Chewy (CHWY) Q1 2025 Earnings Call Transcript
Key Takeaways
Image source: The Motley Fool. DATEWednesday, June 11, 2025, at 8 a. EDTCALL PARTICIPANTSChief Executive Officer — Sumit SinghChief Financial Officer — David ReederNeed a quote from one of our...
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June 11, 2025
11:10 AM
The Motley Fool
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DATEWednesday, June 11, 2025, at 8 a
EDTCALL PARTICIPANTSChief Executive Officer — Sumit SinghChief Financial Officer — David ReederNeed a quote from one of our analysts. [ tected]TAKEAWAYSNet Sales: $3. 12 billion in net sales, up 8. 3% year-over-year, and exceeded the high end of guidance
Active Customers: 20. 8 million active customers, a 3. 8% year-over-year increase in active customers, with apximately 240,000 sequential additions
AutoShip Sales: $2. 56 billion in AutoShip customer sales, up 14. 8% year-over-year, comprising 82. 2% of net sales
Hard Goods Growth: 12. 3% year-over-year increase in hard goods, driven by refreshed asment and imved customer experience
Gross Margin: 29. 6% gross margin, expanding by apximately 60 basis points year-over-year after normalizing prior-year one-time benefits
Adjusted EBITDA: $192. 7 million in adjusted EBITDA with a 6. 2% adjusted EBITDA margin (non-GAAP), reflecting a 50 basis point year-over-year margin increase
Free Cash Flow: $48. 7 million in free cash flow generated, with $23. 2 million used for repurchases; $383. 5 million remaining under authorization
Chewy Vetcare Clinics: 11 locations open, three new since last call, with plans to open 8-10 additional clinics in FY2025
Sponsored Ads : Sponsored ads achieved sequential quarter-over-quarter growth, with expansion into off-site channels and demand exceeding internal expectations
Chewy Plus Membership: Transitioned from beta to full rollout, exhibiting higher member engagement and contribution fit
Net Pack: $583, up 3. 7% year-over-year
Operating Expenses: SG&A at $575. 1 million (18. 5% of net sales), advertising and marketing expense was $193. 8 million (6. 2% of net sales)
Adjusted Net Income: $148. 9 million in adjusted net income, an 8. 6% year-over-year increase in adjusted net income
Liquidity: $616 million in cash and cash equivalents; $1. 4 billion in total liquidity; no debt
Q2 and Full-Year Guidance: Q2 FY2025 net sales are expected to be $3. 09 billion (7%-8% growth); full-year FY2025 sales outlook is maintained at $12. 45 billion (6%-7% growth, excluding the fifty-third week in FY2024); full-year FY2025 adjusted EBITDA margin outlook is reaffirmed at 5. 7% (non-GAAP)
CFO Transition: David Reeder will depart after several weeks to assume a CEO role in the semiconductor industry
SUMMARYChewy (CHWY 0. 76%) dered above-guidance net sales and accelerated active customer growth, supported by gains in hard goods and increased AutoShip penetration
Management reported continued sequential imvement in sponsored ads revenue ing the migration to its first-party platform and a full rollout of the Chewy Plus paid membership gram after a successful beta
Guidance for Q2 FY2025 jects 7%-8% revenue growth, with management maintaining full-year top-line and margin targets while signaling flexibility to revise FY2025 guidance upward based on performance
Sumit Singh stated, "Growth in AutoShip customer sales once again outpaced overall top-line growth, increasing by nearly 15% in the first quarter. "David Reeder said, "we expect to der sequential imvement in gross margin in Q2 FY2025. "Management noted that apximately 80% of adjusted EBITDA is expected to convert to free cash flow for FY2025, translating to around $550 million at the midpoint of guidance
Management confirmed plans to open 8-10 new Chewy Vetcare clinics in FY2025 and characterized new customer acquisition through these clinics as "significantly higher than what we originally modeled. "Management described industry growth estimates as 3%-4% for 2025, indicating that Chewy's outlook for FY2025 reflects market gains
Sumit Singh emphasized that growth is structural, driven by execution, customer quality, and increased of wallet, with little to no reliance on price inflation in current guidance
INDUSTRY GLOSSARYAutoShip: Chewy's recurring subscription service enabling automated, scheduled shipments of pet ducts to customers, designed to mote loyalty and sales predictability
Chewy Vetcare (CVC): Chewy, Inc. 's in-house veterinary clinic initiative, viding integrated pet health services through retail locations and driving ecosystem engagement
Chewy Plus: Paid annual membership gram offering benefits such as free shipping, 5% rewards, exclusive offers, and higher engagement compared to standard customers
Net Pack: Internal Chewy term representing annual net sales per active customer
Full Conference Call TranscriptSumit Singh, and CFO, David Reeder
Our earnings release, which was filed with the SEC earlier today, has been posted to the Investor Relations section of our website
