CHWY - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Chewy Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Kelsey Turcotte. Thank you. ahead. go Please

Kelsey Turcotte

joining the for XXXX. the today call Thank for us our discuss results fiscal third to you on quarter of

Joining respectively. are Chewy's me call and on Marte, Mario Sumit CEO Singh CFO and today's

found filed can Our earnings letter the our have SEC the a on A release Investor today of also Relations Form earlier conference posted our webcast with website, link which X-K investor.chewy.com. to on been the shareholders, and be we call to section today's site. of to

We making statements statements strategies actual from statements. cause our this concerning and XXXX statements the on Chewy's trends. materially of to those are business contemplated results by Act under are and industry risks will uncertainties, results, Private subject forward-looking which be Reform certain forward-looking differ call, Securities forward-looking statements could future including prospects, and Litigation Such financial to

this Also any information future the date. Reported except forward-looking an indication of update as any results of We required by on as are statements be as today's disclaim should obligation note that considered to us call to performance. forward-looking based not statements law. available on

please information, information Chewy's on the our and filed the risk refer factors with SEC. in X-K SEC and and September filed with other the the XXXX, today earlier to XX-Q XX, Form further we For that other filings

are on discuss to earlier will earnings measures with Reconciliations These to measures. the be GAAP Form SEC financial call, shareholders letter substitute to directly non-GAAP website, this intended measures on maintained for today. were are financial results. our a certain our comparable and X-K filed non-GAAP most during GAAP we Investor the not Also release which including the Relations

being be on in Relations call on replay also IR of Finally, its Investor is this our available website this will call shortly. our entirety website. A webcast

call Sumit. I'd turn to now to like over the

Sumit Singh

thanks you call. And Thanks for to on us Kelsey. the of all joining

and quarter. I'll I finally, guidance. turn Relations encourage to and posted this financial shareholder business sharing the And it. few As the I'll start a to by you letter afternoon over Then our our review discuss is results our will call discuss of Kelsey Mario to to website, I Investor updates. mentioned, highlights financial

quarter Net including strength The in billion, business grew grew strong XX% $X.XX customer continuous new XX.X%. grew site XX% reached reflecting and customer as sales the to highest Net active autoship percent a across are customers of year-over-year the sales a and the net active existing sales for existing model of sales customer more XX% to year-over-year autoship verticals, our result XX.X $XXX million. assortment to XX% around sales among as per merchandising customers than experience. year-over-year and growth innovation in and expansion improved spending SKUs, of

points XXX year-over-year. XX.X%, basis for Gross up was margin QX

Finally, our XXX marketing and expansion of adjusted QX, net sales. businesses, points versus our result as of EBITDA of across XXXX basis improved negative as the a as growth margin X.X% as margin percentage scaling well a spend the of

we core personalized believe most repeat drives on we to providing tenets high-touch shopping pet From that We focused with do. truly on service, our superior broad brand proposition brands, be the and a to trusted the customers value loyalty maniacally purchasing. speed destination We're and and trust, our delivering online parents of and builds our experience customer to e-commerce that positively assortment the the are convenience. of a of unique Chewy's for mission convenient everywhere. everything of at transforming center is industry keeps

against team and executing Our continues demonstrate momentum. to business is our strong the mission well forward

scale top-line on our us of margin market of strategy and that at growth believe remain there is and significant We sustainable opportunity expansion. focused ahead

increase strategy, brands both Recent contributed net in growth and margin of sales pillars the expansion quarter. our and pharmacy, year-over-year in two private our margin gross both chewy and in positively investments to

will an proposition part Chewy remain private now these brands high-quality of strategic both products. verticals. our color some to of on delight important important provide I customers with

Over assortment over higher portion was significant margin a we brands Chewy products. hardgoods by past grown which of private our XX%, year, the in have

process, As high-quality part work backwards of from and this we products rated needs to customer customer exceptional life. bring

Frisco dog and our X.X example, over stars, For purchase recommendations. customer products apparel, branded of and higher average management waste an rating XX% X out repeat of beds, enjoy or

