Chewy, Inc.

Good morning, everyone, and a warm welcome to TUI's first quarter 2025 earnings call. My name is Emily, and I'll be coordinating your call today. After the presentation, you'll have the opportunity to ask any questions, which you can do so at any time by pressing start, followed by the number one on your telephone keypad. I will now hand over to our host, Natalie Nowak, Director of Investor Relations to begin. Natalie, please go ahead.

Thank you for joining us on the call today to discuss our first quarter results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit 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 investor.chewy.com. On our call today, we will be making forward-looking statements, including statements concerning CHUI's financial results and performance, industry trends, strategic initiatives, share repurchase program, 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 FCC filings, including the section titled Risk Factors in our most recent Form 10-K 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 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. These non-GAAP measures are not intended as a substitute for GAAP results. 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'd like to turn the call over to Sumit.

Thanks, Natalie. And good morning, everyone. The momentum at CHUI continues. Our team delivered a strong start to 2025, achieving top-line results exceeding expectations, continued growth in active customers, and solid profitability and free cash flow generation. Our Q1 results are a testament to the hard work and dedication of every Chewy team member and Chewy's ability to continue to take market share amidst a resilient pet category. Now, let's 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's offerings and our favorable mix of core consumables and health and wellness categories. Also notable this quarter was the 12.3% year-over-year growth we delivered within hard goods. Over the last several quarters, you have heard me talk about our ongoing efforts to refresh assortment and improve overall experience. And we believe that customers appreciate the new offerings available in this category. Further, our auto-ship subscription program continues to be a pillar of strength and differentiation for Chewy, enabling high visibility and predictability in our business while also enhancing customer loyalty. First quarter auto ship customer sales of $2.56 billion represented approximately 82% of Q1 net sales, reaching a record high for the company. Growth in auto ship 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 about last quarter continued through Q1, and we ended the quarter with 20.8 million active customers, reflecting 3.8% year-over-year growth and an increase of approximately 240,000 customers sequentially. Active customer growth was driven by continued strength in gross additions, along with improvement in gross churn. Moving down the P&L, gross margin came in at 29.6% for the quarter. Recall that last year we highlighted approximately 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 approximately 60 basis points year over year. Dave will provide 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 approximately 50 basis points. Accounting for the previously mentioned one-time items, which positively impacted first quarter 2024, adjusted EBITDA margin increased approximately 120 basis points year-over-year. Our adjusted EBITDA performance in Q1 reflects our strong gross margin performance, 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 share repurchases in the quarter in line with our internal expectations. Now, I would like to provide an update on some of CHUI's strategic initiatives, starting with CHUI VetCare or CVC. Since our last earnings call, we have opened three additional CHUI VetCare practices, bringing our current CVC count to 11 locations across four states. The encouraging signs of success we have spoken about over the last several quarters remain strong through Q1. Our current footprint, continues to outperform relative to expectations in terms of demand generation and driving broader ecosystem benefits as customers deepen their commitment to CHUI. Additionally, we continue to gain valuable insight and learnings from each of our CVC 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 eight to 10 new clinics in fiscal year 2025, and we look forward to keeping you updated on our progress as we continue to build this business. Our sponsored ads business continues to perform well and grew sequentially quarter over quarter. The successful migration to our 1P platform that I spoke about last quarter has enabled us to broaden our suite of ad products and content capabilities including the expansion of offsite ads. We are thoughtfully ramping offsite across search and social with demand exceeding internal expectations. We continue to be excited about our sponsored ads business. Elsewhere, I am excited to share that we have transitioned the Chewy Plus membership program out of beta phase following a successful testing period. While still in its nascency, we are excited about our ability to drive even stronger loyalty as we expand access and engagement with the CHUI Plus paid membership program. Before I wrap up, I would like to briefly share my perspective on CHUI's long-term outlook. We have a strong and growing confidence in our ability to deliver on the strategic roadmap and long-term financial model that we outlined at Capital Markets Day in December 2023. That confidence is grounded in our execution to date and the meaningful progress 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 approximately 5.6% in just two years. Importantly, consistent with last year, approximately 80% of that profitability is expected to convert into free cash flow, translating to approximately $550 million, all while continuing to fund our strategic growth initiatives through the P&L. Key verticals like health, sponsored ads, and private brands remain early in their life cycle, and programs such as Autoship, our retail business 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 Dave Reeder, our CFO, will be leaving Chewy to pursue a CEO role in the semiconductor industry. Dave 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 deliver a share-gaining FY 2025 and sustain long-term value for our shareholders. With that, I will turn the call over to Dave.