Release Date: May 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Chewy Inc (CHWY, Financial) achieved record-breaking profitability and robust free cash flow in Q1 2024.
- Net sales exceeded the high end of guidance, increasing by approximately 3% to $2.88 billion.
- Autoship customer sales reached record levels, totaling $2.2 billion and representing 77.6% of net sales.
- Gross margin for the quarter was 29.7%, benefiting from the growing sponsored ads business and a higher mix shift into healthcare.
- Chewy Inc (CHWY) generated $163 million of adjusted EBITDA, representing a 5.7% margin.
Negative Points
- Active customers declined marginally on a sequential basis to approximately 20 million.
- Hard goods category sales declined, indicating ongoing challenges in this segment.
- Marketing expenses are expected to run closer to the high end of the 6% to 7% target throughout the year.
- The company anticipates a sequential decline in adjusted EBITDA margin throughout the year.
- The pet industry is still in a period of normalization, with uncertainties about the overall outlook for the balance of the year.
Q & A Highlights
Q: Should we still contemplate a softer 1H and a back-half inflection for net ads?
A: Yes, consistent with our guidance, we expect active customers to be flat or slightly down in the first half, with some recovery in the second half. β David Reeder, CFO
Q: How should we think about measuring progress for the new vet centers?
A: Success will be measured by customer satisfaction scores, our ability to recruit and retain veterinarians, and operational execution. Initial returns are positive, and we expect a few-quarter observation period before more detailed updates. β Sumit Singh, CEO
Q: How will you approach the share buyback program?
A: We will be in the market this quarter, both opportunistically and methodically. We have the capital, Board authorization, and willingness to enter the market. β David Reeder, CFO
Q: Are you seeing any green shoots in the hard goods category?
A: Yes, search volume and intent for hard goods are up, and we have seen traffic increase. We are focused on generating and maximizing demand conversion while being economically sensible. β Sumit Singh, CEO
Q: Can you talk about the early feedback from marketers on sponsored ads and the rollout of Chewy Plus?
A: Sponsored ads are performing well, with stronger-than-forecasted demand. Chewy Plus is in beta, and we see it as complementary to autoship, enhancing customer engagement and repeat purchase rates. β Sumit Singh, CEO
Q: What are your marketing priorities given the current customer dynamics?
A: We focus on both new customer acquisition and CRM reactivation. Our marketing efforts span the full funnel, from building awareness to capturing and converting traffic. β Sumit Singh, CEO
Q: Where did you see outside strength in Q1 sales, and how are green shoots evolving in Q2?
A: Q1 sales were driven by product mix improvements and scaling infrastructure. We are seeing positive signals in pet adoption trends and exceeded internal forecasts for active customers. β David Reeder, CFO
Q: Can you speak to the customer journey in new versus existing Chewy.com account members for vet care clinics?
A: We are seeing strong customer and vet NPS scores, good demand generation, and positive repeat purchase rates. These metrics suggest a promising future for our vet clinics. β Sumit Singh, CEO
Q: How do you plan on growing revenue without increasing your customers this year?
A: We focus on increasing share of wallet through programs like autoship and Chewy Health. Our CRM initiatives are also driving higher response rates and reactivations. β Sumit Singh, CEO
Q: How is churn progressing, and how does it relate to reactivations and new acquisitions?
A: Churn is down year-over-year and sequentially. Reactivations and new acquisitions exceeded expectations, indicating early signs of industry normalization. β David Reeder, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