Chewy treats Chewy grew of bags, our third as Frisco assortment than result share enjoy poop growth XX% apparel now more smart of subcategories at year-over-year sales or private several chews. on growth. high-quality merchandising, and continued These quarter XX% and bones sales X.Xx over of and sales such Similarly, growing reached a and in have As potty their brands focus private overall double-digit net site leashes in subcategories. brands pads, jerky in natural hardgoods Frozen specific Foods, sales in our

yet another growth proof delivering of Our potential profitability. our time against over private has meaningfully brands and portfolio point is to the and strategy contribute incremental

customers important health space Chewy rapid vertical the to network of their We reviews wellness. company our expansion evangelize receive believe and in and are Pharmacy then from its continued love favorable we overall the role who family. our to proposition value fastest continues in as growing friends playing that and pet in an and this

to pharmacy Phoenix MAP by basis we enduring driving for driven Gross are converting a profitable of structurally customers focused as QX pharmacy, addition to improved customers. more year-over-year improved franchise. discipline, West In well as a points and vertical, mix growth on than existing in in to business pricing ramp logistics the service margin Coast as this operations building our XXX we

the on and pharmacy raise improvement to behind operations. to process products we work efficiency and productivity scenes our of the Additionally, continue

customer costs the the result these efforts, of order by basis over at point pharmacies and fulfillment XXXX service a level. business As improved and reached profitability year-over-year,

pet's continue towards becoming refills, up medication accessibility and of with overall confidence number product the service pharmacy Pet driving information and and of prescriptions the lend are their data helps for customers increasing destination our order manage pet that to for continue our platforms. proposition of mission My points which prescription On to Prescriptions our customers our engagement better supplies, use an parents resonating side, our easily product, and food, is them and value making with that we These therefore progress

the with Chewy, of we X.X and active QX, XX.X end an ended customers XXXX for third customers, versus XXXX. million X.X quarter the Overall of increase versus million fiscal year million

the and assortment, in are equal an and lifetime retention to expansion in private ongoing increased that new rates initiatives we value believe as brands maturation continued products and such in drive stable both Customer can in convenient innovation makes we customer acquisition. contributing enjoyable. profitability out and buying through merchandising of proves right easy, that improvements growth that process site of finding investments and periods to the We are and the be pleased further or faster payback and and pharmacy efficacy technology

has pet toys Our their including us discover into more which more provide are valuable that us with parents million personalized customers Pet age breed insights Pet We begun feature experience pets. to Profiles have now Profiles products, appropriate. treats our and and new to that them enable a provide and than X helps

PayPal, This a in another represents and of recently across our which we easy-to-use name as in launching payment options. starting by payment as payments, leading is with step journey future core recognized payment digital shopping broadly upgraded addition, and all option providing our experience customers In with shopping checkout products, current platforms. the of our accepted a our

we culture Foundational building located love Chewtopians United the to for than a and our Chewy's the customer-centric of by our customer our across fulfillment more are XX,XXX in is corporate members. industry pets, common for centers success leadership our place fueled purpose work great offices, service to and at by country. centers team the

we to into markets has priority for our one of an been employer of a home Growing publicly were as choice to Boston. recognized talent. Boston us over team co-headquarter our top tap US the allowed Boston Chewtopians. in has XXX is Today, strategic that leading Recently,

We are to community. work, great building strong to this culture, represents and of commitment place as engaged recognition, a an a workplace proud it our

further that and look As is community. developing a deepening as innovation, we the presence headquarters Boston our tech our for city hub in forward a to recognized

From an customer put we centers to providing our delivering and is shareholders. headquarters on experience, focused our pharmacy our service the value and driving sites place that value customer have and proposition, a unique dual team US, high-bar customer our experienced for a in fulfillment throughout outsized

call holiday unique furry pet turn QX parents the joy allow to minutes few like their Before to season. These to Mario, our between over into to tap a and I celebrations delivering that take everyone. bond talk more members family about I'd us annual to

we a provides holiday This Holiday and of broad pet products a for type parent. every which personalized of Shop yet launched coordinated pet year selection fully

popular seasonal and particularly of and brands. an us assortment expand our and depth toys, category in most hardgoods provide treats, holidays apparel, our opportunity The our holiday to and in private costumes categories

part beds newly visibility categories. label email, integrated well year assortment, thought For example, to shop through and tactics. to our approach we amplify as and support of positive of our have holistic media, To combination implemented of dog we smart social holiday an digital these a this marketing toys our launched private on-site, brand, response further seasonal seen launched customer a already Frisco, and out and

