assetsTotal operating lease assets$207,146  $179,052  Total operating lease assets$339,056 $297,213 
LiabilitiesLiabilitiesLiabilities
CurrentCurrentCurrent
OperatingOperatingAccrued expenses and other current liabilities  $15,321  $15,491  OperatingAccrued expenses and other current liabilities$21,301 $19,142 
Non-currentNon-currentNon-current
OperatingOperatingOperating lease liabilities  229,560  200,439  OperatingOperating lease liabilities371,464 328,231 
Total operating lease liabilitiesTotal operating lease liabilities$244,881  $215,930  Total operating lease liabilities$392,765 $347,373 

For the thirteen weeks ended May 3, 20202, 2021 and May 5, 2019,3, 2020, assets acquired in exchange for new operating lease liabilities were $32.0$46.0 million and $0.2$32.0 million, respectively. Lease expense primarily related to operating lease costs. Lease expense for the thirteen weeks ended May 2, 2021 and May 3, 2020 was $19.0 million and May 5, 2019 was $13.4 million, and $11.0 million, respectively, andrespectively. The aforementioned lease expense was included within selling, general and administrative expenses in the condensed consolidated statements of operations.

Operating cash flows related to cash paid for operating leases were approximately $10.4$15.3 million and $8.3$10.4 million for the thirteen weeks ended May 3, 20202, 2021 and May 5, 2019,3, 2020, respectively.








9



7.    Stockholders’ Equity (Deficit)
Common Stock

2020 Equity Offering

On September 21, 2020, the Company issued and sold 5,100,000 shares of Class A common stock in an underwritten public offering at a price of $54.40 per share to Morgan Stanley & Co. LLC, who acted as sole underwriter in the offering. The Company had granted the underwriter an option to purchase up to an additional 765,000 shares of Class A common stock at a price of $54.40 per share (“Option Shares”), which was exercised on September 30, 2020. The Company raised $318.4 million in net proceeds through the equity offering (including proceeds from the sale of the Option Shares) after deducting offering costs of approximately $0.6 million.

Conversion of Class B Common Stock

On May 8, 2020, Buddy Chester Sub LLC, a wholly-owned subsidiary of Argos Intermediate Holdco I Inc. (“Argos Holdco”), which is controlled by affiliates of BC Partners, converted 17,584,098 shares of the Company’s Class B common stock into Class A common stock. On May 11, 2020, Buddy Chester Sub LLC entered into a variable forward purchase agreement to deliver up to 17,584,098 shares of the Company’s Class A common stock at the exchange date, which is expected to be May 16, 2023. The number of shares to be delivered will be determined based on, among other things, the trading price of the Company’s Class A common stock at that time.

On April 12, 2021, Argos Holdco converted 6,150,000 shares of the Company’s Class B common stock into Class A common stock and sold such Class A common stock.

8.    Share-Based Compensation

2019 Omnibus Incentive Plan

In June 2019, the Company’s board of directors adopted and approved the 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2019 Plan became effective on June 13, 2019 and allows for the issuance of up to 31,864,865 shares of Class A common stock. No awards may be granted under the 2019 Plan after June 2029.

The2029.The 2019 Plan provides for the grant of stock options, including incentive stock options, non-qualified stock options, restricted stock, dividend equivalents, stock payments, restricted stock units, performance shares, other incentive awards, stock appreciation rights, and cash awards (collectively “awards”). The awards may be granted to the Company’s employees, consultants, and directors, and the employees and consultants of the Company’s affiliates and subsidiaries.

Service and Performance-Based Awards

Beginning in June 2019, theThe Company grantedgrants restricted stock units that vest upon satisfaction of both a service-based vesting conditionconditions and a performance-basedcompany performance or market-based vesting conditionconditions (“PRSUs”) as described below.

The service-based vesting condition will be satisfied with respect to 25% of an employee’s PRSUs on the first anniversary of the registration date (as defined in the 2019 Plan) and then with respect to 12.5% of an employee’s PRSUs at the end of each six month period thereafter,, subject to the employee’s continued employment with the Company through the applicable vesting date. The Company records share-based compensation expense for PRSUs over the requisite service period and accounts for forfeitures as they occur.

The performance-based vesting condition shall be satisfied with respect to a percentage of an employee’s PRSUs, as and when the price per share of Class A common stock specified is achieved, on a volume adjusted weighted-average basis, on every trading day during a consecutive 45-trading day period completed prior to the fifth anniversary of the 2019 Plan’s effective date subject to the employee’s continued employment with the Company through the applicable vesting date.




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Service-Based Awards

During the thirteen weeks ended May 3, 2020, theThe Company grantedgrants restricted stock units with a service-based vesting conditionconditions (“RSUs”). The service-based vesting condition will be satisfied with respect to 25% of an employee’s RSUs on the one-year anniversary of the vesting commencement date and 12.5% of an employee’s RSUs at the end of each six month period thereafter, which vest subject to the employee’s continued employment with the Company through the applicable vesting date. The Company records share-based compensation expense for RSUs on a straight-line basis over the requisite service period. The Companyperiod and accounts for forfeitures as they occur.

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Service and Performance-Based Awards Activity

The following table summarizes the activity related to the Company’s PRSUs for the thirteen weeks ended May 3, 20202, 2021 (in thousands, except for weighted average grant date fair value):
Number of PRSUsWeighted Average Grant Date Fair Value
Outstanding as of February 2, 202021,284  $36.20  
Granted805  $32.30  
Vested(93) $36.77  
Forfeited(536) $35.10  
Unvested and outstanding as of May 3, 202021,460  $36.08  

Number of PRSUsWeighted Average Grant Date Fair Value
Outstanding as of January 31, 202113,011 $35.95 
Granted32 $80.85 
Vested(257)$29.74 
Forfeited(294)$33.80 
Unvested and outstanding as of May 2, 202112,492 $36.24 

The total fair value of PRSUs that vested during the thirteen weeks ended May 3, 20202, 2021 was $3.2$24.2 million. As of May 3, 2020,2, 2021, total unrecognized compensation expense related to unvested PRSUs was $168.4$66.3 million and is expected to be recognized over a weighted-average expected performance period of 2.01.6 years.

