CHWY - Earnings call transcript Q4 2021

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Operator

Good afternoon. Thank you for attending today's Chewy's Q4 Fiscal Year 2021 Earnings Call. My name is Bethany, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to our host, Robert LaFleur, Vice President of Investor Relations at Chewy. Please go ahead.

Robert LaFleur

us and call fiscal full joining our to XXXX. for quarter fourth year you on today the discuss Thank results for

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

our update should the forward-looking call based we and making considered to law. results, Form our chain, future concerning indication Act the strategies, shareholders, plans. considered customer be uncertainties, facilities, expansion Also from Our ability release filed Such be note today, actual business which other to Chewy's and any could statements, XXXX of our SEC today's of of call including have future by Relations business industry of the performance. as Securities us are statements and webcast certain our posted except to section the Private required differ by subject cause statements call any site. that statements. an to website forward-looking statements, on are disclaim results conference forward-looking including X-K earnings Reported service risks related obligation this link not on centers, available which those as COVID-XX, of to any statements of are materially to to to today, earlier will and under information statements Litigation forward-looking and including operations the results fulfillment We respond prospects, date. forward-looking contemplated Reform is business our letter with to supply adverse on were the to workforce, On also Investor those available been spread on our investor.chewy.com. today's risks, impacts financial successfully trends A on

the and measures. of Chewy's further and with items filed information, these non-GAAP our financial to call, the discuss X-K today XX-K in earlier in and shareholders, the filed a our today information GAAP Reconciliations provided comparable not X-K most other please measures are as and filings release GAAP to substitute are with Also measures we financial earnings were factors will on SEC. results. for during certain our Investor Relations non-GAAP the directly in Form For intended SEC earlier risk and other in and website this to refer These XX-K. letter on our non-GAAP which

to is Finally, on being turn available of I'd to Investor in webcast website. our shortly. over like website entirety our Relations this its A call on call now also Sumit. will IR this replay call the be

Sumit Singh

of on Thanks, for and thanks call. us all you the joining to Bob,

share about industry some our capped off then sector Let company's me about we pet broadly the first X-year thoughts this remain why and period optimistic in place it. and Chewy's history. on remarkable and XXXX, in XXXX most overall the

demand trends unfolded, formed an spending Increased Chewy products increased pandemic years. the were of surged. families Millions per secular As pet the the directed channels. acceleration of average pet result have benefited pet ownership, been of new as for business that pet driving our and from and online more services many a household to being and spending for

we gives customers our us these expanded X families, revenue past of our lasting frame, long We sales believe for getting many sustainable nature many Our a expected with billion TAM, are a that In started. growth. rewarding made expected even years. XXXX of that of time a to XX% year pandemic Operationally, continued of predicable the are flow the faster. those X disrupt grow will of the will compete is the and base grow relationships Chewy $XXX the games delivering And We million rapidly an the families marked foundation term. broader that believe The as Over over relationship a and to that sales And and was same and and puppies supply start business a deliver team enduring relationship to impact challenging parents. recurring these their XX continue also pet customer XX%. scaled TAM part we XX-year confidence ways, partners adopted amidst pet during to and provide trusted strong and increase be the or ever-evolving parents we most future over to active it and a and More we a business experience gains those are beginning in chain in rapidly was pets continue the that superior next billion nearly the long for we are net these secular just are destination a which today $X as X.X to over by customer Pets consumer within Chewy. that natural pet pet behavior pet that for or everywhere. execution. between beneficiary of years. tailwinds doubled, convenient our e-commerce many years, of and customer long these for important, pandemic, and

of inbound our durable to innovation we the continue companies gain the customer of advantage. like competitive earn on in while our out-of-stock nature. most Ultimately, elevated. outbound seeing shipping create and customer that we will trust, not and these shipping line costs value. engagement over built that in to on is bottom already and fundamentals forward share are The optimistic As in remain market improvements focused permanent challenges close we labor book shareholder enjoy XXXX, strong move levels long-term execute and a and XXXX to are and believe Chewy and And ability are we costs sustainable availability, pricing, time, and about future remain

detail year net billion to in year Mario full a to XXXX that, of our review $X.XX an I followed the to call innovations. billion, our performance, to move XX% sales latest QX our on to growth. annual greater sales full let's results our net by turn $X.XX update Now and XX% or and QX bringing guidance. year-over-year XXXX share over After discuss will increased

XX% net of play top site active our delivered Our sales between operating or tug customer pandemic. growth fundamentally consumer sales we of last trends helped and increase the in XX% combined, beyond of durability and that strong XXXX drive saw $XXX. our a that ability to in year showed What XXXX record we the order highly growth customer quarter the in on the they a business was near-term challenging demand quarter, measure volumes Metrics to underpins reflects outsized the out business as deliver basket conversion, benefits fourth and of the such size, engagement, a NSPAC positive the all fourth and the traffic, per in net demand environment.

