Chewy, Inc.

Good afternoon and welcome to the CHUI second quarter 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Bob LaFleur, Vice President, Investor Relations and Capital Market. Please go ahead.

Thank you for joining us on the call today to discuss our second quarter fiscal 2020 results. Joining me today are Chewy's CEO, Sumit Singh, and CFO, Mario Marte. Our earnings release and letter to shareholders, which were filed with the SEC on Form 8K earlier today, have been posted to the Investor Relations section of our website. investor.chui.com. A link to the webcast of today's conference call is also available on the site. On our call today, we will be making forward-looking statements, including statements concerning CHUI's future prospects, financial results, business strategies, industry trends, and our ability to successfully respond to business risks, including those related to the spread of COVID-19, including any adverse impacts on our supply chain, workforce, fulfillment centers, other facilities, customer service operations, and future plans. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties which could cause actual results to differ materially from those contemplated by our forward-looking statements. 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 disclaim any obligation to update any forward-looking statements except as required by law. For further information, please refer to the risk factors and other information in CHUI's 10-Q and 8-K filed earlier today and in our other filings with the SEC. 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 provided on our investor relations website and in our earnings release and letter to shareholders, which were filed with the SEC on Form 8 earlier today. These non-GAAP measures are not intended as a substitute for GAAP results. Finally, this call in its entirety is being webcast on our investor relations website A replay of this call will also be available on our IR website shortly. I'd now like to turn the call over to Sumit.