The fair value of the PRSUs with share price hurdlesmarket-based vesting conditions was determined on the date of grant using a Monte Carlo model to simulate total stockholder return for the Company and peer companies with the following assumptions:

Performance period5 years
Weighted-average risk-free interest rate1.8%
Weighted-average volatility49.7%
Weighted-average dividend yield—%0%

The risk-free interest rate utilized is based on a 5-year term-matched zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on historical volatility of the stock of the Company’s peer firms. 

The fair value for PRSUs with a Company performance-based vesting condition is established based on the market price of the Company’s Class A common stock on the date of grant.

Service-Based Awards Activity

The following table summarizes the activity related to the Company’s RSUs for the thirteen weeks ended May 3, 20202, 2021 (in thousands, except for weighted average grant date fair value):
Number of RSUsWeighted Average Grant Date Fair ValueNumber of RSUsWeighted Average Grant Date Fair Value
Outstanding as of February 2, 2020—  $—  
Outstanding as of January 31, 2021Outstanding as of January 31, 2021713 $48.58 
GrantedGranted325  $33.31  Granted1,664 $80.85 
VestedVested(92)$36.46 
ForfeitedForfeited(2) $33.31  Forfeited(67)$59.31 
Unvested and outstanding as of May 3, 2020323  $33.31  
Unvested and outstanding as of May 2, 2021Unvested and outstanding as of May 2, 20212,218 $73.04 

The total fair value of RSUs that vested during the thirteen weeks ended May 2, 2021 was $9.1 million. As of May 3, 2020,2, 2021, total unrecognized compensation expense related to unvested RSUs was $10.5$150.9 million and is expected to be recognized over a weighted-average expected performance period of 3.83.4 years.

The fair value for RSUs is established based on the market price of the Company’s Class A common stock on the date of grant.
10



As of May 3, 2020,2, 2021, there were 7.26.2 million additional shares of Class A common stock reserved for future issuance under the 2019 Plan.

Citrus Profits Interest Plan
11


Subsequent to the PetSmart Acquisition, the Company’s share-based compensation included profits interests units (“PIUs”) granted by Citrus Intermediate Holdings L.P. (the “Citrus Partnership”), a Delaware limited partnership (the “Citrus Profits Interest Plan”). The Citrus Partnership is a parent company of PetSmart and a wholly-owned subsidiary of the Sponsors. The Company recognizes share-based compensation as equity contributions from the Citrus Partnership in its condensed consolidated financial statements for awards granted under the Citrus Profits Interest Plan as it relates to grantees’ services as employees of the Company.

As of June 13, 2019, an aggregate of 768,785 profits interests units under the Citrus Profits Interest Plan were held by employees of Chewy, Inc. and were canceled.

Share-Based Compensation Expense

Share-based compensation expense is included within selling, general and administrative expenses in the condensed consolidated statements of operations. The Company recognized share-based compensation expense as follows (in thousands):

13 Weeks Ended13 Weeks Ended
May 3,
2020
May 5,
2019
May 2,
2021
May 3,
2020
PRSUsPRSUs$42,010  $—  PRSUs$14,112 $42,010 
RSUsRSUs219  —  RSUs8,994 219 
PIUs—  7,230  
Total share-based compensation expenseTotal share-based compensation expense$42,229  $7,230  Total share-based compensation expense$23,106 $42,229 

8.9.    Income Taxes

SubsequentChewy is subject to taxation in the PetSmart Acquisition, theU.S. and various state and local jurisdictions. The Company’s losses and tax attributes were previously included within PetSmart’s consolidated tax return activity at the U.S. federal level and any applicable state income tax returns.and local level. Income taxes as presented in the Company’s condensed consolidated financial statements have been prepared based on the separate return method as ifmethod. As of January 31, 2021, Chewy was no longer a member of PetSmart’s affiliated group for U.S. federal income tax purposes. For presentation purposes, during the fiscal year ended January 31, 2021, the Company were a taxpayer separatereduced the deferred tax attributes previously utilized by PetSmart, along with the associated valuation allowances, from PetSmart.the financial statements in order to properly reflect the deferred tax attributes available to the Company; this had no net impact on the Company’s income tax expense.

The Company did 0t have a net current or deferred provision for income taxes for any taxing jurisdiction during the thirteen weeks ended May 3, 20202, 2021, and May 5, 2019.3, 2020. Additionally, the Company maintained a full valuation allowance on its net deferred tax assets.

Concurrent with its initial public offering during the IPO,fiscal year ended February 2, 2020, the Company and PetSmart entered into a tax sharing agreement which governs the respective rights, responsibilities, and obligations of the Company and PetSmart with respect to tax matters, including taxes attributable to PetSmart, entitlement to refunds, allocation of tax attributes, preparation of tax returns, certain tax elections, control of tax contests and other tax matters regarding U.S. federal, state, local, and foreignlocal income taxes. During the thirteen weeks ended May 3, 2020,2, 2021, the Company recorded a $12.8collected $15.0 million due from Parent pursuant to the tax sharing agreement.