sales as this, Another engagement of supply unfolded, time, end when the of industry. high the arrival sales. quarter areas our XXXX strength further is operating sales we chains XX.X% disrupted out the our in estimate QX added range. already the net forecasted. of of net Without from our in near program, of the noteworthy Autoship as across which twice and weakened increased This the same would we our stock high we impact guidance additional was to to levels our Omicron's lost indicator mid-quarter been year-over-year XXX At have points certain pressure quarter conditions particularly continued saw as basis deteriorate

customers This develop million in growth Sustained We growth. components end of of million to added an larger XX.X X%. were efforts to a increase to our XXXX NSPAC from and on year X.X active capture our share key increase Moving XXXX reflects cohorts and sales customer the most base a with wallet. customers. over customers time recent active strong our NSPAC ongoing progressively contributions and in customers, the of expanding XX%

have In our we NSPAC seen XXXX second XXXX. the year year recorded highest recorded since NSPAC XXXX cohort fact, since cohort XXXX. seen the have Similarly, first our highest we

customers Our strong time. starts following to NSPAC growth are most the added pattern of seen over that same recently we've off

cohorts per As time, our growth nearly of now us. the with spending NSPAC over a proof point are of oldest sustainability year $X,XXX

of net for QX what typically at gross cohort customer adds, X.X fourth short, the our were adds observe. retention the quarter was expectations. below million quarter of X we strongest our below In the year While was XXXX XXXX

the behind do but As acquired of time be COVID within, coincided which function we the factors stimulus of rather of we arrival infections customers the identified systemic, we're the not examined with appear wave checks. to a this, second period were drivers when the and these

and see ranges, that first consumer that were was further supporting worth is those is e-commerce retention from our XXXX reiterating recurring that historically produces X As pricing of attrition QX QX in atypical. quarterly year a we concentrated margins. this not the belief that that observed in do retention found nature inflation rates significantly into the the result, of typical seeing of main we X recovery yet current freight gross near-term our and then quarter. basis cost Coming and costs. XX.X%. drivers years. XXXX points reflecting XXX gross signs margin in likely in pressures Fourth were gross year typically within in rates QX for year margin our already of to the X cohorts elevated declined quarter inbound are these and businesses in to transition all believe are our moderate X also The We cohort trend on highly peaked well above It XXXX QX, model subsequent

even the first month of the points the we sequential first a saw expanded freight improvement gross margin. basis XX.X%, headwinds which quarter, year. XXX XXXX, For a company was that high margin Full our instance, inflation February half in to XXXX year in and encountered we gross second in new of the with year-over-year

provide me gross color for let XXXX. margins full also on Now some year more

contract XXXX, modest call, this on last into margin. on our had month only given went outbound of impact January, fourth our and quarter the last with a new we our gross As QX shipping shared FedEx effect its in earnings timing,

already that of XXXX, launched these while on our chain will and in spirit freight will teams of basis for XXX continuous XXXX and fuel to initiatives year full prices. increase beyond. in our freight were margins in freight gross inclusive we Several to and rates launch pending is be higher logistics QX improvement were lower anticipation outbound XXX of points, others of in several supply estimate ingrained quarter, contemplating costs. impact In culture, between this the this the For

new help mitigate will of mitigate from impact initiatives within help year X these years. expect most of this the this the part impact contract We and

the into full in Looking everything be at full broadly line full current and gross margin year engagement to many to in moving with expansion margin parts. above. will I absorb XXXX. the the in verticals that strong Said cost otherwise, our incremental mentioned continue natural strength gross core upward drive we has pressures estimating expect customer macro aggregate, business Taking consideration, are XXXX we environment XXXX year year to

we've is On the of what our to value drive conveyed on loyalty innovation to proposition overall customer to a on to high and keeping whole, of this advantage you, showcases XX%. the focus XX% which long-term believed always durable range creates that us margin end experience is and target gross relentless and our track attain the

advertising Moving after on improvement X.X% the with to QX. second This in sequential of marketing. sales. saw net to normalize of we expenses row ad marks QX scaled and the marketing spike a in to quarter continuing costs

campaign marketing we articulated subject QX. new mind up into of out monitoring with continue Chewy of previously, level rolling results, customers Throughout directly we existing the and and targeting funnel to closely keeping improvement QX QX, benefit generate CPA. campaign. in campaign, with our marginal full-funnel it of also efforts same to optimal ROI to top began customers. we leaned sequential efficiency these new Pets operationalize lower In standards continue Chatty Collectively, positive also is metrics Chewy, we of debut the that our I've multichannel QX, in the site the has of and driving including measured LTV As returns, the to campaigns a spend This levels. but to while CPA

it have QX results bottom Over costs, our expanded and line target time, adjusted expansion EBITDA and declined incremental XX%. gross margin line. EBITDA EBITDA negative spend. and made is in on of to despite million environment, points. of complex and XXXX in bottom aside, worth investments QX past we million X.X% increase $XXX we of when time, XXXX of Quarterly from basis $XXX our outlined, adjusted offering million steadfast pandemic-related in to same pressures margin our an Our long-term adjusted $XXX SG&A fulfillment centers reflect while and margin adjusted of that labor I years X.X% the highly in million noting our remain EBITDA added improving progress positive over growth-oriented just costs, XXX incremental delivering elevated material At the margin our pharmacy to marketing X the X% combined the focused in with we in labor this $XXX fluctuations a

line the food and existing world-class a progress billion a of addition selection the solutions. The prepared and education our meals to supply we customer Tylee’s me Chewy the chain fresh innovations with itself and prepared Next, addition dogs, human-grade supplier. will on for our our and Freshpet leading that gross we meals, to To establishing alluded alongside the fresh one assortment key across which then and offer to across reliable category delivery service a destination relationship are to exciting X meals A our and pet credibility on as XXXX, from network ability dogs out as the assortment, through combined leader fresh this full let us collectively update grow billion in more food seek you become you offer prepared programs, mixers by treats just of offers north broad from on fresh expected to margin differentiated this in expanded number full introduce for food remains our broad of fresh and making experience to TAM We position $X is believe food the of with $X approximately category. options with our to parents today focused just the in premium end, just we category. are well innovation Chewy for meat. new fresh to and undertaking logistics section. customers, several through I brand fulfillment