has be engine, product Last to data given received well been enhanced even shorter and strategy, which least, by suggestions. new vast better targeted holiday but not deliberate year leveraging and This our our to recommendation existing calendar, more designed we the also of make amount more our this customers. we

that record We company's day days, history. single Monday setting biggest with in Monday are Cyber were Friday Cyber shopping thrilled the Black and our being

business. QX our our with pleased and strength are we the of underlying Overall, results

growth forward value. commitment the which scale season a finish mindset by a busy that us and and We to long-range We at market-leading maximize continue our decisions driven our investments informed strong to and make holiday to a year. customers deliver look allows to by to

our a outlook. I Now walk Mario and QX of review the more results to turn over provide you through detailed will will Mario? financial who our call

Mario Marte

Thank afternoon, Good Sumit. you, everyone.

million business catalogue hardgoods QX, $XXX.X particularly outpacing quarter customer customer to X.X X.X net sales. XXXX XXXX. customers our private brands million, in third reached We XXXX, driven overall increase compared $X.XX Again growth QX, by million of year sales in results Autoship billion, an business. and customers, highlight million versus active our sales and XX.X% pharmacy $XXX.X the base, in compared fiscal end in XX% to growth in versus of million an Our of QX, reached and our million and of increase focused execution. philosophy XXXX. in $XXX.X with an growth quarter expansion XX.X ended increase the Net third

across expansion or and a customers which in captures business was XXX last margin the reporting have days. of XXX and the as gross new both period the marketing not were profile quarter the pharmacy. customers well of reminder, purchase margin operating advertising of verticals, QX including the margin Gross outflow our inflow all in a as SG&A in who of private As improvements and XX.X% customers a basis increase active made XX.X%, of net million year-over-year sales. comprised $XXX.X brands point increase driven by the and expenses are for

in or expenses. increase a incremental public net share-based the percent costs increased was million, associated legal The of XX% driven company year-over-year. well as which million SG&A sales. $XXX.X primarily as insurance as and compensation was by being And a by SG&A audit net driven of $XX.X D&O sales with

note to facilities. these nearly flat scalable. that software fixed merchant reduction for service I'd as believe labor SG&A fulfillment short-term fees the facilities to payroll net basis productivity disciplined offset which costs, labor percent like was driven a and that which and was a corporate cost and includes points us execution improvements be items, Excluding enterprise team's by investments customer Recall we in two fulfillment also costs, in as as sales nature and well drove XX by SG&A of year-over-year. year-over-year

was million, scaling marketing XXX of points year-over-year. net X.X% and or Advertising sales, basis $XXX.X

is the be customer or as pleased profits to measure our valuable cumulative and Customer various stable LTV from in we're cohorts. the helpful efficiency are basis profitable. enhancements retention repeat acquisition the out us Sumit we contribution recall the mentioned we of to an marketing observing be of LTV new or our Lifetime we ongoing to are contributing our investments that faster and mentioned, that to of payback our prove may initiatives As which are Value investment customers that customer rates on derived also equal This period strategy. and because to experience growth orders and from a and continues continued expansion our customer It efficacy CAC to

impact was to net those reinvest flat loss disciplined the margin we'll improving and XXXX. XXXX these Net profits negative million in more while $XX year-over-year. customers keen was to manner, basis XXX metrics. share-based versus million which QX QX, QX, new acquire XXXX eye a in of due points X.X%, in marketing and efficacy And nearly compensation was a QX, million, data-driven $XX.X on $X.X keeping

XXXX, of in impact of points improved share-based year-over-year. or XXXX both negative QX, the basis compensation net and million Excluding net X.X% improved XX.X% and loss $XX.X margin QX, XXX

EBITDA million $XX.X loss was adjusted compared $XX.X QX an to XXXX. of QX, million, improvement