The Coronavirus Aid, Relief, Though the tax sharing agreement was effectively terminated upon tax deconsolidation for federal income taxes, future settlements will occur upon the filing of final tax returns. Additionally, the Company will continue to receive payments upon the filing of certain combined state tax returns for the fiscal year ended January 31, 2021 and Economic Security Act (“CARES Act”),thereafter. As of May 2, 2021 and January 31, 2021, the Company had a receivable related to the tax sharing agreement of $24.7 million and $30.5 million, respectively, of which was enacted on March 27, 2020, made tax law changes to provide financial relief to companies as a result of the business impacts of COVID-19. Key income tax provisions of the CARES Act include changes in net operating loss carryback and carryforward rules, acceleration of alternative minimum tax credit recovery, increase in the net interest expense deduction limit and charitable contribution limit, and immediate write-off of qualified improvement property. The changes are notoutstanding amount is expected to have a significant impact onbe collected during the Company.fiscal year ended January 30, 2022.






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9.10.    Net LossIncome (Loss) per Share

Basic and diluted net lossincome (loss) per share attributable to common stockholders is presented using the two class method required for participating securities. Under the two class method, net lossincome (loss) attributable to common stockholders is determined by allocating undistributed earnings between common stock and participating securities. Undistributed earnings for the periods presented are calculated as net lossincome (loss) less distributed earnings.

Undistributed earnings are allocated proportionally to common Class A and Class B stockholders as both classes are entitled to share equally, on a per share basis, in dividends and other distributions. Basic and diluted net lossincome (loss) per share is calculated by dividing net lossincome (loss) attributable to common stockholders by the weighted-average shares outstanding during the period. The weighted-average shares outstanding during the periods presented reflects the reclassification of the 100 outstanding shares of common stock into 393,000,000 shares of Class B common stock.

For the thirteen weeks ended May 2, 2021, the Company’s calculations of basic and diluted net income per share attributable to common Class A and Class B stockholders include the dilutive effect of stock-based awards in the diluted net income per share calculation. The computation of diluted net income per share attributable to common stockholders does not include 2.1 million potential common shares for the thirteen weeks ended May 2, 2021.


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For the thirteen weeks ended May 3, 2020, and May 5, 2019, the Company’s calculations of basic and diluted net loss per share attributable to common Class A and Class B stockholders are the same because the Company has generated a net loss to common stockholders and common stock equivalents are excluded from diluted net loss per share as they have an antidilutive impact. The computation of diluted net loss per share attributable to common stockholders does not include 21.8 million potential common shares for the thirteen weeks ended May 3, 2020, as the effect of their inclusion would have been antidilutive.

Conversion of Class B Common StockThe following table sets forth basic and diluted net income (loss) per share attributable to common stockholders for the periods presented (in thousands, except per share data):

On May 8, 2020, Buddy Chester Sub LLC, a wholly-owned subsidiary of PetSmart, converted 17,584,098 shares of the Company’s Class B common stock into Class A common stock. On May 11, 2020, Buddy Chester Sub LLC entered into a variable forward purchase agreement to deliver up to 17,584,098 shares of the Company’s Class A common stock at the exchange date, which is expected to be May 16, 2023, determined by reference to the trading price of the common stock at that time.
13 Weeks Ended
May 2,
2021
May 3,
2020
Basic and diluted net income (loss) per share
Numerator
Net income (loss) attributable to common stockholders$38,719 $(47,870)
Denominator
Weighted average common shares used in computing net income (loss) per share attributable to Class A and Class B stockholders, basic415,248401,405
Weighted-average effect of dilutive stock-based awards12,3490
Weighted average common shares used in computing net income (loss) per share attributable to Class A and Class B stockholders, diluted427,597401,405
Earnings (loss) per common share
Net income (loss) per share attributable to common Class A and Class B stockholders, basic$0.09$(0.12)
Net income (loss) per share attributable to common Class A and Class B stockholders, diluted$0.09$(0.12)

10.11.    Certain Relationships and Related Party Transactions

The Company’s condensed consolidated financial statements include management fee expenses of $0.3 million allocated to the Company by the ParentPetSmart for organizational oversight and certain limited corporate functions provided by its sponsors for the thirteen weeks ended May 3, 2020 and May 5, 2019.2020. Allocated costs are included within selling, general and administrative expenses in the condensed consolidated statements of operations.

CertainSince launch on July 2, 2018, certain of the Company’s pharmacy operations are currently, and have been since launch on July 2, 2018,and continue to be conducted through a wholly-owned subsidiary of PetSmart. The Company has entered into a services agreement with PetSmart that provides for the payment of a management fee due from PetSmart with respect to this arrangement. The Company recognized $11.7$10.6 million and $10.5$11.7 million within net sales in the condensed consolidated statements of operations for the services provided during the thirteen weeks ended May 2, 2021 and May 3, 2020, respectively.

As of May 2, 2021 and May 5, 2019, respectively.January 31, 2021, the Company had a net receivable from PetSmart of $28.8 million and $21.9 million, respectively, which was included in prepaid expenses and other current assets on the Company's condensed consolidated balance sheets.

PetSmart Guarantees

PetSmart currently providespreviously provided a guarantee of payment with respect to certain equipment and other leases that the Company has entered into and servesserved as a guarantor in respect of the Company’s obligations under a credit insurance policy in favor of certain of the Company’s current or future suppliers.

As of June 4, 2021, all such guarantees had been released, with the exception of guarantees pertaining to 2 of the Company’s lease agreements.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and related notes thereto included in this Quarterly Report on Form 10-Q for the quarterly period ended May 3, 20202, 2021 (“10-Q Report”) and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2020January 31, 2021 (“10-K Report”). This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections herein and in our 10-K Report, our actual results may differ materially from those anticipated in these forward-looking statements. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Chewy,” “the Company,” “we,” “our,” or “us” refer to Chewy, Inc. and its consolidated subsidiaries. 

Investors and others should note that we may announce material information to our investors using our investor relations website (https://investor.chewy.com/), Securities and Exchange Commission (the “SEC”) filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on social media could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.

