Chewy Inc Q1 2024 Earnings Call Transcript

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

Question: Trevor Young - Barclays Capital Inc. - Analyst : Great, thanks. First one on the net ads, improving a bit Q-on-Q versus the prior trends, and appreciate some of the commentary on the improving macro. Should we still contemplate a softer 1H and a back-half inflection? And is that really a 2H uptick, or is it more so a 4Q story? That's my first question.

Question: Trevor Young - Barclays Capital Inc. - Analyst : Yeah. And on the launch of the four event centers, how should we think about measuring progress there? What sort of guideposts are you going to give us in the coming quarters to kind of track that ramp? And how many quarters do you expect a typical center to get to EBITDA breakeven?

Question: Trevor Young - Barclays Capital Inc. - Analyst : Great. Thank you, both.

Question: Rupesh Parikh - Oppenheimer & Co., Inc. - Analyst : Good morning, and thanks for taking the question. So first, just on the share buyback program, I'm just curious how you approach your buybacks. Is it more of an opportunistic strategy or more of a consistent cadence to offset dilution?

Question: Rupesh Parikh - Oppenheimer & Co., Inc. - Analyst : Yeah, just one follow-up question. So as we look at the hard goods category, so it declined this quarter. As you look at the category, are you guys seeing any green shoots in hard goods at this point, or do you expect challenges to continue in the near term?

Question: Rupesh Parikh - Oppenheimer & Co., Inc. - Analyst : Great. Thank you for all the color.

Question: Doug Anmuth - JPMorgan - Analyst : Thanks so much for taking the questions. Sumit, you talked about sponsored ads being the biggest driver of gross margin upside. Maybe you can just talk a little bit about the early feedback that you're hearing from marketers, and if you have any thoughts on quantifying the impact here early on. And then, second, just on Chewy Plus, anything you can add on how the rollout might proceed going forward and how that interacts with Autoship. Thanks.

Question: Doug Anmuth - JPMorgan - Analyst : Thank you, Sumit.

Question: Eric Sheridan - Goldman Sachs - Analyst : Thank you so much, and maybe if I could just ask a two-parter. When you see the environment you're characterizing with respect to customer dynamics, can you give us a little bit better sense of what your priorities are on the marketing side when you think about the skew of either acquisition of new net customers versus retention or incentivizing behavior among existing customers that might maximize for ROI against those marketing investments? And then the second part would be -- you talked about marketing being towards the upper band of what you've historically talked about in terms of a range. Is that brand spend? Is that lined up against Plus, following up on Doug's question? Or how would you characterize what's pushing the upper band of that spend as we go through this year, just so we know what that's sort of aimed at? Thank you so much.

Question: Eric Sheridan - Goldman Sachs - Analyst : Great. Thank you.

Question: Nathan Feather - Morgan Stanley & Co. LLC - Analyst : Hey, everyone. Thanks for the question. So in 1Q, sales came in a bit above your guidance. Where did you see that outsized strength? Anything you can share on how that evolved over the quarter, given the green shoots you called out along with 2Q quarter to date? Thanks.

Question: Nathan Feather - Morgan Stanley & Co. LLC - Analyst : Yeah. And as we think about the top-line guidance, what exceeded there for 1Q? And then anything you can share kind of quarter to date in 2Q, how those green shoots are kind of flowing into your progress?

Question: Steven Forbes - Guggenheim Securities, LLC - Analyst : Good morning, Sumit, David. Sumit, realizing it's probably early, but you sound pretty optimistic about the Vet Care clinics. So I was curious if you could maybe speak to what you're seeing in regards to the customer journey in new versus existing Chewy.com account members, repeat trends, transfer rate right over to other product categories. I mean, what's sort of underpinning the excitement and the optimism around maybe a more accelerated rollout?

Question: Rupesh Parikh - Oppenheimer & Co., Inc. - Analyst : No, that's great to hear. And then maybe just a quick follow-up for David. I was just -- maybe if you can maybe expand on the expectation -- I think your comments for margins to decline sequentially throughout the year, if I heard you correctly. I get the step-up in advertising expenses that you guys have called out very specifically. But maybe just help us on what would be the incremental pressure on margins 3Q over 4Q, 4Q over 3Q.

Question: Rupesh Parikh - Oppenheimer & Co., Inc. - Analyst : Thank you.

Question: Sachin Verma - UBS - Analyst : Thank you for taking the question. This is Sachin Verma on behalf of Michael Lasser. The question is, when do you expect your year-over-year customer accounts turn positive? And longer term, what would drive higher e-commerce penetration in the category, given the growth it has seen the last few years?

Question: Sachin Verma - UBS - Analyst : Thank you. And my follow-up is, how do you plan on growing revenue without increasing your customers this year? Is growing NSPAC a sustainable strategy? 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 29, 2024 / 12:00PM, CHWY.N - Q1 2024 Chewy Inc Earnings Call

Question: Sachin Verma - UBS - Analyst : Thank you.

Question: Matt McCartney - Wedbush Securities Inc. - Analyst : Hi. This is Matt McCartney on for Seth. I was hoping you could give some more color on behavior for existing cohorts, just specifically on the recent cohorts, just how they're trending relative to historic levels in terms of retention and their net SPAC maturation. 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 29, 2024 / 12:00PM, CHWY.N - Q1 2024 Chewy Inc Earnings Call

Question: Matt McCartney - Wedbush Securities Inc. - Analyst : Yes. Just was wondering specifically on your ability to target specific cohorts with your new CRM -- I know it's pretty early -- but are you seeing benefits from that program yet in terms of retention? Or when might those sorts of benefits materialize here?

Question: Matt McCartney - Wedbush Securities Inc. - Analyst : Great. Thank you.

Question: Lee Horowitz - Deutsche Bank Securities Inc. - Analyst : Great. Thanks for squeezing me in. Maybe one on share and then just a follow-up on users. I guess, on share, it strikes us that given the success you guys are seeing in healthcare -- you're most certainly taking share in that vertical -- discretionary and hard goods, you seem to have decided to not chase bad share in that vertical and perhaps, seeing some there. Then I guess, that leaves consumables, which grew about 2% in the quarter. But that number likely a bit higher given some contribution from health in that line of your business. Can you help us better understand how you think Chewy share in the consumable category is progressing at the moment and how you expect that to evolve through the course of the year? 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 29, 2024 / 12:00PM, CHWY.N - Q1 2024 Chewy Inc Earnings Call

Question: Lee Horowitz - Deutsche Bank Securities Inc. - Analyst : Very helpful. And maybe -- yeah, maybe one follow-up on users. We talked a lot about reactivation and new acquisition exceeding your expectations with green shoots in terms of household formation. But I guess, overall customer declines -- I guess, steepened in the quarter. Can you maybe just talk a bit more on how churn is progressing at this point? And I think, Sumit, you talked about churn down -- churn improving year on year. But I guess, how does that put relative to reactivations and new acquisition being the bigger outperformer in the quarter? And I guess, how do you think churn should progress through the balance of the year? Any more color would be very helpful. Thanks so much.

Question: Lee Horowitz - Deutsche Bank Securities Inc. - Analyst : Very helpful. Thank you.