Chewy Inc at JPMorgan Global Technology, Media and Communications Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : All right. So kicking off, Chewy announced this week that you will be departing in several months to return to the semiconductor industry as a Chief Executive Officer. The company also reaffirmed 1Q guidance. So maybe you can talk about the rationale around your departure after just over a year as CFO. And then what are some of your key observations about the business during that time?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. Maybe you can help us understand the overall state of pet spending, Packaged Facts estimates about 38% of pet food and treats spend in the US occurs online. What do you think drives that next leg of digital penetration gains across the industry?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. All right. In terms of macro, the pet industry was pretty resilient in '08, '09. You mentioned earlier about 80% of net sales coming from Autoship customers ,85% from nondiscretionary categories. How do you think Chewy is exposed in terms of macro softness?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. You sized tariff exposures in the high single digit to low double-digit millions earnings.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Has this evolved at all just with ongoing shifts in tariff narrative, implementation, any change?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. Let's shift gears a little bit, talk about active customers and NSPAC. So Chewy's return active customer growth, albeit still at low levels. What drives your low single-digit year-over-year growth across active customers in fiscal '25? How should we think about that interplay between gross adds and reactivations and churn?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : What's driving that?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Any differences to call out just in terms of trends by cohort that you've seen more recently?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. Just in terms of somewhat more stable industry trends. I know you talked about it a little bit that more of the active customer growth driven through Chewy's specific efforts. I guess what other drivers do you see kind of on the company-specific side relative to more just pure macro execution? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 14, 2025 / 2:00PM, CHWY.N - Chewy Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. Hard goods net sales returned to growth last year, fiscal '24, after a couple of years of declines. What will it take to drive hard goods growth over time? And do you view that part of the market as any more sensitive to macro softness?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. On NSPAC , I know you mentioned essentially flattish for this year. We're seeing inflation and then pricing tailwinds kind of --

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Sorry. Thank you for clarifying. Maybe just call out a little bit of the puts and takes on NSPAC, when we think about kind of cohort maturation, cross-selling, new verticals, maybe some map dynamics.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Let's talk about healthcare and some of the newer verticals. You mentioned 20% of customers essentially buying on the healthcare side. Healthcare overall makes up about 30% of sales, has considerably higher gross margins than core retail. Maybe you can talk about what you're seeing in that business, kind of growth rates, where you think that can go over time?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Let's talk about vet clinics a little bit. You've opened 8 vet clinics, plan to add another 8 to 10 this year. How is that driving active customer growth? What are you seeing in terms of activity from those visitors to the clinics afterward? And what do you see in terms of retention?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Maybe you can talk about unit economics a little bit. I know that was kind of a big discussion at the time that vet clinics were announced. But just in terms of the kind of the -- how long it takes to reach scale, some of the dynamics around cost to build?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. Chewy+ membership program remains early. How do you think about it as conversion funnel into Autoship over time? What should we expect in terms of broader rollout for Chewy+?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. Let's move on and talk about profitability. So Chewy expects to expand adjusted EBITDA margins about 60 to 90 basis points this year. So with about 60% of that expansion likely coming from gross margin improvement, how do you rank the drivers in there across automation, sponsored ads, new verticals and then just overall cost discipline?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Sponsored ads, about 1% of sales, the 1P ad stack should ramp through the course of this year and then support new channels and formats, more off-site video, better measurement, easier onboarding. I guess what's the path to get sponsored ads to 2% to 3% of net sales over time.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Great. Beyond gross margins, you talked a little bit about automation. Maybe you can just talk more about, a little more update on automation, kind of where the company is but also just where do you see other opportunities to drive incremental SG&A leverage? And how variable is the current expense base?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. Chewy continues to opportunistically repurchase shares. Maybe you can talk a little bit about the capital allocation philosophy going forward?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Okay. All right, quick word association?

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : All right. Cool. First thing that comes to mind. Active customers.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Healthcare.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : NSPAC.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Macro.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : AI.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Vet clinics.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Gross margins.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Free cash flow. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 14, 2025 / 2:00PM, CHWY.N - Chewy Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Autoship.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : And pets.