EBITDA margin adjusted reflects both X.X%, negative expansion. EBITDA ability strategy was line year-over-year. the our top margin basis adjusted to of Our margin Improvements EBITDA XXX sustainable long-term adjusted in improving against grow bottom line. Executing points growth and a and while improving the

acquiring customers. As and from EBITDA repeat we plus we new favorable those output. capital take We adjusted in is earned generate our shared our from to orders we previously, cash managed have working a invest profits, strategy the profits

of in and $XX.X IT fulfillment million spend cash million and ended capital of $XX.X was investments the third labor third Free in centers. equivalents. internal associated In cash We of million. of outlays the of and capitalization flow for were external million our cash equipment, primarily cash investments comprised use with positive operations XXXX QX, North $X.X Salisbury, $XXX.X comprised Carolina totaling quarter, Ohio and and capital quarter a flow was net cash Dayton, with in

Now turn to I will guidance.

have a revenue be XXXX a shareholder about as fiscal for XXXX, meaningfully XXXX will was active sales growth the the year-over-year as $XX week previously, we of be XX-week information net approximately million while fourth to shared year was for full per were which extra XXXX year will XX-week dollar in mid-single to XXXX The be can headwind contribution well headwind QX XXrd year. our More net this and a for in As sales letter. quarter in the XXXX week impact customer. year found fiscal

quarter reported is first million fourth share-based which of expect quarters approximately of compensation we SG&A three in $XX and Finally, in the XXXX.

our will call. provide for additional We QX guidance earnings XXXX fiscal on year

net expect in excluding For QX, week billion XX% of QX, representing XXXX, billion, and growth year-over-year we sales extra and $X.XX $X.XX between XX% XXXX. between the

This an third fiscal year excluding fiscal as between basis to our and well For and for outlook Net growth extra outperformance, our representing XXXX, in improved $X.XX as follows. XXXX. raising increase week the of $X.XX as sales billion in year-over-year XXX points low reflects This we're fourth quarter year improve guidance provided XX% billion previously EBITDA for range. is increase Adjusted the margin to end fiscal quarter. of high guidance the versus expected the XXXX. fiscal XXX represents end to guidance both

As public costs we have our guidance includes as previously shared, related to operating company. EBITDA a

we through Financial out ahead look provide execute ability XXXX quarters momentum our and against as of operating plan demonstrate to results and XXXX. our the first close and to strong strategic XXXX three

the With operator that the over I turn to Operator? will questions. for call

Operator

Instructions] [Operator

comes question the Doug Anmuth first Your from of with JPMorgan. line

Your line is open.

CoryCarpenter

you lower question the like Carpenter question. gross terms seasonality. pharmacy Cory more on quarter having on should and private just typically the A anything what seasonally it's is impact for label then a nice on but the for up Thanks. Hey, talk for we It XQ guys. taking margins, sequentially you tailwinds, despite Thanks sounded there initiatives And of margins. about overall could biggest gross about think is in were Doug.

MarioMarte

And across quarter. we letter, half in Corey. can MAP the add in contribution quarter I private in through. pharmacy pricing We script impact were more the tell the in pharmacy verticals the and answer we're of see the the what Hi, can and pleased excited and as business about off maybe and the the of color will we the in saw included pricing back as Mario. quarter, strength This then start of new the both the we in you go in to shareholder is Sumit brands. by

So the business well. overall is performing

Operator

Please comes line of question Stanley. Cassel from next the ahead. Lauren Your Morgan with go

LaurenCassel

that around this other the and in Great. And yourself you Friday, year Maybe for Thanks end up update could during question. the quarter follow-up days. Cyber on for promotional on at percentage competitors should milestones just business environment of business just for one pharmacy, any commentary any what Thanks. reached the represent my the share. that that any of on Monday, few and taking on those following then Black you

SumitSingh

Hi. is we're very happy and with we're business that the This business. pharmacy, are the Sumit. On way growing growing we still the

meaningful I of which way, is assortment. also think meaningful time way in both the as continue the by is customer this this support to growth input we gross reflected the and the margins franchise behind and invest fact a the the be we're driving we've grown that that to profitable experience,

subscribe be the business hypotheses The we're rates growth in think true.. should to come attractive. past autoship in kinds of still start said seeing of And I one points its phase. is those data we've the and to that higher is pharmacy

to we And there continue it today. to in going meaningful much grow a are invest more so and comment not manner to

On think that in Black thoroughly that activity. concerned we far to Look, Friday, we that. as Cyber much were environment executed to there's first went thing happy Monday and to is outside way were of be we to diligently promotional We planned market. relatively as not the was I flawlessly see And stable. mention said promotional