QX Now Businesses our operated Chewy transitioning Chewy this through share. under pharmacy than basis, in Health all of Health. Pharmacy growth with have a sales running increased to our preowned XX% sales tripled. nearly gain brand Chewy stack to pharmacies. market On now Chewy more X-year and continued

In the the into we in addition space. the focused market launching penetration to Health established and $XX clinics wellness pet new on billion services our nationwide. and have momentum pet We rollout products now Hub remains across its January, health to available pharmacy, and in of care expanded expanding it health is by Chewy Practice

invitation offering we've to XXX community another BXB closer recently access earn expanding love. convenience are clinics XXXX, From health that it and giving to suite remains we by now for revenue Practice selection a a positive veterinarian, out Rounding we beyond a the we launch which this as Equally compounding revenue exciting of vet means with and XX Hub who in BXB and participated levels in the is preventative Chewy Health and ago our update, fact customers them available practices, As come to on our few our to to our reminder, on are positioning productive. is Chewy marketplace include and compounding that pharmacy. over unparalleled feedback Interest Practice and BXC care the What of expanded to partners and allows have veterinary plans Hub our getting that groups. high, clinics, the giving independent earn remain initial the exclusive seller is solution only opportunity insurance original wellness as chewy.com to and our hospitals pet plans. from customer vet Chewy. a their multiunit expanded our including months clients large trust

accessible everyone. with forward time. more another mission be Chewy phased forward that for to to step affordable plans soon, and These Health’s make is set at we for more pet rollout launch to healthcare look Our you and sharing will

Looking X launch we beyond I'm with excited that new you share Health, businesses XXXX you are gearing with up to to Chewy in launches.

even The across our services. categories greater accelerate customers, membership program, growing consolidation base, our Chewy drive improve to customer and first which wallet across engagement through Loyalty, share customer is our of value we will customer and

The customers platforms. sponsored our Chewy.com, XX our second suppliers enable our seamlessly to across active will will advertise ads launch be XXXX on all to which million in

that is to ads and products allow to revenue for customers in everywhere. our for the these pet deliver our X and Each beyond convenient in across looking volatility relevant engines me advertise long a will search secular outlast sponsored Chewy's We advertisements compelling efforts the I high-margin which capture us have being firm of will as of mission our both e-commerce durable pet the as and us to the operating will the Chewy and online would building the Chewtopian share parents effects. contextual strategy the remains into largest chewy.com, of destination to into In highly of advertisements increasing from present business. penetration of engagement privacy-safe is pet loyalty, committed achieving one Suppliers pet environment see future characterize are and attract near-term closing the single belief let ways today remains and higher share as what we trends years, bespoke the of who to US. partners for every greater ever. drive mindset been with customers asking disruption to most long-term pandemic scale and after build wallet just ownership the trusted ability us and that Moreover, value intact. proposition

turn beyond, on ahead the As we we ever execute the that, long-term over call Mario. XXXX and with have and us. And are will as opportunity as growth we of to plan XXXX optimistic been I

Mario Marte

billion, XXXX. $X net joining a XX.X% up were basis, increase reflecting all quarter On thanks QX stack and X-year us quarter were the net to for largest $X.XX Sumit, in for billion, sales making fiscal a over of any X-year increase. you you, year-over-year Thank today. sales Fourth

X-year sales stack QX sales proposition year, to a or the exceeding year a net QX XX%. $X.XX of to sales the were billion. XX%. over up sales value sales customer $X.XX growth. program the $X Autoship billion, increased continues Autoship Autoship XX.X% full pace on customers. increased to On resonate with note customer full overall basis, XX.X% net closed a XXXX the X-year billion On strong as net basis, increased For stack our of

as in XX.X% the customer run As quarter total X.X%. and XX.X high billion, customers retention record set customer X.X a is sales, relationship while demonstrates annualized over reported $X.X $XX This with their below an time. sales million $XXX. our of in was a And new to of adds customers believe our percentage of customers, Autoship customer equal XXXX fourth X to on XXXX. base net year-over-year for our exited NSPAC continued share pace lower in of or million these capture the and of lower retention fourth factors. spending greater rates rate the quarter due with increase expectations Autoship of net from ended our they expand, the continued were a to QX reflect which the years active NSPAC sales we up ability $XXX XX.X% nearly rates cohort. We remained mature as QX level year to ago increased wallet the is net Chewy strong from to Customer when sales active We several

cohort X% the goods lower arrival retention the which X for first-time size the quarters of year, and by as higher second The was these COVID major related that This rates. cohort. round of impact of absolute of timing XX% with like in the to compounded XXXX size led more hard mix timing the was XXXX nearly onetime discretionary cohort, than factors in a first first wave average transactions XXXX. purchases both historically correlate QX The QX occurred was larger of than the and of stimulus, areas of infections larger and second the QX the the

the down in XX.X%. which XXXX to and year gross financials. pricing, record points on full points moment. year-over-year XXX Moving XXX mostly XX.X%, freight, elaborate I gross a basis year to quarter attributable inbound new Fourth variance a Full high. The basis margin declined increased margin to will is inflation

expansion, half of from they headwinds goal While expansion the meeting full did of prevent capped gradual and freight delivering margin our the inflation our in not second year year and in us incremental margin XXXX. stated

margin gross gross provide we affected let headwind the margin on the cost factors elaborate more affecting Product these factors that Now and in margin gross QX. various color see QX performance XXXX. inflation on biggest how me was

adjust closing call, gain lag prices are of in As observed we many into doing measures eye started elasticity. took higher on we that we measures adjusting demand continued making expedite exited market progress most QX reflect so and traction we while as additional on product to our gap, for These shared to proactively, places, this keeping to December in costs, prices a and an QX. To steady QX.