Thanks, Bob, and thanks to all of you for joining us on the call. The strong demand we observed in the first quarter carried over into Q2, and once again, thanks to the high-quality execution from the Chewy team, we achieved record net sales growth and customer additions. In recent months, it has become clear that the retail industry in general and e-commerce in particular is going through a period of transformative change. Growth curves that were supposed to play out over years have been compressed into quarters and even months. Over the past few years, we have invested in technology, new businesses, fulfillment capacity, and in building an extraordinary team. This has prepared us to quickly adapt to the acceleration of our own growth curve and to provide top-notch service to the growing millions of pet-owning households in the US who depend on Shoei. We built Shoei by putting the customer at the center of everything that we do. In a world of uncertainty, qualities like trust, convenience, and customer service really matter, especially when it comes to caring for family or loved ones, whether they're people, pets, or both. We have taken these millions of customer relationships and built a large base of repeat business that enables our rapid scaling and fuels our profitability on an accelerated timetable. As empowering as all of this is, we are just getting started. In the next few minutes, I will discuss our Q2 results and then share some updates on the purchasing behavior of our newest customer cohorts, as well as how we interpret their lifetime value potential. I will also update you on our fulfillment center network and distribution strategy, planning for the upcoming holiday season, and then wrap up my remarks with some closing thoughts about Chewy's market share opportunity and how we fit in in the broader pet e-commerce space. Finally, I will turn the call over to Mario to discuss our second quarter results and guidance in more detail. Chewy's advantageous position in the race towards e-commerce and our culture of innovation and customer service resulted in another quarter of outperformance. Q2 net sales were $1.7 billion, increasing 47% year-over-year. Autoship customer sales were $1.16 billion, or 68.3% of net sales. We ended the second quarter with 16.6 million active customers, an increase of 4.6 million compared to second quarter 2019, breaking last quarter's customer acquisition record. Net sales per active customer, or NESPAC, was $356, representing 3.2% annual growth after adjusting to exclude the extra week in 2018. We delivered strong gross margins, with Q2 actualizing at 25.5%, a 190 basis point increase year-over-year. By early Q2, we had cleared the backlogs and corrected the inventory imbalances that weighed on Q1 gross margins. Our newest business verticals, private label and healthcare combined contributed 140 basis points to the year-over-year expansion in gross margin. In the Rx business, we served our broadest customer base on record, serving millions of American households at a time when they needed us the most. Additionally, our newest Rx sites in Kentucky and Phoenix became fully licensed in Q2 to fulfill customer orders nationwide allowing us to further improve customer experience and optimize logistics costs. Another area of focus has been our hard goods business, which continued its strong growth in Q2, positively contributing to the overall gross margin trajectory. Within the hard goods categories, we expanded our mix of private label products, and private label hard goods penetration reached 15% of net sales, providing clear gross margin benefits. We remain excited about the progress we are making across multiple initiatives ongoing within the company. We executed tightly against our sales momentum while expanding gross margin and controlling costs to deliver our second consecutive quarter of positive adjusted EBITDA. Q2 adjusted EBITDA was $15.5 million at a margin of 0.9%, reflecting 340 basis points of year-over-year margin improvement. Now, Let me briefly touch on customer behavior for our new and existing customers over the course of the year. We continue to monitor the behavior of post-COVID customer cohorts we acquired in Q1 and Q2 for any notable variances against our more mature pre-COVID customer cohorts and are encouraged to observe a high degree of consistency in customer behavior between the two. The Q1 cohorts remained positively engaged and the initial engagement levels of the Q2 cohorts matched their Q1 peers. Overall customer acquisition rates remained above pre-pandemic levels, and other metrics such as basket size, reorder rates, and auto-ship sign-up remained healthy and stable. We are encouraged by these trends. The new active customers we added in Q1 and Q2 of this year surpassed the total active customers we added across the entirety of 2019. These new cohorts are not only large in number, but given their initial engagement levels, they are also potentially significant in their unrealized contribution to our future revenue and profitability. As with our mature cohorts, we expect their NESPAC to increase significantly over time, reaching approximately $500 by year two and over $700 by year five. An exciting new development, however, is that unlike our earlier cohorts, who were primarily purchases of food and essentials, we now have the ability to expose our newer cohorts to a large variety of purchase options earlier in their customer lifecycle. For example, RX prescriptions, a wide variety of hard goods options fueled by our private label products, or gift cards for friends and family members. These expanded offerings allow us to serve the customer more fully from their initial purchase and expedite the capture of greater wallet share. This, in turn, allows us to scale their lifetime values, or LTV, beyond their historical ranges. This focus on new businesses and product innovation is critical for our long-term success, and each has been on the strategic roadmap that we've shared with our shareholders and investors since our IPO. It is also what will continue to amplify Chewy's growth and profitability flywheel as we look to the future. Another important contributor to our ability to serve millions of customers is our dedicated fulfillment network, which continues to expand to meet the needs of our growing business. Our next fulfillment center, or FC, launch will be Archibald, Pennsylvania facility, which begins shipping orders by mid-October. Archibald will be our 10th FC overall and our first automated facility. In addition to the Archibald and the North Carolina FCs, which were planned fulfillment center launches for 2020, just last week we expanded our network with the opening of a new limited catalog fulfillment center in Kansas City. This incremental fulfillment capacity added by Kansas City provides us the flexibility to effectively load balance across our other FCs and gives us available buffer capacity as we head into the busy second half of 2020. This new FC is a capital light, high velocity operation focused on fast fulfillment during peak demand periods. This facility was not part of our original FC network plan for 2020 and demonstrates our ability to improvise and adapt quickly to changing conditions in order to maintain business continuity and to protect customer experience. Looking a little farther out, we also announced that we will be adding a second automated FC to our network in mid 2021. This one will also be located in Kansas City. Mario will share some more details on this project shortly. This second center will give us option value as we scale operations in the Kansas City area from 2020 into 2021. By the end of 2020, our fulfillment center network will consist of 11 centers with over 7 million square feet plus three pharmacy-focused fulfillment centers. We believe this makes us one of the largest dedicated e-commerce fulfillment networks in the U.S. and is certainly unparalleled in the dedicated pet space. Expanding our distribution capabilities is just one of the steps we are taking in preparation for the upcoming holiday shopping season. The rapid changes we've seen in retail and e-commerce are likely to rewrite the rules of this year's holiday and cyber seasons. Our preparations are already underway so that we are ready to ensure that our systems, inventory, and staffing levels are in place and able to adapt to any contingencies. Also, with the holidays in mind, we continue to expand our assortment of innovative, high-quality products that surprise and delight our customers. In Q1, we launched gift cards. In Q2, we took pet personalization to a whole new level by launching a service that allows pet parents to personalize dozens of people products like coffee mugs, water bottles, and picture frames to celebrate their pets or create personalized gifts. Using a first-of-its-kind 3D-powered user interface, pet parents can easily upload images and add customizable text and then interact in real time with a 3D rendition of their item before ordering. We are excited to expand this experience to pet products like collars, ID tags, and beds in our growing personalization catalog. Before I end, I would like to share some compelling data points about the rapidly growing online segment of the U.S. pet products market. Industry data provider PackageFacts predicts that online pet product sales in the U.S. will increase by $3.9 billion this year, with online sales gaining five points of market share year-over-year to reach 27% of all pet product sales. Against that backdrop, the midpoint of our 2020 guidance has us growing our revenue by approximately $2 billion year-over-year. In doing so, we would capture over half of the total forecasted growth of online pet product sales this year. The Chewy team continues to execute against our strategic plan, and we have never been more steadfast in our mission of being the most trusted and convenient destination for pet parents and partners everywhere. We are proud that despite all of the challenges our team members have faced on the job and in their personal lives, they remain focused on taking care of our customers and the pets who depend on them. I will now turn the call over to Mario, who will provide the details of our second quarter results and financial outlook. Mario?