In addition to the earnings release, a presentation summarizing our results is also available on our website at investors
On our call today, we will be making forward-looking statements, including statements concerning Chewy's financial results and performance, industry trends, strategic initiatives, repurchase gram, and the environment in which we operate
Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995
These statements involve certain risks, uncertainties, and other factors that could cause actual results to differ materially from our forward-looking statements
We encourage you to review our SEC filings, including the section titled Risk Factors in our most recent Form 10-Ks, for a discussion of these risks
Reported results should not be considered an indication of future performance
Also, note that the forward-looking statements on this call are based on information available to us as of today's date
We assume no obligation to any forward-looking statements except as required by law
Also, during this call, we will discuss certain non-GAAP financial measures
Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are vided on our Investor Relations website and in our earnings release
These non-GAAP measures are not int as a substitute
Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2024
Finally, this call in its entirety is being webcast on our Investor Relations website
A replay of the audio webcast will also be available on our Investor Relations website shortly
And with that, I would to turn the call over to Sumit Singh
Thanks, Natalie. [Sumit Singh]: Thanks, Natalie, and good morning, everyone
The momentum at Chewy, Inc
Our team dered a strong start to 2025, achieving top-line results exceeding expectations, continued growth in active customers, and solid fitability and free cash flow generation
Our Q1 results are a testament to the hard work and dedication of every Chewy, Inc
Team member and Chewy, Inc. 's ability to continue to take market amidst a resilient pet category
Now, let us review the specifics
Q1 net sales exceeded the high end of our guidance range, increasing by over 8% to $3. 12 billion
Net sales performance was underpinned by strong participation from new and existing customers across a variety of Chewy, Inc. 's offerings and our favorable mix of core consumables and health and wellness
Also notable this quarter was the 12. 3% year-over-year growth we dered within hard goods
Over the last several quarters, you have heard me talk our efforts to refresh asment and imve overall experience, and we believe that customers appreciate the new offerings available in this category
Further, our AutoShip subscription gram continues to be a pillar of strength and differentiation for Chewy, Inc. , enabling high visibility and predictability in our while also enhancing customer loyalty
First quarter AutoShip customer sales of $2. 56 billion represented apximately 82% of Q1 net sales, reaching a record high for the company
Growth in AutoShip customer sales once again outpaced overall top-line growth, increasing by nearly 15% in the first quarter
Moving on to the topic of active customers, the momentum we spoke last quarter continued through Q1, and we the quarter with 20. 8 million active customers, reflecting 3. 8% year-over-year growth and an increase of apximately 240,000 customers sequentially
Active customer growth was driven by continued strength in gross additions along with imvement in gross churn
Moving down the P&L, gross margin came in at 29. 6% for the quarter
Recall that last year, we highlighted apximately 70 basis points of one-time items that benefited the Q1 fiscal 2024 P&L
Adjusting for these one-time benefits in the comparable prior-year period, we expanded gross margin by apximately 60 basis points year-over-year
David Reeder will vide additional color on our gross margin performance
We generated $192. 7 million of adjusted EBITDA in the quarter, representing a 6. 2% adjusted EBITDA margin and a year-over-year increase of apximately 50 basis points
Accounting for the previously mentioned one-time items, which positively impacted first quarter 2024, adjusted EBITDA margin increased apximately 120 basis points year-over-year
Our adjusted EBITDA performance in Q1 reflects our continued OpEx discipline and the timing of certain marketing campaigns, resulting in modest advertising and marketing leverage inside the quarter
And finally, we generated nearly $50 million of free cash flow and deployed $23. 2 million towards repurchases in the quarter, in line with our internal expectations
Now, I would to vide an on some of Chewy, Inc. 's strategic initiatives
Starting with Chewy Vetcare or CVC, since our last earnings call, we have opened three additional Chewy Vetcare practices, bringing our current CVC count to 11 locations across four states
The encouraging signs of success we have spoken over the last several quarters remain strong through Q1