our proposition execute the competitive Importantly, we to Chewy. while customers from value in position strong maintaining have been able expect measures these market that the preserving and

We the of has emerge expect costs meaningful improved as we a the now also situation our rates of point XXXX. adverse spot saw QX, freight we pressure and freight to half most this elevated in poor related or XXXX. The results, cost already margin inbound in and flowed QX through congestions impact and QX to in of second margin compared inbound see rest the from that pressure don't gross from to believe

impact a contract freight gross new our front, transportation fourth the modest with margin. only FedEx on had On quarter

reflects and operating by quarter XXX SG&A advertising SG&A, XX.X% were which increase fourth in point offset leverage gross hold or XX% The the and on versus in in inflation, sequential margin to inbound we the on working XXXX. of we're and costs. his operating higher and growth, making sales in in freight of and to and to likely $XXX.X peaked XXXX, million include progress line net elaborated have are various remarks, marketing, pressures advertising in marketing positive We're seeing in freight XXXX expenses. initiatives Fourth Sumit compared areas in progress broadly expect these outbound solid on quarter improvements top we pricing labor expenses, basis near-term gross margin in line QX with ongoing and moderated As costs believe XXXX. continued XXXX. mitigate QX pressures

For up the XX points net operating full sales XXXX. XX.X% year net billion in of basis expenses were sales, of XX.X% XXXX, $X.XX or from

Let's SG&A QX more review detail. in

As contributed $XXX.X in a XXXX. QX processing share-based quarter XX.X% XX.X% million compared compensation. higher to largest benefit normalized and to fourth and in points our Three million of primary the customer a XXX these basis costs, corporate or discussed quarterly increase, $XX credit the includes reminder, of release expenses factors fourth the throughout of reserve SG&A The we of tax wage $XX fees, sales have fulfillment, with service SG&A quarter XXXX. all card million overhead of were a is net recruiting costs that XXXX.

center also incremental of considerable incurred XXX points sick The approximately number on be growth costs Omicron who basis out this surge. increase are a We the the making can increase. labor business attributed Combined, the new members leave we in to balance upfront investments in initiatives. accounted and due to our during of for are

a office FC billion our to include in expenses On item naturally leverage $X.XX of scale Seattle. in expect year since opening SG&A. exit XXXX, net accomplish points. the we to by XXXX our our points time, begin we and fulfillment significant expanding infrastructure, even deleveraged and Adjusting basis we full XX.X% able line XXXX. these We XX Over expenses growth-oriented elevated to new basis would expenses have for XXXX, leveraged in basis, as with or investment growth centers, lead labor investments this and X expect and We were SG&A to our year-over-year. pharmacy late newest and were XX favorable that SG&A X infrastructure tax corporate will corporate top fulfillment footprint, office in including a sales

X.X% and scaling Fourth scaling points XXX was XX a year-over-year X.X%, Wrapping sales, Fourth advertising points represented of basis, points. $XX.X was income net and to year Moving $XXX.X marketing and of full On XX decline basis margin marketing. X% sales, versus loss year-over-year. a advertising XXXX. statement. million on net basis the million or quarter was of negative basis marketing net quarter up net

X.X%. net improved from net XXXX in Our full year to XXXX, to $XX.X points million XX and million loss margin $XX.X negative basis improved our

in Excluding and declined positive net XXX declined adjusted Full basis remained to last a last experience income XX margin $XX.X negative adjusted compensation, and EBITDA compensation, by longer adjusted fluctuations million X.X%, primarily basis share-based a XX reached compared we costs. expanded XXX EBITDA EBITDA pressure and to margin year declined to margin was $XX.X margin from the while million. for EBITDA $XX.X year, quarter second we've reflecting points excluding points negative over and year and net basis adjusted the EBITDA million million elevated Fourth $XX.X was points X.X%. adjusted to X row share-based full gross labor EBITDA may year basis positive. view, Taking adjusted negative years, Adjusted moved quarter-to-quarter, our year-over-year X.X%. points EBITDA to margin,

to holidays on used spending million capital protect negative continued in was Capital investments Reno in QX in year our in a investments working was opened in expenditures. primarily in negative reflecting operating and included from million $XX disruptions. and in of the our and cash cash continued inventory Turning and opened FC $XX.X and prepare of Pennsylvania, in loss opened operating The IT function million the quarter now be soon for Kansas to the pharmacy we chain supply to FC negative cash activities $XXX.X to free recently further cash to net built growth-oriented City, throughout recently flow. the incremental our be infrastructure. our $XXX free in flow related approximately million, Fourth a quarter capital cycle

X year-end with our we've the launched increased generated still $XXX and sales this cities, Since in $X margin We total year, and no XXX%, of by stood other and adjusted stated those year approximately on line cash EBITDA $X.X XXXX of the full years, pharmacy, liquidity balance free and quarter essentially points. meaningful XXXX, million our new net Health corporate consuming a positive X Over done with strategy. same Chewy nearly the cash in X while investments and we finished sheet; neutral FCs, my our the cash Again, cash expanded recap. flow billion. availability of new opened growth million between growth For concludes made and by cash. expanded end flow. initiatives we That debt-free ABL, cash free we our have XXX basis and all equivalents on remaining fourth at been

let's XXXX and outlook. quarter full now our So first year discuss

While discussed business make the difficult. more operational the that macro crosscurrents of core fundamentals remain and have forecasting intact, we accurate our today