Operator

of Brent Your next question Jefferies. from Thill the with comes line

open. Your line is

JohnColantuoni

for adjusting growth should revenue terms guidance QX of quite in the John Revenue potential? you in implies puts for about Thill. we week. my taking Can even your Colantuoni decelerates for your and on takes QX of think Brent after forward question. outlook one a the guidance sequentially and Thanks. discuss Thanks less how growth bit

MarioMarte

a implies significant one base is When larger. getting take -- about it dollar is are or the total talking will that but growth I Mario. in John. you're still Hey, we This terms, first. absolute year-over-year,

decrease say and the would I end larger as base will see on But terms of we percentage. percent-- gets by would see side low a this, end went the high revenue and we naturally range guidance. up revenue both quarter a the just year connection the for this full in So fourth as in

JohnColantuoni

also discount was holiday, or Great. of right balance during at the noticed discuss periods of order to sort Thanks. autoship you around if quarter. this test reaction just quarter continuing of you some the And promotions? a that fluctuated certain we competitive of promotions the first the Can reflection the

SumitSingh

of be time the about remain market off think but are-- increased doing just it we that's our you something XX% a And holidays. referring think cap was with may to first I to the the $XX. John, a that during autoship natural see order temporarily limited three we competitive competitors about And similar possibly. in lasted we we when very I about days

Operator

Your the line Credit Suisse. next from with question Erin of comes Wright

is line open. Your

ErinWright

Thanks. vast your Where Thanks. pilot align in practices even you that control in share process veterinarians Great. speak the efforts the pharmacy? in greater you a partnering majority process still with to of of capture or the terms veterinary Can to yourself to at with better scripts?

SumitSingh

This the is Thanks Sumit. for question. that. I will take

have our required the their their across have frequency. our the a way We way relationships pets pet are a the continue we interact we with advantage in with contributing the space. space country. of we at know the educate couple the also built, meaningfully and health the to our believe there with Notice way to them wellness conversations One wellness customers, vet them we're of health meaningful ability And that aware track and make answer. the unique that to to we, but pet taking in information, that for and with veterinary them first we and the partners are is of dimensions that

be. we and customers our traffic it to the go that with middle are products via the marketing in the directed that like our our than then space channels. and today autoship back deep or to awareness and plagues the fact and industry of into in tools that overall create things into of compliance should is and drive capability One connection And out veterinarian able be education we're via veterinarian really be that stepping could the lower is that

one. that's So

care their I two, lot of focused love doing Vet second look, should their we're pets be the offices. Number they a having of is time that and think that. in spend conversation taking on veterinarian

right that the we about conversation productivity space. And developing the will and developing treating it. a way so happy And into now. are help the tools many products having stepping we're that follow-up in consider. conversations to vet and there's increase in about equation or take early and days happy If that that And specific there dimensions will different we're we're it the

ErinWright

but I follow-up. have do a a do I specific, Yes. -- it's have quite

the positioning parasiticides both I year. prescription So over-the-counter next into heading to you're am side particularly side and and exposure curious on

include heartworm and preventative flea, So tick prescription. both that over-the-counter would and

into will hit we will some highly Just you? anticipate next across perspective It will quarter. are combination year, heading cannibalization product a category, there the first is the next category? impact and at that into OTC heartworm seasonal you material business for should kind important new this I that risk be will financial think dynamic or a more in be that your it tick be year, will pricing but a how market so for of of flea, guess heading Do from you

SumitSingh

bring change offer our think, the how philosophy in us will changes most I And tenet industry. competitive experience. customers mix not at of the for in assortment regardless it and is the prices the to the best the broadest yes, to that

So with game alongside we're you. here watch to the play and

Operator

with the Mark question next Your of RBC Capital from Markets. line comes Mahaney

line Your open. is

MarkMahaney

Hey, great. Thanks.