Overview

We are the largest pure-play pet e-tailer in the United States, offering virtually every product a pet needs. We launched Chewy in 2011 to bring the best of the neighborhood pet store shopping experience to a larger audience, enhanced by the depth and wide selection of products and around-the-clock convenience that only e-commerce can offer. We believe that we are the preeminent online destination for pet parents as a result of our broad selection of high-quality products, which we offer at great prices and deliver with an exceptional level of care and a personal touch. We are the trusted source for pet parents and continually develop innovative ways for our customers to engage with us. We partner with more than 2,0002,500 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding privateproprietary brands. Through our website and mobile applications, we offer our customers more than 60,00075,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.

CoronavirusCOVID-19

The coronavirus (also known as COVID-19)COVID-19 pandemic has been a highly disruptive economic and societal event that has affected our business and has had a significant impact on consumer shopping behavior. To serve our pet parents while also providing for the safety and well-being of our team members, we have adapted aspects of our logistics, transportation, supply chain and purchasing processes.processes accordingly. As reflected in the discussion below, early in the outbreak, we saw an acceleration in sales as concerned pet parents stocked up on necessities such as food and other essentials. Later, as shelter-in-place orders expanded and social distancing protocols took hold,have seen customers began shiftingshift more of their total shopping spend to online channels.channels since the COVID-19 outbreak, which has led to increased sales and order activity for our business. While the COVID-19 outbreak has not had a material adverse impact on our operations to date, and conditions do appear to be improving as vaccination levels rise and state and local economies begin to re-open, the positive or negative impacts that the COVID-19 outbreak will ultimately have on our business remain difficult to predict.

Throughout theAs this crisis unfolded, we continue to monitor the rapidly evolving situationmonitored conditions closely and expect to remain on the job, continuing to adaptadapted our operations to addressmeet federal, state and local standards, meetingwhile continuing to meet the needs of our rapidly growing community of pets and pet parents and implementing standards that we believe to be in the best interest ofensure the safety and well-being of our team members. We cannotWhile conditions appear to be improving, we are still unable to predict the duration or severity of the economicCOVID-19 pandemic and therefore what the ultimate impact of the COVID-19 pandemic will be on the broader economy or its ultimate impact on our operations and liquidity, asliquidity. As such, the situation remains unpredictable and risks still remain. Please refer to the “Cautionary Note Regarding Forward-Looking Statements” in this 10-Q Report and the “Risk Factors” disclosed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2020.January 31, 2021.

Fiscal Year End

We have a 52 or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that year. Our 20202021 fiscal year ends on January 31, 202130, 2022 and is a 52-week year. Our 20192020 fiscal year ended February 2, 2020January 31, 2021 and was a 52-week year.






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Key Financial and Operating Data

We measure our business using both financial and operating data and use the following metrics and measures to assess the near-term and long-term performance of our overall business, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies, and monitoring our business.
13 Weeks Ended
(in thousands, except net sales per active customer and percentages)May 3,
2020
May 5,
2019
% Change
Financial and Operating Data
Net sales$1,621,393  $1,108,872  46.2 %
Net loss (1)
$(47,870) $(29,554) (62.0)%
Net margin (1)
(3.0)%(2.7)%
Adjusted EBITDA(2)
$3,443  $(15,766) 121.8 %
Adjusted EBITDA margin(2)
0.2 %(1.4)%
Net cash provided by (used in) operating activities$20,745  $(51,141) 140.6 %
Free cash flow(2)
$(21,833) $(63,363) 65.5 %
Active customers15,016  11,321  32.6 %
Net sales per active customer$357  $343  4.1 %
Autoship customer sales$1,101,189  $743,853  48.0 %
Autoship customer sales as a percentage of net sales67.9 %67.1 %
(1) Includes share-based compensation expense, including related taxes, of $42.3 million and $7.2 million for the thirteen weeks ended May 3, 2020 and May 5, 2019, respectively.
(2) Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures.

13 Weeks Ended
(in thousands, except net sales per active customer and percentages)May 2,
2021
May 3,
2020
% Change
Financial and Operating Data
Net sales$2,135,178 $1,621,393 31.7 %
Net income (loss) (1)
$38,719 $(47,870)180.9 %
Net margin (1)
1.8 %(3.0)%
Adjusted EBITDA(2)
$77,354 $3,443 n/m
Adjusted EBITDA margin(2)
3.6 %0.2 %
Net cash provided by operating activities$98,366 $20,745 n/m
Free cash flow(2)
$59,484 $(21,833)n/m
Active customers19,765 15,016 31.6 %
Net sales per active customer$388 $357 8.7 %
Autoship customer sales$1,480,240 $1,101,189 34.4 %
Autoship customer sales as a percentage of net sales69.3 %67.9 %
n/m - not meaningful
(1) Includes share-based compensation expense, including related taxes, of $24.8 million for the thirteen weeks ended May 2, 2021 compared to $42.3 million for the thirteen weeks ended May 3, 2020.
(2) Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures.

We define net margin as net lossincome (loss) divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this
10-Q Report adjusted EBITDA, a non-GAAP financial measure that we calculate as net lossincome (loss) excluding depreciation and amortization; share-based compensation expense and related taxes; income tax provision; interest income (expense), net; management fee expense; transaction related costs; and litigation matters and other costs.items that we do not consider representative of our underlying operations. We have provided a reconciliation below of adjusted EBITDA to net loss,income (loss), the most directly comparable GAAP financial measure.

We have included adjusted EBITDA in this 10-Q Report because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and certain variable charges. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

We believe it is useful to exclude non-cash charges, such as depreciation and amortization, share-based compensation expense and management fee expense from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision; interest income (expense), net; transaction related costs; and transactionlitigation matters and other costs as these items which are not components of our core business operations. Adjusted EBITDA has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

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although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures;
14



adjusted EBITDA does not reflect share-based compensation and related taxes. Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy;
adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital;
adjusted EBITDA does not reflect transaction related costs and other costsitems which are generallyeither not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include transaction costs (i.e. IPO costs),litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, including various cash flow metrics, net loss,income (loss), net margin, and our other GAAP results.