XX% guidance XX%. between billion, we sales that Full As current year growth $X.XX year-over-year current and reflects billion of XX%. that, the be between balance representing and XXXX growth to to and billion, of $X.XX expect full $XX.X risks billion the in EBITDA see positive expect always, XX% opportunities With net our the XXXX sales year first environment. of we of net adjusted of we representing X%. to breakeven And to year-over-year $XX.X margin quarter

XXXX, in net your of to keep our things models As update you X.X% for target mind. XXXX Full other are to sales, here approximately equal X.X% X%. year above of range CapEx a should few historical slightly

of XXXX our spending will simply normal lead X the and range into front-loaded project expect of matter a XXXX. balance out in timing, on we is longer across XXXX in capacity next our aggregate. is over X.X% Given to times, X% CapEx net years sales total of This and

of to significant we in our and execute Finally, margins full category be year rapidly on a pet expected when in Chewy's of top to XXXX, ability million. in adjusted testament durability expand line face is compensation coupled XXXX deliver XXXX is experienced to of evolving macro to conditions. year $XXX the grow the growth gross EBITDA, full Chewy's share-based approximately with growth and strong to ability top the ability the

a growth industry portion against operator. term combine our see forward, long market plan base, and the our and to TAM, over Chewy's continued growing customer executing we the secular call of on online I'll in with expand share. strategic Operator? When share With investing position of we the wallet our market, leadership to we drive in the grow As turn in in focused move upside the remain that, the and that future. we

Operator

line from is question First of JPMorgan. Instructions] Anmuth [Operator with the Doug

Doug Anmuth

software of growth between active about on then and about 'XX. margin you a ago you more efficiencies? provide thinking First, customers gross fulfillment talked you of timing? offsetting And how couple there you same the logistics. just mitigation can that NSPAC on in those talked the headwinds and efforts around some could color to in initiatives shipping color provide quarters hoping Are related and And any the you're then mix some about

Mario Marte

you I'll give of of into it's your about part will some question. Mario. how think bit of XXXX. Doug, me 'XX, start color let answer second that off intuition and I Sumit And you sort explanation the give will give you just before about we us because QX on a then

And at We So in XX.X adds before increase. rates digits the QX, by the quarters were in X we than ended to which look a active of start we we million is that previous historical the XXXX, XXXX And XX% shared adds we with versus result, who expected. the the $X.X sequential calls. years It quarter. attrition in came QX. customer customers fourth some the in X softer had as with offset had was those we gross within we active in of over customers. -- in XXXX year at extra softer let gross for came And enough see the me adds why. had facts. growth trend. active adds, their we QX, did cohort, said net When and in retention an ranges, in customer expected. our QX high, the here's the historical bit decline single million rate that we or this we look That's of than all X increase When the active retention And first lighter we platform joined did

why second Sumit But the checks don't is. certainly. about We QX statement of do then obviously, data, heard because of and stimulus perfect a XXXX it's wave have of that think round we COVID the arrived we second macro environment in You believe that XXXX. in function the

When 'XX. at very we can still are Now XXXX, we you perspective look I fluid that, so I say all give environment. a in of a

We have reopening. an that's economy

and customers levels of remain than is driving of are stock shop some We we that, normal. chains et that offline, that to online, cetera. And we constrained, have cross have supply still higher out believe, all

cohorts. XXXX impact the in retention have very expect in we and factors digits near-term acquired We a And for will customers remember, large single those low rate XXXX. those are

active than As be to half to in of a for adds expect XXXX muted XXXX. we the be through XXXX lower net were do they first least result, and at

On customer net the other active this expect increase. to grow to our a year, hand, and do healthy to your net NSPAC guidance assumes combination of NSPAC sales And driving question, we grow at both pace. sales a

of for question explanation. sorry, before -- the worth going I the know sales active I'm when growth. think but and bit here, X just adds it's speaks stage long net to part think Sumit about second your net we -- set because a more this, I

growth XXXX, to If sales added year net that -- XXXX, $X.X so X%. you you about we last sales net NSPAC billion $X.X active grew XXXX, and year. net year, million in XXXX billion. customers to compare increased X.X compare Then sales our grew that

more Because despite million customers XX%. last NSPAC XXXX than year. $XXX Why? million grew So X.X only active adding

per of $X,XXX, it levers we but the of from for gain long, turn to an can just take, when in over about wallet. we have second I'll look bit base, we Sumit household, but the we part. to give So still U.S. I a continuing of that spend expand can the lot growth, customers. at that or the of share reported more the capture $XXX both average was we share know existing is a customer -- And pet for versus capture wallet NSPAC of at certainly of it our

Sumit Singh

been that years. Chewy X/X million X of Doug, customers Mario. our X active have to to less remember with helpful XX Thanks, than

curve amplify as point view, the And healthy about the Mario so that we the talking it is cohort grows that's as spend spend from of of kind capturing.

