Chewy, Inc.

Good afternoon. Thank you for attending today's CHEWI Q1 Fiscal 2023 Earnings Call. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1. I would now like to pass the conference over to our host, Jen Su, VP, Head of Investor Relations. You may go ahead.

Thank you for joining us on the call today to discuss our first quarter 2023 results. Joining me are Chewy's CEO Sumit Singh and CFO Mario Marte. Our earnings release and letter to shareholders, which were filed with the SEC earlier today, have been posted to the investor relations section of our website, investor.chewy.com. On our call today, we will be making forward-looking statements, including statements concerning Chewy's future prospects, financial results, strategies and investments, industry trends, and our ability to successfully respond to business risk. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks, uncertainties, and other factors described in the section titled Risk Factors in our annual report on Form 10-K and other subsequent quarterly reports, 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. 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 today. These non-GAAP measures are not intended as a substitute for GAAP results. Additionally, unless otherwise noted, results discussed today refer to the first quarter of 2023 and all comparisons are accordingly against the first quarter of 2022. 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, Jen. And thank you all for joining us on the call today. Before we begin, I would like to thank Bob LaFleur, who, after serving as our head of investor relations for the past three years, has decided to move on to his next chapter after Chewy. We are all grateful to Bob for his years of service and for building out Chewy's IR function following our IPO. At the same time, today, I'd like to announce that Jen Su, our head of corporate development and M&A, has now expanded her responsibilities to include our investor relations team. Before joining Chewy, Jen spent 12 years in technology-focused investment banking, and that background will continue to serve her well in her expanded role. Welcome, Jen. Now, let's review our first quarter results. Throughout Q1, customers remained engaged with our platform, and shopping trends remained strong. Chewy's superior value proposition, along with our team's focus and high-quality execution, did the rest. As a result, in Q1, we reported $2.78 billion in net sales, an approximately 15% year-over-year increase, and a 4% adjusted EBITDA margin. Our active customer base steadied, and net sales per active customer, or NESPAC, grew 15% to exceed $500. Consistent NESPAC growth is driven by strong and ongoing customer engagement in programs like Autoship and expansion in cross-category purchases. Autoship customer sales represented nearly 75% of total net sales in the first quarter. Our Autoship subscription service is a powerful tool for us, driving recurring and predictable revenue and long-term customer loyalty. Net sales resulted from strengthened categories such as consumables, premium, and healthcare. Our customers continue to show durability and product loyalty in these non-discretionary categories with no discernible trade down behavior, all of which translated to strength in average order size or AOV. A healthy start to the flea and tick season further supported performance in our healthcare business. Moving to profitability, gross margin of 28.4% exceeded expectations and were buoyed by lower than anticipated promotional activity overall strength in AOE, and better than expected leverage at the freight and packaging level. Below the gross margin line, adjusted EBITDA margin expanded to a record 4% for the quarter. Mario will provide more detail on our financial performance momentarily, and before he does so, let me take some time to walk you through our growth investments and innovation. On our last earnings call, we previewed the team's work to launch our first international market. Today, I am excited to announce that we expect to bring Chewy's superior value proposition, including our personalized and outstanding customer experience, to Canadian pet parents in Q3 of this year. Let me elaborate on a few key concepts. Why now, why we believe we can win in Canada, and how our model will allow us to grow sustainably and profitably in this market. International expansion has long been a part of our strategic roadmap, and there are several reasons that make now the right time for us to embark on this journey. First, we have strengthened our fundamentals over the past few years, both operationally and financially, and have put our U.S. business on a steady trajectory of growth and profitability. Additionally, having undergone a multi-year transition of our tech stack into the cloud, we can now leverage our platform to be reliably deployed in Canada without meaningful incremental investment. As we assessed where geography would be most suitable for our expansion plans, we honed in on Canada's large and growing market, where we see a path to achieving market share and profitability akin to our U.S. business. Canada has a healthy and increasing e-commerce penetration, where we can offer a differentiated value proposition relative to existing players in the market and build the same level of trust with Canadian pet parents that those in the U.S. have come to associate with the Chewy brand. Our initial launch will focus on the greater Toronto market, which represents the largest metropolitan area in Canada, from which we plan to take a gradual and responsible approach to expanding our footprint. Our service delivery model would leverage our assets to create operational efficiency and attractive economics, while ensuring a high bar customer experience. Specifically, we intend to support our Canada strategy with a scaled local third party fulfillment and logistics partner. Our U.S. supply chain affords us an additional asset, and we will leverage our U.S. network in situations where it is strategically or economically advantaged to do so. Taken together, this approach allows us to launch in Canada with a focus on optimal customer experience and without any material commitment to capex spend until the success and scale of the business supports an investment in this area. We do not anticipate this market requiring material CAPEX investment through at least 2024. More broadly, on a company-wide level, we do not expect our investments in Canada to deviate us from our projected long-term profitability, cost, or CAPEX targets. We look forward to sharing our progress over the quarters to come. Moving on from international and back to business stateside, I am pleased to announce that we launched our fourth automated fulfillment center this one in Nashville, Tennessee. Our growing network of automated FCs, accompanied by our supply chain transformation, which I have discussed in previous earnings calls, are improving margin efficiency and we believe will contribute to the scaling of our long-term SG&A target. Elsewhere, in Chewy Health, we are excited to announce the official launch of Lemonade as part of the Care Plus suite of wellness and insurance offerings. With this launch, Care Plus plans are now available across a wide spectrum of coverage options and price points from two best-in-class providers, Lemonade and Tropanion, allowing us to meet the needs of a broader range of pet parents. We expect these plans to be available nationwide to the vast majority of our customers by next quarter. As we drive broader awareness and education around our insurance product offering, we continue to see a compelling opportunity to expand TAM in this under-penetrated and highly profitable category. In closing, I am proud of our execution in the quarter as we entered the new fiscal year. With the base business performing robustly and with several new innovations in nascent stages, I remain incredibly encouraged by Chewy's prospects to deliver long-term growth and profitability and fuel positive and meaningful shareholder return. With that, I will turn the call over to Mario.