Chewy Inc at Morgan Stanley Technology, Media & Telecom Conference Transcript

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

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Okay. Great. Well, lot I want to dig into there. But first, let's start off a little bit more macro. And I think the big question has been how far the pet industry is from a level of normal. First off, what do you see as normalized long-term and online industry growth? And how are you thinking about the 2025 outlook, especially as it compares to coming off roughly flat pricing environment in '24.

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Now talking about some of that volatility, COVID certainly led to a lot of ups and downs in pet ownership. Where do you think pet ownership stands now relative to 2019? And as we look ahead to 2025, how are you thinking about the shape of household formations for the year?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Okay. Great. Now over the past few years, and I think on the back of some of that macro, you had seen some annualized customer declines, of course, with sequential growth over the past two quarters. How much of the weakness over the past few years you attribute to that macro dynamics versus micro? And do you think we've reached the inflection point back to positive territory?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Now on the flip side of that coin is net sales per active customer in NSPAC. How should we think about the relationship between customer growth and NSPAC. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 3:45PM, CHWY.N - Chewy Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Got it. Very helpful. Switching gears a little bit. Chewy launched its first vet clinic last year. And by now, by my count, you're out to eight clinics. You correct me if I'm wrong. What are the early learnings from the clinics opened so far? How should we think about the long-term potential for this segment and what are the near-term limitations to scale?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Okay. Now one of the hallmarks of 2024 was your meaningful profitability inflection, EBITDA margins tracking to 4.6% to 4.8% for the year. Can you break down the key pieces behind that improvement and whether they can lead to additional leverage from here?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Let's talk about that incremental dollar. And 2024 incremental margins are running well ahead of your 15% long-term target. One, how should we think about the rationale behind that 15%? What led you there? And why was 2024 running so far above even with the headwind from the extra week?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Okay. Great. But let's dig into some of the expense lines you mentioned there. Let's kick it off with gross margin. Over the long run, seen tremendous improvement here going from around 17% in 2017 and around 29% this year. Looking backwards, what have been the primary ingredients driving that expansion? And then looking forward, what opportunities remain to further improve gross margin? And how do you think about the relative difficulty of those opportunities? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 3:45PM, CHWY.N - Chewy Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : A lot of really encouraging stuff in there. I want to dig in, just to touch more on sponsored ads, mentioned tracking around 1% of revenue exiting ['24]. I guess how should we think about the pacing of expansion over the years or the next few years? Is actually given a lot of the improvements you've made in the switch to first-party tool?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Another long-standing pillar of margin improvement has been automation and the fulfillment network to level set. What's the latest on utilization, the portion of orders that go through automated fulfillment centers? And long term, how much cost reduction can you achieve through the fulfillment center network? And what are the key gating factors to unlock that?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Okay. Great. Now another expense I want to touch on is marketing. Talk about leaning in there in 4Q given the momentum you are seeing in the business. Can you provide some more color on how you manage the marketing budget and priorities more holistically? And then for 2025, what's the right range to think about for marketing as a portion of revenue?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Okay. Great. Now before we wrap, I'd be remiss not to ask about tariffs. So how should we think about your exposure to currently proposed actions, particularly as it relates to China? And what steps have you or can you take to mitigate any potential impacts?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : We've covered a lot of ground here. I want to bring that all together. As you look across the business, what do you see as the primary competitive advantages that have enabled Chewy's success?

Question: Nathan Feather - Morgan Stanley & Co LLC. - Analyst : Well, I think that's a perfect place to leave it, Dave. Thanks so much for being here.