Now coming margin gross to the on part initiatives. your second question of mitigating

are after details initiatives what here. And is the ones me to we're that provide two, it on So talked first, about some let you before. incremental we've these

new in and floor several in So scaled 'XX and will that we're launching FY said, launched inventory as impact but we 'XX. 'XX, the scaled, of be later to combat also logistics over and half initiatives supply related 'XX, chain

three, optimally some of chain right closer into long in experience, to our We smoother and into and will it the zone combat part help initiative QX, inventory our impact. in So the Phoenix that a XXXX, does we during XXXX. both order and network. the And this you're for example about these customers. a and will deeper these one is particularly I'm would improving market and carrier in of macroeconomic routing us environment kind inventory lives our cost QX buying a across our helps in scale helping live starting that injection placement, on own optimally initiatives network a shipping what part we're call is this customers package That that logistics in then out allows actually centers. incremental Number proud and team, to fleet launched in out of we'll position And network. flow I balance And this of that operate that an transfer in planning where capabilities. And inventory initiative, Services what research as addition this but to are is function now. we kind middle customer call more look supply line-haul more enables that. load two, we improved And well. QX, as of which this to into network in talking and us to something early and that and front formed initiatives, inventory building Chewy place Number shipping January, launched transload talking topology is geo-located will and of discovery our fulfillment about ideally Freight newly enable our is initiative. CFS, as them launching international and, what mitigate would and We're products therefore, across that of that's actually I overseas we're launching or portion mile focused including

majority the availability or you efficiently So proprietary minimize real of routing order time, to homegrown in technology route that rate long fulfillment card. analyzes mitigate logistics and orders I split initiatives centers distances. increase the a that orders will to our further incidence was from inventory the if seeing system that rate appropriate orders over help These was the recall, us freight talked sent the complement collectively and helpful. Hopefully, of about we're that the

Operator

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

Brian Fitzgerald

sponsored ads launch, questions X maybe of on there. couple A the

much like you be lining then or just you know of remind is and you the in Autoship? see of data? pet to Do on at site being often over wondering $XXX a receive specifically category? any how trade time leveraging in billion could First spent -- internal off-site you there messages? ad thoughts your trade if to off, promotions and do your in promotion is $XXX spend billion -- there's a large once slotting amount a of potentially fees terms do enrolled have up something vendor going on audience have retail, us advertising, they're is in on And How often two, last grocery U.S. customer how one brick-and-mortar site to you sense in Number

Sumit Singh

is them. take this Brian, Sumit. I'll

remarks. the outside positioned what uniquely tell size what our the are in the And offer. see in add to said you in beyond value we we the much suppliers experiences not opportunity see Suppliers can I prepared to and today gaining dollars that base is customer And So funds. that large. trade opinion, tremendous advertising our to the is across

in that potentially see we a in recurring high-margin way, as So opportunity it the revenue future. meaningful

base at in a what Autoship you staple our ownership is their X/X repeat, give purchase and and recurring, -- active they when our base of the we part even perspective, is of our And they're is choose highly And though rest to in highly behavior. shopping those campaigns it. highly to To is They open engaged, be service do terms which Autoships Autoship we go Secondly, to customers, multiple customers remain in see customers, they out. time. load, including consider of actually the kind same base are of subscribed recurring nature. promo a through We it in, of the with customers experimental. include our come

they and innovation active campaigns of do actively also our and customers part participate. highly ownership launch kind of Our are

third this of open, opportunity internal for question part the data. So is we of well. believe off-site base and line advertising finally, be as an then therefore, customer And that your that will using the

because little You're bit that sure going to question on not explain the I'm clear have a you're asking. to

Brian Fitzgerald

at of extensibility an Look, ad thing. type network

Sumit Singh

to but on is not It our see. I today. much share radar,

Operator

Our the next Wissink Jefferies. of with Stephanie from question comes line

Stephanie Wissink

Jefferies. from question. Wissink Two-part Steph

The you. just what through as think first quarter is looks your flow, the quite improve? down the fund just was your in the should on a standings? Help to think rate inventory for in-stocks you available It on first balance availability to sheet cash you of you'll year then the the as the we we CapEx through liquidity raise business, How And And the burn the the cash on in you the QX, inventory of bit. balance us have year? inventory a constraint and How higher think question about Mario, do cash XXXX. are like through levels. your progress need the slightly expect

Mario Marte

the add mid-quarter it that Sumit had else Inventory impacted -- you Steph, questions out-of-stock level. negatively of an us I'll our and I both Omicron in the impact to heard take anything. miss -- say something impact can levels, so if inventory,

able we they much increased. Therefore, not otherwise to we get inventory would as as have purchased. were So

that XXXX. of are million stock loss in for baking million due something inventory, the of we levels quarter, we elevated And to year. to totally But carry us rather range would for us of $XXX we you $XXX sales out so levels as heard clear, of that. some in be is answer the the throughout the out stock saw course. of fourth is, the The short of then burned our And through of to purchased inventory reason the of inventory into guidance, to Steph, that have say, you

about that the you net how So think inventory an and gives idea has it on sales. we that impact

A, used fourth in it's unusual that not it's would we the -- In the quarter. quarter, terms the use of fourth cash cash in have

really it's of go the result is, Second we throughout year. did the build that through a inventory

off to later. we do the think for equivalents I last for XXXX. of conversion your million a fourth then cash And about where was the balance we case, time the pay and we cycle, have for in on about we it the and with very the cash sheet. inventory, favorable then quarter. it, it cash have we In the think pay question buy We sell this Start was cash of part $XXX how

we're is X.X to net think that on more about incrementally spending in about more that point sales. Second CapEx slightly this year,

call So full looking if million $XX $XX year. so let's we're it at a billion or

comes not see our when look to at last the of Steph, history. there's cash side a it lot the is burn you So in of And CapEx thing, things.

history would of we a this again being diligent that I And have expect case We deploy efficient very and be in cash. to the the year. way

Stephanie Wissink

ask Okay. That's point of helpful. some I Could clarification.

