Chewy, Inc.

Hello and welcome to the TUI third 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 by pressing start followed by the number one on your telephone keypad. I will now hand over to our host, Natalie Nowak, to begin. Please go ahead.

Thank you for joining us on the call today to discuss our third quarter results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit Singh, Will Billings, our Chief Accounting Officer and Interim Principal Financial Officer, and Chris Depey, our Head of Commercial Finance and FP&A. 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. Chewy continues to outperform the pet category and expand market share, with profits once again growing faster than sales. We are delivering consistent year-over-year profitability gains and remain firmly on track toward our long-term objective of 10% adjusted EBITDA margins. Q3 results build on the momentum from the first half of fiscal 2025 and highlight the structural resilience of our model as well as the efforts and execution quality of every team member at Chewy. We exceeded the high end of our net sales guidance, expanded margins, and accelerated free cash flow generation. Let's get into the details. First, our financial and customer performance. Q3 net sales grew over 8% year-over-year to $3.12 billion, primarily driven by unit volume growth, not price. Growth in auto-ship customer sales outpaced total company growth, increasing 13.6% to $2.61 billion. As we have discussed before, Autoship revenues are highly predictable and allow operational planning to reduce cost and grow margin in a way that gives Chewy unique structural competitive advantages. We ended Q3 with 21.2 million active customers, up nearly 5% year-over-year, and delivered improvements across every part of the active customer funnel. Marketing efficiency continues to strengthen as we deploy spend with greater precision attracting high-quality customers, driving stronger conversion, and improving LTV to CAC ratios. Enhanced mobile app functionality is lifting direct traffic, with app customers and app orders up approximately 15% year-over-year. These improvements supported marketing leverage in the quarter while enabling year-over-year growth in both new customers and reactivations, alongside lower churn. Net sales per active customer reached $595, up nearly 5% year-over-year. Now, let's review profitability and free cash flow, after which I will comment on some of our ongoing initiatives. Gross margin expanded roughly 50 basis points year-over-year to 29.8%, driven by sponsored ad growth, a strong auto-ship baseline, and favorable category mix. We believe that these gains will structurally enhance our margins going forward. Adjusted EBITDA reached $181 million, up 30% year-over-year. Adjusted EBITDA margin reached 5.8%, representing 100 basis points of year-over-year expansion and flow-through of about 18%. Margin gains reflect strong gross margin execution disciplined SG&A management, and continued efficiency in advertising and marketing. And finally, we generated approximately $176 million of free cash flow in the quarter, up nearly $70 million sequentially. Our profitability and cash generation enabled us to repurchase $55 million of shares while self-funding strategic investments that positioned Chewy for durable, long-term value creation. Now, I would like to provide an update on some of CHUI's ongoing initiatives, starting with CHUI's health offerings. CHUI WebCare, or CVC, continues to exceed expectations, driving strong utilization, supporting ecosystem engagement, and strengthening customer loyalty through recurring high-margin services. Each clinic acts as both an acquisition channel and a retention driver, supporting deeper autoship and health program participation. We have opened two additional CVC practices since our last earnings call, including our first one in Phoenix, bringing our total to 14 locations across five states. Two more clinics are opening soon, keeping us on track with our previously stated plan to open 8 to 10 locations this fiscal year. Staying on the topic of CHUI's health offerings, on October 30th, we announced the acquisition of Smart Equine, a leading equine health brand with strong loyalty and repeat purchase behavior. The transaction is expected to be accretive to adjusted EBITDA margins upon closing. Smart Equine enhances Chewy's premium health and nutraceutical assortment and strengthens our position in high-value wellness categories. By layering its premium assortment over Chewy's network and scale, we see significant opportunity to enhance our health and wellness mix and expand both net sales within this category as well as margins. Our paid membership program, Chewy Plus, continues to outperform our expectations driving higher order frequency, broader category engagement, higher mobile app adoption, and stronger authorship participation. After launching at an introductory price of $49 per year with a 30-day free trial, we raised the annual fee to $79 at the end of October. Early data shows continued growth and strong conversion from free to paid memberships. Paid CHUI Plus members are already delivering gross margins in line with the overall enterprise, and with higher pricing in place, we remain confident in the program's growth and margin potential. I would now like to turn the call over to Will for a detailed recap of our results and guidance, after which I will make some final closing remarks about 2026 and CHUI's future.