The following table presents a reconciliation of net lossincome (loss) to adjusted EBITDA for each of the periods indicated.

($ in thousands, except percentages)($ in thousands, except percentages)13 Weeks Ended($ in thousands, except percentages)13 Weeks Ended
Reconciliation of Net Loss to Adjusted EBITDAMay 3,
2020
May 5,
2019
Net loss$(47,870) $(29,554) 
Reconciliation of Net Income (Loss) to Adjusted EBITDAReconciliation of Net Income (Loss) to Adjusted EBITDAMay 2,
2021
May 3,
2020
Net income (loss)Net income (loss)$38,719 $(47,870)
Add (deduct):Add (deduct):Add (deduct):
Depreciation and amortizationDepreciation and amortization7,253  6,949  Depreciation and amortization11,426 7,253 
Share-based compensation expense and related taxesShare-based compensation expense and related taxes42,341  7,230  Share-based compensation expense and related taxes24,772 42,341 
Interest expense (income), net384  (716) 
Interest expense, netInterest expense, net402 384 
Management fee expense(1)
Management fee expense(1)
325  325  
Management fee expense(1)
— 325 
Transaction related costsTransaction related costs831 — 
OtherOther1,010  —  Other1,204 1,010 
Adjusted EBITDAAdjusted EBITDA$3,443  $(15,766) Adjusted EBITDA$77,354 $3,443 
Net salesNet sales$1,621,393  $1,108,872  Net sales$2,135,178 $1,621,393 
Net marginNet margin(3.0)%(2.7)%Net margin1.8 %(3.0)%
Adjusted EBITDA marginAdjusted EBITDA margin0.2 %(1.4)%Adjusted EBITDA margin3.6 %0.2 %
(1) Management fee expense allocated to us by PetSmart for organizational oversight and certain limited corporate functions provided by its sponsors. Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our condensed consolidated financial statements.
(1) Management fee expense allocated to us by PetSmart LLC (“PetSmart”) for organizational oversight and certain limited corporate functions provided by its sponsors. Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our condensed consolidated financial statements during the thirteen weeks ended May 3, 2020.
(1) Management fee expense allocated to us by PetSmart LLC (“PetSmart”) for organizational oversight and certain limited corporate functions provided by its sponsors. Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our condensed consolidated financial statements during the thirteen weeks ended May 3, 2020.

Free Cash Flow

To provide investors with additional information regarding our financial results, we have also disclosed here and elsewhere in this 10-Q Report free cash flow, a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less capital expenditures (which consist of purchases of property and equipment, including servers and networking equipment, capitalization of labor related to our website, mobile applications, and software development, and leasehold improvements). We have provided a reconciliation below of free cash flow to net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure.

We have included free cash flow in this 10-Q Report because it is an important indicator of our liquidity as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.


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Free cash flow has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. There are limitations to using non-GAAP financial measures, including that other companies, including companies in our industry, may calculate free cash flow differently. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used in) operating activities, capital expenditures and our other GAAP results.

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The following table presents a reconciliation of net cash provided by (used in) operating activities to free cash flow for each of the periods indicated.

($ in thousands)($ in thousands)13 Weeks Ended($ in thousands)13 Weeks Ended
Reconciliation of Net Cash Provided by (Used in) Operating Activities to Free Cash FlowMay 3,
2020
May 5,
2019
Net cash provided by (used in) operating activities$20,745  $(51,141) 
Reconciliation of Net Cash Provided by Operating Activities to Free Cash FlowReconciliation of Net Cash Provided by Operating Activities to Free Cash FlowMay 2,
2021
May 3,
2020
Net cash provided by operating activitiesNet cash provided by operating activities$98,366 $20,745 
Deduct:Deduct:Deduct:
Capital expendituresCapital expenditures(42,578) (12,222) Capital expenditures(38,882)(42,578)
Free Cash FlowFree Cash Flow$(21,833) $(63,363) Free Cash Flow$59,484 $(21,833)

Free cash flow may be affected in the near to medium term by the timing of capital investments (such as the launch of new fulfillment centers, customer service centers, and corporate offices and purchases of IT and other equipment), fluctuations in our growth and the effect of such fluctuations on working capital, and changes in our cash conversion cycle due to increases or decreases of vendor payment terms as well as inventory turnover.

Key Operating Metrics

Active Customers

As of the last date of each reporting period, we determine our number of active customers by counting the total number of individual customers who have ordered, and for whom an order has shipped, at least once during the preceding 364-day period. The change in active customers in a reporting period captures both the inflow of new customers as well as the outflow of customers who have not made a purchase in the last 364 days. We view the number of active customers as a key indicator of our growth—acquisition and retention of customers—as a result of our marketing efforts and the value we provide to our customers. The number of active customers has grown over time as we acquired new customers and retained previously acquired customers.

Net Sales Per Active Customer

We define net sales per active customer as the aggregate net sales for the preceding four fiscal quarters, divided by the total number of active customers at the end of that period. We view net sales per active customer as a key indicator of our customers’ purchasing patterns, including their initial and repeat purchase behavior.

Autoship and Autoship Customer Sales

We define Autoship customers as customers in a given fiscal quarter for whom an order has shipped through our Autoship subscription program during the preceding 364-day period. We define Autoship as our subscription program, which provides automatic ordering, payment, and delivery of products to our customers. We view our Autoship subscription program as a key driver of recurring net sales and customer retention. For a given fiscal quarter, Autoship customer sales consist of sales and shipping revenues from all Autoship subscription program purchases and purchases outside of the Autoship subscription program by Autoship customers, excluding taxes collected from customers, excluding any refund allowance, and net of any promotional offers (such as percentage discounts off current purchases and other similar offers), for that quarter. For a given fiscal year, Autoship customer sales equal the sum of the Autoship customer sales for each of the fiscal quarters in that fiscal year.