So that guidance on your in-stocks quarter the year, assume improved. would for the it the first of the balance versus

then that to your And first are improving vendor to year just give quarter. overweight progresses? as we position that the from committing million us your community burden from $XXX maybe some out-of-stocks in-stock the the should million in the they reassurance of So $XXX

Sumit Singh

accurate. is this Steph, That is Sumit.

is of than or continuation more We back year. you worse worse are -- shortages, half into the But back first near-term is got now degraded incremental from to signs that that base chains be hearing half where of Ukraine second in going assuming in the the follows is they the half. of of through some caused from also really XXXX, commentary are this given the impacted flyer actually also XXXX to to XXXX, first in our and war they half has the And is QX. half that expected year going if continue recall, XXXX. than we within that, the right be actually with of supply which recovery continued the coming early QX, And will

Operator

Mahaney with from comes the ISI. question next Mark Our line of

Mark Mahaney

or insights and that for time terms launch? color give Could you -- that? whether as work organic that spend then international, And partnership new then a of could little considering more Any it update not. you've about want where of Trupanion plan? would on are prepare any you us talked an in already, I'm the sorry, done ahead Is on ramps? that you to on to on And bit you you be international if of the track of timing but

Sumit Singh

Mark, this I'll second Sumit. is with the start one.

on I time Trupanion, the partner, next of launch offerings set first to near future, the in we're track XX very within to say, our So our would days with insurance frame. XX

track, about on that's that. and we're So excited

opportunity TAM In as recognize an terms today. much international beyond there of We XXX we add expansion participate to U.S. the market billion in more not that international, additional today.

to I right penetration, market, growth both of then think And to inputs us. Whether to diligent and accordingly so source go we credible organically operations, the thoughtful or paths inorganically, a the of be outcome. and and course for market we'll about relative around the appropriately decide logistics, infrastructure it's able be e-commerce

matter So a it not if. of remains and

Operator

Our next Research. comes of Wolfe the from Deepak question with line Mathivanan

Deepak Mathivanan

of Just a ones. couple

So you about first, can pricing talk the levels.

impact You gross know inflationary on that the easing of margins.

marketing to on year behavior this historical maybe a 'XX that basically, that you the is you can elaborate from color gross second if a is competitive the to up and provide comments the customers? can favorable? 'XX or is the understand, cohort? Now what for some more then X it of And happening Mario, XXXX year, retention levels. to that little landscape cohorts on like for XXXX expecting retention different active behavior too. be softness you're Trying prices? great, compared higher sort the versus Is bit the X retention the with ads of is for catching becoming demand on question, And or And kind would the is year

Sumit Singh

is and sees in he as about will I'll this Sumit. inflation. Mario try let's part, jump talk both Deepak, to first take So

our passing lever. of mentioned, SKU top impacting So we're In cost you our category. this the on also, inflation line single-digit assortment aggregate, translating a rightly the kind to pricing of is it's inflation detailed a us view of in level. cost at that kind as based our we're seeing and This taking margin

we're Importantly, surgical pricing being our and strategy. deliberate about

moving the is prop pieces on price the Chewy. there to out are the demand and while the And being So current how not from let elasticity, have that several we'll value macro where play way in data possible. guide as to topic we're growth. balancing year specific finding come speaking, yet, as given a diligent the will this expect strong maintaining the on plan marketplace, Generally impact opportunities environment. to we're much we so optimize customers as And

look you digits. single far, If at leading cost QX prices by so low

that some probably you so And provides perspective.

question, as second both. your cohort. a it's large-sized It's of terms and XXXX was XXXX alluded. 'XX, In Mario

And so it's there attrition, small And kind into up. share continues are though opens when something as that 'XX, attrition economy from broadly something year broadly even observing year our then customers subsequent a the the get that we X and years. into his is we is portion perspective of that X, of

and suboptimal opinion, exiting will I multiple opinion, should economy balance reopens, few you So it which I'll two, cross-shop marketing answer kind customers of are the right? a an impact each that in and conduct out and encouraging combine to marketing leading this actually interesting question to dynamic this is of every kind to them purchase as way, that is in-year consuming combine home for acquisition transient player level and XXXX. impact, pet and of be industry adds, the Initially, that gross the as category I'll of One, mentioned, Mario 'XX not which it's going answer the and by of will asked at long-term In adds in in to it customers, also. will kind a also stock, think impact things, retailers. it's more this with experience in it impacted in-person and in-person our see Number said, elevated net clear be we services. shopping impact. other. retention keep our And a

of inflation third is categories. the causing discretionary The degree currently is high compression in

that. U.S. the broadly data For category, mid-single the digits confirms platforms today, look industry, grow just market Search is hardlines kind year. but pet U.S. retail across this just expected not example, across not low when at of to retail, to you business pet,

February, queries XX% were in year-over-year sales down on fact, hardline a search basis. In

that balanced, see variability to for and will you demand in what the that, of factors and supply these kind retailers divided compete will in keep opinion, lead to the should tell of a costs, amidst economic gross you, there this you've we're helpful. of net marketing XXXX, is in in mind kind will not that being of within to long-term X% to that's area ad this with us our And Hopefully, and pool higher marketing in of precariously adds, of share. spend in some of customers turn, quarters seen and and stressed so be volatility sales. X% I But I market being e-tailers that others the appropriately net adds. guiding remain specific are levels expect of lower section. And leading overall. sort will And range kind

Operator

Morgan comes of line question Lauren Stanley. the next Schenk from Our with

Lauren Schenk

are lot cetera. think Is flow-through headwinds. guess, et to a the a sort us I of the in some believe term? ex incremental about not broader help chain gives long transitory of margin that more business XX% margin, the of to but the Understanding X% any you sort are you the what to way of confidence you're what supply of specific as seeing inflation, headwinds you there

I really that think color be any would around helpful.