Our current foot continues to outperform relative to expectations in terms of demand generation and driving broader ecosystem benefits as customers deepen their commitment to Chewy, Inc
Additionally, we continue to gain valuable insight and learnings from each of our CDC locations as they ramp, allowing us to apply those learnings to our recently opened and future clinics as we drive more efficient unit economics
We remain on track to open 8 to 10 new clinics in fiscal year 2025, and we look forward to keeping you d on our gress as we continue to build this
Our sponsored ads continues to perform well and grew sequentially quarter over quarter
The successful migration to our one P platform that I spoke last quarter has enabled us to broaden our suite of ad ducts and content capabilities, including the expansion of off-site ads
We are thoughtfully ramping off-site across and social, with demand exceeding internal expectations
We continue to be excited our sponsored ads
Elsewhere, I am excited to that we have transitioned the Chewy Plus membership gram out of the beta phase ing a successful testing period
While still in its nascency, we are excited our ability to drive even stronger loyalty as we expand access and engagement with the Chewy Plus paid membership gram
Before I wrap up, I would to briefly my perspective on Chewy, Inc. 's long-term outlook
We have a strong and growing confidence in our ability to der on the strategic roadmap and long-term financial model that we outlined at Capital Day in December 2023
That confidence is grounded in our execution to date and the meaningful gress we are making towards those goals
To illustrate, achieving the midpoint of our FY 2025 adjusted EBITDA margin guidance range would represent over 220 basis points of margin expansion from 3. 3% to apximately 5. 6% in just two years
Importantly, consistent with last year, apximately 80% of that fitability is expected to convert into free cash flow, translating to apximately $550 million, all while continuing to fund our strategic growth initiative through the P&L
Key verticals health, sponsored ads, and private brands remain early in their life cycle, and grams such as AutoShip, our retail, and broader competitive modes continue to scale
These developments support our path to achieving our long-term adjusted EBITDA margin target of 10%
Lastly, as you know, earlier this month we announced that David Reeder, our CFO, will be leaving Chewy, Inc
To pursue a CEO role in the semiconductor industry
David will remain in his role for the next several weeks to ensure a smooth transition
We thank him for his contributions and wish him continued success
With strong internal talent, a differentiated strategy, and solid momentum, we remain confident in our ability to der a -gaining FY 2025 and sustained long-term value for our holders
With that, I will turn the call over to David Reeder
And thank you all for joining us today. [David Reeder]: Our strong first quarter results showcase the resilience of the pet industry, the durability of Chewy, Inc. 's model, and continued momentum in the
First-quarter net sales grew 8. 3%, exceeding the high end of the Q1 guidance range we vided last quarter
We saw continued momentum and active customer growth, and Q1 with 20. 8 million active customers, reflecting a year-over-year increase of apximately 3
Once again, we outperformed internal expectations and dered year-over-year imvement across all elements of the active customer equation
New customers and reactivations grew year-over-year, while gross churn imved over the same period
AutoShip customer sales increased by 14. 56 billion in the first quarter, with growth in AutoShip customer sales outpacing overall top-line growth by apximately 650 basis points
Additionally, AutoShip customer sales represented 82. 2% of our total net sales in Q1, a new high for the
Net pack reached $583 as of Q1, representing an increase of 3. 7% year-over-year
Moving to fitability, we reported first-quarter gross margin of 29
As Sumit mentioned, last year in our first quarter 2024 earnings script, we identified apximately 70 basis points of one-time items that benefited the Q1 fiscal 2024 P&L, resulting in a normalized gross margin of apximately 29% in the first quarter of 2024
Adjusting for these one-time benefits in the comparable prior-year period, we expanded first-quarter 2025 gross margin by 60 basis points year-over-year
Sponsored ads continue to be the largest driver of gross margin imvement year-over-year, combined with a strong AutoShip base load and duct mix shift into margin-accretive
Shifting to operating expenses, please note that my discussion of SG&A excludes -based compensation expense and related taxes
In the first quarter, SG&A was $575. 1 million or 18. 5% of net sales
For fiscal year 2025, we expect to der modest SG&A leverage driven by at-scale fixed-cost infrastructure and discipline and efficiency with respect to corporate payroll
First-quarter advertising and marketing expense was $193. 8 million or 6. 2% of net sales
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