Autoship Customer Sales as a Percentage of Net Sales

We define Autoship customer sales as a percentage of net sales as the Autoship customer sales in a given reporting period divided by the net sales from all orders in that period. We view Autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention.

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Components of Results of Consolidated Operations

Net Sales

We derive net sales primarily from sales of both third-party brand and privateproprietary brand pet food, pet products, pet medications and other pet health products, and related shipping fees. Sales of third-party brand and privateproprietary brand pet food, pet products and shipping revenues are recorded when products are shipped, net of promotional discounts and refund allowances. Taxes collected from customers are excluded from net sales. Net sales is primarily driven by growth of new customers and active customers, and the frequency with which customers purchase and subscribe to our Autoship subscription program.

We also periodically provide promotional offers, including discount offers, such as percentage discounts off current purchases and other similar offers. These offers are treated as a reduction to the purchase price of the related transaction and are reflected as a net amount in net sales.

Cost of Goods Sold

Cost of goods sold consists of the cost of third-party brand and privateproprietary brand products sold to customers, inventory freight, shipping supply costs, inventory shrinkage costs, and inventory valuation adjustments, offset by reductions for promotions and percentage or volume rebates offered by our vendors, which may depend on reaching minimum purchase thresholds. Generally, amounts received from vendors are considered a reduction of the carrying value of inventory and are ultimately reflected as a reduction of cost of goods sold.

Selling, General and Administrative

Selling, general and administrative expenses consist of payroll and related expenses for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources; costs associated with use by these functions, such as depreciation expense and rent relating to facilities and equipment; professional fees and other general corporate costs; share-based compensation; and fulfillment costs.

Fulfillment costs represent costs incurred in operating and staffing fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, payment processing and related transaction costs and responding to inquiries from customers. Included within fulfillment costs are merchant processing fees charged by third parties that provide merchant processing services for credit cards.

Advertising and Marketing

Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities.





















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Results of Consolidated Operations

The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
13 Weeks Ended13 Weeks Ended
% of net sales% of net sales
($ in thousands)($ in thousands)May 3,
2020
May 5,
2019
% ChangeMay 3,
2020
May 5,
2019
($ in thousands)May 2,
2021
May 3,
2020
% ChangeMay 2,
2021
May 3,
2020
Consolidated Statements of OperationsConsolidated Statements of OperationsConsolidated Statements of Operations
Net salesNet sales$1,621,393  $1,108,872  46.2 %100.0 %100.0 %Net sales$2,135,178 $1,621,393 31.7 %100.0 %100.0 %
Cost of goods soldCost of goods sold1,242,684  854,982  45.3 %76.6 %77.1 %Cost of goods sold1,545,402 1,242,684 24.4 %72.4 %76.6 %
Gross profitGross profit378,709  253,890  49.2 %23.4 %22.9 %Gross profit589,776 378,709 55.7 %27.6 %23.4 %
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrativeSelling, general and administrative320,057  181,897  76.0 %19.7 %16.4 %Selling, general and administrative406,220 320,057 26.9 %19.0 %19.7 %
Advertising and marketingAdvertising and marketing106,138  102,263  3.8 %6.5 %9.2 %Advertising and marketing144,435 106,138 36.1 %6.8 %6.5 %
Total operating expensesTotal operating expenses426,195  284,160  50.0 %26.3 %25.6 %Total operating expenses550,655 426,195 29.2 %25.8 %26.3 %
Loss from operations(47,486) (30,270) (56.9)%(2.9)%(2.7)%
Interest (expense) income, net(384) 716  (153.6)%— %0.1 %
Loss before income tax provision(47,870) (29,554) (62.0)%(3.0)%(2.7)%
Income (loss) from operationsIncome (loss) from operations39,121 (47,486)182.4 %1.8 %(2.9)%
Interest expense, netInterest expense, net(402)(384)4.7 %— %— %
Income (loss) before income tax provisionIncome (loss) before income tax provision38,719 (47,870)180.9 %1.8 %(3.0)%
Income tax provisionIncome tax provision—  —  — %— %— %Income tax provision— — — %— %— %
Net loss$(47,870) $(29,554) (62.0)%(3.0)%(2.7)%
Net income (loss)Net income (loss)$38,719 $(47,870)180.9 %1.8 %(3.0)%

Thirteen Weeks Ended May 3, 20202, 2021 Compared to Thirteen Weeks Ended May 5, 20193, 2020

Net Sales

13 Weeks Ended (1)
13 Weeks Ended
($ in thousands)($ in thousands)May 3,
2020
May 5,
2019
$ Change% Change($ in thousands)May 2,
2021
May 3,
2020
$ Change% Change
ConsumablesConsumables$1,173,549  $833,945  $339,604  40.7 %Consumables$1,455,013 $1,173,549 $281,464 24.0 %
HardgoodsHardgoods242,838  168,447  74,391  44.2 %Hardgoods343,629 242,838 100,791 41.5 %
OtherOther205,006  106,480  98,526  92.5 %Other336,536 205,006 131,530 64.2 %
Net salesNet sales$1,621,393  $1,108,872  $512,521  46.2 %Net sales$2,135,178 $1,621,393 $513,785 31.7 %
(1) Prior periods have been reclassified to conform with current presentation.