I Just one penetration was that record The a think autoship question. rose high.

to about that to forward? Just drivers of if you. the could how think you Thank talk and that going please

SumitSingh

one. Hi, Sumit. you. I This will to Good that Mark. hear from is take

growing Number increase with hardgoods. the customers both able are not a attribute I I first point increase interacting of that it least, sub positioning we our we're be the that's improvement consumables, more targeting we starting assortment the growth capability point driven to verticals are that these Last would combination and driving but to also what basket newer A is and a size XX% in. that assortment. way to at in year-over-year have Those that three businesses profiles in bunch particularly that that pet of back the think bunch in the us. was an that and was able by recommendation two, input from data at extract in mix pharmacy science, make the in to I but in would are way to our rate. the to recommendation meaningful proudly the

Operator

comes question line next from Your the Barclays. Mathivanan Deepak of with

Your line open. is

DeepakMathivanan

Hey, guys. Thanks for taking the questions.

So the business consumables the categories seems already do next hardgoods. private the some achieve first do on the like on strong label of to to similar you penetration like need in penetration What like quarters? over bigger few categories

And currently then that gross sorry basis the Thank pharmacy question do products like how pharmacy be long business then how to improvement. versus margin also on consumers, about should margin, the other expect you But think And you consumables. categories out profile points of XXX second term? called you. we gross

SumitSingh

assortment these in Sumit. Hi, categories. are categories Look, penetration take Deepak. I These of not growth of we're way is completely label. is growing are the core This inputs will the out. that with private terms our that. happy built fast growing built We're the

we in assortment. So the see still rolling we meaningful categories grow penetration way that beds, ASP increasing categories, are such dog really way hardgoods. in crates, in assortment as in such we out as the that That's high one

grow and nature. making think are side, products brands brands we're that creating recall careful that On in and way categories behind type really competitive freeze-dried getting premium natural a great are them we right, the These newer categories, we're consumables I that choose. we're here into have sub in getting that said like we've to mentioned about be and behind share. meaningful Tylee's, these that able And sure bones to which we'd

of brand not merchandising suite American different a products merchandise is journey grades, more but a products into starting in full is well much last as as and to we're across go-to-market back of treats something food manner. our least, to smart coherent that then which And of different integrate our

brands. So the to answer that's the private

to base I that to we we've think profit points that stand the that said long RX XXX recall gross XXX business. basis to And On over we're today's accretive be as expect term the of the RX, call. maintaining

Operator

line Your Wells with question from the Fitzgerald next comes Brian of Fargo.

open. line is Your

BrianFitzgerald

or strategic the on what a you're Thanks. what a about the there? been or through breadth Any mention put seeing buck DMP couple in and progress exercising there? then quarter the terms QX. a A more you How for And questions. couple bit tactical what there of place. bang a Did your execution RX customer integration marketing since penetration maybe the are of you is you in channels and It's grade would you color the muscles, on, acquisition most you quarters of and as expenditure. and we channel Thanks. talked giving half

SumitSingh

to did are DMP be the the these out smart us segmentation. they use season to exercises, DMP Sure. particularly holiday It's a are allowing in first. our two-part the We verticals we're in went efficacy smaller we experiment And week. question. brands prove to as then cyber the go-to-market we against and -- with so cross-check are the one the DMP to market but as take in the DMP, have we general segmentation utilized first well and pharmacy. across with continuing of I'll seeing to it pharmacy. able both our private DMP when

to our marketing And so much go-to-market the part from and tie not That's the answer. the able the data that perform that overall. first the that mix and more than for management, smart be of but platform segmentation to lends that channel to you management early us capability of that into point we're way of days you data the to view insight can it comment, utilizing see

of XX% with manager Pet ago. as tremendous And My four across our Prescriptions second products. it. product The believe engaging considering way was is we going. progress this we than are less to in that And are that of our question is about RX We're of months RX product that we point, happy that progress XX% an with launched pretty customers innovation in terms early days the

they XX.X sure channel In are tremendous about and proposition same customers that up look, to us a say terms way front our would be we of new that make in customer that acquisition channels that of that is, well. I Along way, we can acquisition the to to channel that happy proposition. think And existing have performing best, I the as we're a pharmacy. we've is opened for us a expose million love of able

to limit I that's, will think comments for I that now. my

Operator

comes Mark Your Kelley line from the Nomura. next from of question

Your open. line is

MarkMahaney

Great, thanks guys.

