Chewy, Inc.

Hello, everyone. Thank you for joining us and welcome to the Chewy First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Lee Horowitz, Head of Investor Relations and Strategic Finance. Lee, please go ahead.

Thank you for joining us on the call today to discuss our first quarter results for fiscal year-end 2026. Joining me today are Chewy's CEO, Sumit Singh, and CFO, Chris Depey. 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 CHOOS 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 SEC filings, including the section titled Risk Factors, in our most recent Form 10-K for 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 2025. 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.

Thank you, Lee, and good morning, everyone. TUI delivered solid results in Q1, continuing to outperform the broader pet category while further expanding profitability and free cash flow. Our results demonstrate the durability of our business model and the structural advantages embedded across the Chewy platform. Despite the consumer environment that weakened in the latter parts of the quarter, we delivered nearly 200,000 net customer additions, achieved solid top-line growth and record profitability, generated strong pre-cash flow, and maintained consistent category share capture. all while continuing to advance strategic initiatives that we believe will deepen Chewy's competitive modes, drive meaningful free cash flow dollars, and deliver long-term shareholder value creation. Q1 net sales grew 7.7% year-over-year to approximately $3.36 billion, We ended the quarter with 21.5 million active customers, up 3.6% year-over-year, while net sales per active customer, or NESPAC, increased to $597. Autoship customer sales once again outpaced overall company growth, increasing over 10% year-over-year and reaching 84.4% of total net sales in the quarter, further reinforcing the predictability, durability, and recurring nature of our revenue base. Importantly, our performance continues to validate what we have consistently said about the pet category and about Chewy specifically. Pet remains a resilient category driven by recurring non-discretionary needs and strong emotional attachment. At the same time, consumers are growing more discerning, driven in part by elevated fuel prices and broader macroeconomic pressures. However, even against this more challenged backdrop, Chewy continues to steadily gain share. Our value proposition remains exceptionally strong. Industry leading convenience, highly competitive pricing, trusted service, deep assortment, and a recurring auto-ship ecosystem that customers increasingly rely upon. We believe these advantages become even more relevant in periods where consumers prioritize value, reliability, and trusted relationships. Importantly, our ability to continue expanding earnings and free cash flow in this environment further reinforces our confidence in the structural durability of the model. Now, let me spend a few minutes on margins and the underlying drivers supporting our profitability trajectory. Q1 adjusted EBITDA margin reached 7.5%, representing approximately 130 basis points of year-over-year expansion on the back of exceptionally healthy EBITDA flow-through of greater than 25%. This level of profitability at our scale reflects continued strength across multiple areas of the business, including sponsored ads, category mix, supply chain efficiencies, marketing productivity, OPEX discipline, and improving operating leverage across our network. As we discussed previously, our long-term framework for margin expansion remains unchanged. We continue to believe Chewy has a unique and differentiated operating model, one that combines a leading recurring revenue engine with a highly scaled fulfillment and health platform. And we remain on track to reach our 10% adjusted EBITDA margin target over time. Importantly, our model does not require outsized industry growth or significant pricing inflation to expand margins. The underlying drivers of profitability expansion remain structural in nature and continue to strengthen, including the expansion of sponsored ads, product makeshift into higher margin categories, including health and operating expense leverage from automation and scale. Turning now to Chewy Health and Chewy VetCare. We continue to believe health represents one of the largest and most compelling long-term opportunities for Chewy. Today, Pet Health Care represents approximately $54 billion of TAM, including over $40 billion associated with in-clinic products and veterinary services alone. Our Chewy Vet Care Clinics are delivering strong standalone economics while simultaneously acting as a powerful customer acquisition and retention engines for the broader Chewy ecosystem. Approximately 40% of CVC customers are new to Chewy. and these customers tend to reach a year one nest pack of approximately nine hundred dollars furthermore existing chewy customers who engage with cbc increase share of wallet meaningfully faster than other cohorts following their first visit at the same time our veterinary teams deliver industry-leading productivity metrics supported by the technology-enabled workflows and AI-assisted tools we are embedding across the platform, resulting in vet retention and employee satisfaction that outperforms peers. In a world where veterinarians are in short supply, this last point affords CHUI a structural advantage relative to peers as we look to scale our vet clinic footprint. As part of this strategy, we are excited about the recently announced acquisition of Modern Animal, which closed shortly after quarter end. Modern Animal adds a highly complementary and well-established footprint with above-industry unit economics, strong clinical expertise, and an experience-led, technology-enabled model that closely aligns with CVC. This transaction accelerates the expansion of CVC and unlocks multiple avenues to accelerate clinic growth, combining CVC's organic growth with Modern Animal's existing footprint and development pipeline. Combined, we expect to operate approximately 60 clinics exiting fiscal 2026 with embedded revenue contribution approaching approximately $290 million at a steady state. We believe CVC will be a meaningful driver of long-term shareholder value at Chewy, and we look forward to updating you on our progress in the coming quarters. Now, turning to AI. We continue to believe AI represents a meaningful opportunity for Chewy, both from a customer experience perspective and from an operational efficiency standpoint. Over the last several quarters, we have continued to build the foundational infrastructure required to deploy AI broadly across the enterprise. Today, we are embedding AI across multiple layers of the business, including customer service, pharmacy operations, fulfillment and marketing workflows. we continue to see meaningful opportunities to structurally lower cost to serve while simultaneously improving speed, efficiency, and service quality. Based on our current roadmap and implementation progress, we continue to expect AI-driven efficiencies to contribute a low tens of millions of dollars benefit in fiscal 2026 with a more meaningful ramp expected into 2027 and beyond. Now, before I turn the call over to Chris, I would like to briefly address our outlook and how we are thinking about the balance of the year. While we remain confident in the long-term trajectory of the business and Chewy's share gaining posture with an increasingly larger pet time available to us, we are also recognizing that the consumer pet environment has become incrementally more challenged since we initially established our fiscal 2026 outlook earlier this year as a result our updated guidance which Chris will discuss in more detail shortly now reflects a more appropriately conservative view of the consumer environment and broader category growth assumptions for the balance of the year For clarity's sake, we are seeing a modest level of incremental pressure on premiumization and product attach rates amongst our current customer base, resulting in what we view as a short-term nest-back headwind. Conversely, our improved go-to-market initiatives, including better CRM efforts resulting in greater conversion, increased engagement via our mobile app, continued success in reactivating lapsed customers, and ongoing success in driving down churn is supporting an ongoing healthy trajectory for customer net additions. That said, our confidence in the underlying strength of the business, our ability to continue gaining share, and our long-term growth and profitability algorithm remains unchanged. PET remains a more resilient category relative to other parts of the consumer landscape, and Chewy is increasingly building the capabilities and business lines to accrue a growing share of this incredibly attractive end market. additionally the strength of our customer acquisition funnel continues to support sustained share gains across macro environments while also positioning chewy to return to more typical nest pack compounding rates as consumer conditions normalize all on top of a meaningfully larger customer base furthermore we believe our strategic initiatives across health AI, fulfillment, and customer experience continue to strengthen the boat around the Chewy ecosystem. In closing, I want to thank the entire Chewy team for another quarter of disciplined execution and innovation. We remain focused on delivering profitable growth, durable free cash flow generation, and long-term shareholder value creation. With that, I will turn the call over to Chris.