Net sales for the thirteen weeks ended May 3, 20202, 2021 increased by $512.5$513.8 million, or 46.2%31.7%, to $1.6$2.1 billion compared to $1.1$1.6 billion for the thirteen weeks ended May 5, 2019.3, 2020. This increase was primarily due to growth in our customer base, including a meaningful increase in organic customer growth in the thirteen weeks ended May 3, 2020, with the number of active customers increasing by 3.74.7 million, or 32.6%.31.6% year-over-year. Spending among our active customers increased with net sales per active customer increasing $14,$31, or 4.1%8.7%, in the thirteen weeks ended May 3, 20202, 2021 compared to the thirteen weeks ended May 5, 2019,3, 2020, driven by continued catalog expansion and growth across all businesses.verticals.

Cost of Goods Sold and Gross Profit

Cost of goods sold for the thirteen weeks ended May 3, 20202, 2021 increased by $387.7$302.7 million, or 45.3%24.4%, to $1.2$1.5 billion compared to $855.0 million$1.2 billion in the thirteen weeks ended May 5, 2019.3, 2020. This increase was primarily due to a 53.5%26.6% increase in orders shipped and associated product costs, outbound freight, and shipping supply costs, including incremental costs attributable to COVID-19.costs. The increase in cost of goods sold was lower than the increase in net sales on a percentage basis, primarily as a result of realized supply chain efficiencies and cost reduction initiatives.change in mix of sales as hardgoods, healthcare, and proprietary brand businesses continue to grow faster than the overall business.

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Gross profit for the thirteen weeks ended May 3, 20202, 2021 increased by $124.8$211.1 million, or 49.2%55.7%, to $378.7$589.8 million compared to $253.9$378.7 million in the thirteen weeks ended May 5, 2019.3, 2020. This increase was primarily due to the year-over-year increase in net sales as described above. Gross profit as a percentage of net sales for the thirteen weeks ended May 3, 20202, 2021 increased by 50420 basis points compared to the thirteen weeks ended May 5, 2019,3, 2020, primarily due to margin expansion across all verticals including improvementscontinued growth in margin profile of pharmacyour proprietary brands, hardgoods, and private brands.healthcare businesses.

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Selling, General and Administrative

Selling, general and administrative expenses for the thirteen weeks ended May 3, 20202, 2021 increased by $138.2$86.2 million, or 76.0%26.9%, to $320.1$406.2 million compared to $181.9$320.1 million in the thirteen weeks ended May 5, 2019.3, 2020. This increase was primarily due to an increase of $69.2$69.9 million in fulfillment costs largely attributable to increased investments to support overall growth of our business, including the opening of new fulfillment centers in Dayton, Ohio,Lewisberry, Pennsylvania, Archbald, Pennsylvania, and Salisbury, North Carolina, and a pharmacylimited catalog fulfillment center in Louisville, Kentucky,Kansas City, Missouri, a customer service center in Dallas, Texas, growth of fulfillment and customer service headcount, and temporary incentiveinvestments in wages and bonuses as well as incremental cleaningbenefits for fulfillment and sanitation spend attributable to COVID-19. We recognized an increase of $35.0 million in non-cash share-based compensation expense.customer service team members. Facilities expenses and other general and administrative expenses increased by $34.0$35.4 million, primarily due to expanding our corporate office and increased headcount as a result of business growth as well as an increase in expenses incurred due to operating as a public company.result of IT initiatives. These increases were partially offset by a $19.1 million reduction in non-cash share-based compensation expense.

Advertising and Marketing

Advertising and marketing expenses for the thirteen weeks ended May 3, 20202, 2021 increased by $3.9$38.3 million, or 3.8%36.1%, to $106.1$144.4 million compared to $102.3$106.1 million in the thirteen weeks ended May 5, 2019, but declined as a percentage of net sales3, 2020. The increase was primarily due to 6.5% from 9.2% in the thirteen weeks ended May 5, 2019. Thisan increase in advertising and marketing spend combined withthrough existing channels which contributed to an increase in the number of active customers of 4.7 million. Of note, we experienced a meaningful increase in organic customer growth in the thirteen weeks ended May 3, 2020 contributedattributable to an increase in online shopping due to the 3.7 million increase in active customers.COVID-19 pandemic.

Liquidity and Capital Resources

Since our inception, we have financedWe finance our operations and capital expenditures primarily through sales of convertible redeemable preferred stock and cash flows generated by operations.operations and equity offerings. Our principal sourcesources of liquidity isare expected to be our cash and cash equivalents.equivalents and our revolving credit facility. Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market funds. Cash and cash equivalents totaled $192.5$637.5 million as of May 3, 2020, a decrease2, 2021, an increase of $19.6$74.2 million from February 2, 2020.January 31, 2021.

We believe that our cash and cash equivalents and availability under our revolving credit facility will be sufficient to fund our working capital, and capital expenditure requirements, and contractual obligations for at least the next twelve months. In addition, we may choose to raise additional funds at any time through equity or debt financing arrangements, which may or may not be needed for additional working capital, capital expenditures or other strategic investments. Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of our Form 10-K Report. Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all.

Cash Flows
13 Weeks Ended
May 3,
2020
May 5,
2019
Net cash provided by (used in) operating activities$20,745  $(51,141) 
Net cash used in investing activities$(40,464) $(8,165) 
Net cash provided by financing activities$165  $273  
2020 Equity Offering


On September 21, 2020, we issued and sold 5,865,000 shares of Class A common stock at a public offering price of $54.40 per share, raising $318.4 million in net proceeds after deducting offering costs of approximately $0.6 million. For additional information, see Note 7 in the “Notes to Condensed Consolidated Financial Statements” of this 10-Q Report.