remind looking the you Curious, if a your that set? QX think quarter first XX%. level bump guys stepped annual discount question do provided kind us last at can at growth think of was XX% of First autoship year, just last I up back of you that where you order is how first year to to from much

know And it's I think the number early to little about. two,

Next little gave stuff of of a was comp that year us helpful. just on some the color bit you stock-based

you Thank and be imagine there Just bit But gross cadence us give given little curious guys. Dayton. a can helpful. the kind North seasonality the in you, in next that you're it's help really the year on I launching any of to it would year. margins of size QX, would if as thoughts Carolina FC similar this of same

SumitSingh

about the one. the Okay. rolling Mario the actually is first hear take about not number take back. the remember a the asking way Mark. you think The you, in from that will first way I'll in to the I one; second a that clean nice four Autoship, one. we autoship think it --the It's to quarter take are question. it's way will

disciplined we and in we So responsible spend cash data manner. are our extremely a increase, driven, look,

the subscription funnel. might So of comes are careful cancellation not in about that at the rates top of occur we the the change the discount careful at levels about only funnel. that bottom also the rate We're when we

out how we and it. about And actually That's price that into where of point find we go discount cap the we the value. dollar think try and optimality autoship to

at the is So right level that optimum really about And us. the level that. about we're now autoship. for happy That's to way think the Mario? we're

MarioMarte

Yes. compensation. question I the take will stock-based on

expand can first QX on both your And the that QX three capture that about something in of if least forward. and at you question So as is I question. we additional expense XXXX. have of two you is quarters things we $XX any what do it. going expect prepared that I million remarks, in QX, expect on in and for said we believe the

MarkKelley

I Yes. margin, that. more Mario meant about sorry gross

as data and great. of just on you. coming the be with with moving Thank go through the That pieces Just kind North we would Carolina year.

MarioMarte

no, Yes, certainly.

Two question and I many year. it. factors go on into margin that next then is are gross shown things, there think one we've your what

So we can expand margin. gross

We will the top continue line. to grow

to of a The some historical by that and quarter-to-quarter as have financials. for our We Seasonality, in other not facility much Carolina in not -- that be we've market like driven launching related we many dynamics. helpful expect specific that seasonality to that. in North and customer. But you've you fact arc fluctuations other business would don't it record discounting so new the are there But factors launched; we're reality network is say the-- the seen every would the let's shown to helps close facility the necessarily that's experience topologies.

Let me it that put way.

Operator

with Erin question Wright comes Your Suisse. line of Credit from the next

open. is line Your

ErinWright

here. follow-ups of couple a taking for Thanks Great.

to grain-free? you? And lap cardiomyopathy. dog my one benefit canine you on not guess over grain-free opportunity think options on an for benefit customers question of that a pricing. for So food caused officially premium to first when that any or higher created FDA much year? sort switch did that you gross next And private this that is do has label margin? is I separate And or MAP disruption will margin you guess on caused opportunity are Thanks. I that how has warnings that then consolidated

SumitSingh

came MAP question The weeks roughly I believe about ago. pricing I'll it eight take the perspective that in to talked just about, is second six and first. into pharmacy we

So more not to there. comment much

the and On an meaningful are because well we the the to as is having but customers have right our provides attractive conversations proportional dog is The our us. ability mix the of and model, drive is definitely of recommendation us industry call they of the something to that impact on food, seeing, to be customers. opportunity it able with look, warnings and really is to as FDA in that that business we're shift proposition strength Chewy that the grain-free as one impact amount also meaningful our seeing is conversations to

are those of both happening. yes, So,

End of Q&A

Operator

further to Sumit. There the will call this over back time. at turn I questions are no

Sumit Singh

nice of attention of many and today rest participation all look you forward through a for Thank seeing to you and evening. happy holidays. the your Have quarter. We the

Operator

Thank concludes conference call. today's Ladies gentlemen, this you participating. for and

may You now disconnect.

Kelsey Turcotte	IR
Sumit Singh	Chief Executive Officer
Mario Marte	Chief Financial Officer
Cory Carpenter	JPMorgan
Lauren Cassel	Morgan Stanley
John Colantuoni	Jefferies LLC
Erin Wright	Credit Suisse
Mark Mahaney	RBC Capital Markets
Deepak Mathivanan	Barclays
Brian Fitzgerald	Wells Fargo
Mark Kelley	Nomura

Chewy (CHWY) 9 Dec 192019 Q3 Earnings call transcript