Sumit Singh

Sure. could a be Hey, longer It this answer. is Sumit.

and So I'll frame apart of different in a to piece up try portions. it couple it

end gross we make the current SG&A. engagement, the overcome including if is So meaningful in XX%. in the the these left component to through And to ability have scaling sale remarks, margin that of X% in prepared permanent. core and us strength launching, able is gross future potential And scale the we're to ones loyalty the the between business, margin that to the our we're yet components recall, the of haven't margin, up range. fully the and view And be high we as to in reiterated as then XX% second the sort confident that them programs first headwinds not EBITDA our and one XX% today's that you

Marketing, that stay leverage SG&A that and right is and the just up initiatives some The call then I've were probably will see take marketing. to be, and loyalty as X% in how CRM our these in I'll on third we're detail reserve marketing of we'll for the X%, pick within, that the But component future. as the first, much between and we'll a Marketing, believe to, component. future. leverage kind levels let's we are alluded

So now come to SG&A.

of X Let me SG&A, SG&A. better, So we help right? you there's line this at of kind how item understand components in look

and forms portion likely we XXXX. approximately This large portion the about with and grows that that OpEx variable a benefits investment we it the is component is top of $XXX of talked A higher the line. roughly and XX% the X% backdrop during we against by see in in First where large of wages, same the wages SG&A, what million is normalize, for When fulfillment that was made indeed therefore, in productivity scaled is center permanent. costs however, a XXXX, time. the wage variable you base inflation, underneath which

leverage X of there impeding basis centers points to our to overall drove we will basis point further leverage. XX improvements to under teams the And component, FC next OpEx to in FCs, OpEx we'll optimal we this do disruption our over going XX And flow so fulfillment XXXX, state this imbalance in teams and trapping and support as of and and The X automated beyond basis XX so That's supply kind by is of is subpoint chain the number current continue the XX points further increase XX center fulfillment count the FC incremental drive one. years. our an productivity. The variable of operations is be productivity forward. automated to in-house XX automation leverage leverage expect points and and that contribute operations

variable the fixed run buildings. OpEx of the The expense the SG&A beyond second component to is fulfillment

that observing we're and -- center current in are utilization moment. both imbalances lower capacity labor that inventory capacity imbalances levels by are causing Here, fulfillment caused the

So here, component normalize and we drive that us. growth this the and believe final points and of and in third back to basis we held XX which software, investments there's teams of over technology capabilities And XX for temporarily in is to primarily is is that period. comprised the next XX month G&A, XX to leverage expect

we're accretive to that us investing and time. fund profit Here, initiatives the growth be new over will to

from investment will call a to care requires of this, chain supply stand-up kind heard on to scale Overall, we you've As launches this -- 'XX. G&A is now you've to heard new accretive XXXX. margin ranging exit our example begin us. of Health several logistics and as is which on the today, several best and in fast-growing 'XX credible business for bucket

to you SG&A. get of is or we kind we're determined the within the So these range kind to. the hopefully, P&L of providing and committed I'm of line we're thoughtful, message on perspective hopefully, XX% you that promised to that we're items scale focused provides that we're and And impression to disciplined, X%

Operator

Our line of Securities. the comes question Guggenheim from Steve with next Forbes

Matt Norton

wanted kind and as show that elasticity, share where an by label, Steve don't the there And to other environment growth for can to it as sales of and then the you on the can on a specifically in maybe that, maybe on an we rate operations, that in begin I hoping by in where consumers grow of items update the view you've And there get whether we've seeing some cohort because cohort. here of have the Norton do on be price was strong, potential there. any maybe seen we're continues on any take lever an differences category. sales Private within I you're there, Matt goods to gotten seeing think hard use trending? we then a how useful. penetration pharmacy to touch update differences guys within and could to you if get that Forbes. it's I update percent terms be sales. grown what line would

Sumit Singh

part Matt, of the you'll question. repeat second the to have

at growth the And want private to net XX% that XX% strategic premium sales. and part, a growing between label been first On refresh, recall is private we company or category and brands, it our a to to just to believe we've vertical. get We of rate.

penetration right given Our XX% consumables by of customer XX%, to brands. has and loyalty into look when are goods goods mid-single hard more way, the you hard is consumables in that north the goods digits take way we a hard the the And lead is low to now. XX%, at within in to context and expect, commoditized reached

conversion consideration conversion consumers high-rated we for with second per they kind of the And have terms pleased less -- value question and the brands within brand capability brand or -- se consumer in are right, conversion look per as surgically of I we're your we essentially overall, is So where, they the look to prebuild are growth, as drive to of same result mentioned, se. products. going part around categories, our opportunity and a private for driven progress. and experimenting And of

that So is for opportunity an us.

you of pharmacy, question? In didn't fully. that repeat the terms can catch I

Matt Norton

Chewy (CHWY) 30 Mar 222021 Q4 Earnings call transcript