Cash Flows
13 Weeks Ended
May 2,
2021
May 3,
2020
Net cash provided by operating activities$98,366 $20,745 
Net cash used in investing activities$(38,882)$(40,464)
Net cash provided by financing activities$14,696 $165 

Operating Activities

Net cash provided by operating activities was $98.4 million for the thirteen weeks ended May 2, 2021, which primarily consisted of $38.7 million of net income, non-cash adjustments such as depreciation and amortization expense of $11.4 million and share-based compensation expense of $23.1 million, and a cash increase of $24.6 million from the management of working capital. Cash increases from working capital were primarily driven by a decrease in inventories, an increase in payables, as well as an increase in other current liabilities, partially offset by an increase in receivables and other current assets.
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Operating Activities
Cash provided by (used in) operating activities consisted of net loss adjusted for non-cash items, including depreciation and amortization, share-based compensation expense and certain other non-cash items, as well as the effect of changes in working capital and other activities.

Net cash provided by operating activities was $20.7 million for the thirteen weeks ended May 3, 2020, which primarily consistingconsisted of $47.9 million of net loss, adjusted for certain non-cash items, which primarily includedadjustments such as depreciation and amortization expense of $7.3 million and $42.2 million of share-based compensation expense as well asof $42.2 million, and a cash increase of $11.6 million increase due to favorablefrom the management of working capital. Cash increases from working capital changes. Operating cash flows benefited fromwere primarily driven by an increase in payables and other current liabilities, of $158.8 million, primarily due to timing of payments for inventory purchases, partially offset by an increase in current assets of $147.2 million due to an increase in inventoryinventories and receivables associated with net sales.

Net cash used in operating activities was $51.1 million for the thirteen weeks ended May 5, 2019, primarily consisting of $29.6 million of net loss, adjusted for certain non-cash items, which primarily included depreciation and amortization expense of $6.9 million and $7.2 million of share-based compensation expense, as well as a $41.1 million decrease due to unfavorable working capital changes primarily driven by an increase in inventory and receivables associated with net sales of $46.6 million, partially offset by an increase in current liabilities of $5.5 million, primarily due to timing of payments for inventory purchases.receivables.

Investing Activities

Our primaryNet cash used in investing activities consisted of purchases of property and equipment, mainlywas $38.9 million for the thirteen weeks ended May 2, 2021, primarily consisting of capital expenditures related to the launch of new fulfillment centers and expansion of our fulfillment capabilities, as well as purchases of serversadditional investments in IT hardware and networking equipment, and leasehold improvements.software.

Net cash used in investing activities was $40.5 million for the thirteen weeks ended May 3, 2020, primarily consisting of $42.6 million of capital expenditures related to the launch of new fulfillment centers, the expansion of the corporate office and customer service centers, and additional investments in IT hardware and software, partially offset by $2.1 million of cash reimbursements, net of advances from PetSmart.

Financing Activities

Net cash used in investingprovided by financing activities was $8.2$14.7 million for the thirteen weeks ended May 5, 2019, primarily consisting2, 2021 and consisted of $12.2$15.0 million of capital expenditures relatedreceived pursuant to the launch of new fulfillment centers, the expansion of corporate and customer services offices, and additional investments in IT hardware and software,tax sharing agreement with PetSmart, partially offset by $4.1 millionprincipal repayments of cash reimbursements, net of advances from PetSmart.

Financing Activitiesfinance lease obligations.

Net cash provided by financing activities was $0.2 million and $0.3 million for the thirteen weeks ended May 3, 2020, and May 5, 2019, respectively, and consisted of a management fee expense allocated to us by PetSmart for organizational oversight and certain limited corporate functions provided by its sponsors, partially offset by principal repaymentspayments of finance lease obligations.

Other Liquidity Measures

ABL Credit Facility

We have a five year senior secured asset backed credit facility (the “ABL Credit Facility”) which matures in June 2024 and provides for non-amortizing revolving loans in an aggregate principal amount of up to $300 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility provides the right to request incremental commitments and add incremental asset-based revolving loan facilities in an aggregate principal amount of up to $100 million, subject to customary conditions. We are required to pay a pay commitment fee of between 0.25% and 0.375% with respect to the undrawn portion of the commitments, which is generally based on average daily usage of the facility. Based on our borrowing base as of May 2, 2021, which is reduced by standby letters of credit, we had $272.8 million of borrowing capacity under the ABL Credit Facility. As of May 3, 2020,2, 2021, we had no outstanding borrowings under the ABL Credit Facility.

Contractual Obligations

There have been no material changes to our contractual obligations as compared to those described in Contractual Obligations included in Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K.



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Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet activities or have any arrangements or relationships with unconsolidated entities, such as variable interest, special purpose, and structured finance entities.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is included in Note 2 in the “Notes to Condensed Consolidated Financial Statements” of this 10-Q Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the quantitative and qualitative disclosures about market risk disclosed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2020.January 31, 2021.

Item 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
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As of the end of the period covered by this 10-Q Report, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of May 3, 2020.2, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the thirteen weeks ended May 3, 2020.2, 2021. We have not experienced any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the impact of COVID-19 situation andon our internal controls to minimize any impact on their design and operating effectiveness.controls.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in variousInformation concerning legal proceedings arising from the normal courseis provided in Item 1 of business activities. We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.Part I, “Financial Statements (Unaudited)–Note 4 – Commitments and Contingencies–Legal Matters” and is incorporated by reference herein.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2020.

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January 31, 2021.

Item 6. Exhibits
Exhibit No.Exhibit Description
31.1
31.2
32.1
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporation by Reference
Exhibit No.Exhibit DescriptionFormFile No.Exhibit No.Filing DateFiled Herewith
10.110-K001-3893610.1March 30, 2021
10.210-K001-3893610.2March 30, 2021
10.3X
31.1X
31.2X
32.1X
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentX
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Extension Label Linkbase DocumentX
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)X
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
CHEWY, INC.
Date:June 9, 202010, 2021By:/s/ Mario Marte
 Mario Marte
 Chief Financial Officer
(Principal Financial Officer)

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