Chewy Inc Q3 2024 Earnings Call Transcript

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

Question: Nathan Feather - Morgan Stanley & Co. LLC - Analyst : Thanks for the question, and congrats on the strong results. Really encouraging to see the continued momentum. Active customer growth continues to accelerate. Can you double-click on what you're seeing in overall pandemic trends and how we should think about the relative contribution to customer growth as compared to some of the idiosyncratic initiatives you've been working on? And then, given the expectation for customer growth to improve further in 2025, How should we think about the key puts and takes you're considering for a growth year? Thank you.

Question: Nathan Feather - Morgan Stanley & Co. LLC - Analyst : Great. Thank you.

Question: Curtis Nagle - BofA Securities Inc. - Analyst : Awesome. Thanks very much for taking the question. So I want to focus a bit on the 4Q guidance and maybe specifically on the comments in terms of the advertising and marketing spend. Just in terms of context at the high end of the range around 7% for the year, it implies like a really big dollar increase, right, certainly relative to the other quarters, like no relative leverage from the extra week. So I guess, just kind of digging into that, what does the spend pertain to? It looks to me it implies $40 million to $50 million year over year. Is that correct? And are there specific products or customers you're targeting? Is it one time? Just kind of dig into that and kind of how we should specifically think about that increase and whether it applies to conservatism or not.

Question: Curtis Nagle - BofA Securities Inc. - Analyst : Okay. And then just -- so that makes total sense. Just a quick follow up, the points you made on Nate's question on the adoptions were really interesting. I think you said up on a gross basis, high singles to low double, relinquishments down low singles. So net, a pretty good number. How does that compare to 2Q? Just trying to sort of size it in terms of relative improvement.

Question: Curtis Nagle - BofA Securities Inc. - Analyst : Low to mid-single. Okay. Awesome. Appreciate it. Thank you.

Question: Doug Anmuth - JPMorgan Chase & Co. - Analyst : Great. Thanks for taking questions; two, if I could. First, just on vet clinics, it looks like you're on track to the eight locations by year end. Can you talk more about what you've learned this year and how that informs your '25 expansion plans and the investments that may be required then? And then, Sumit, if you could also perhaps give us an update on automation, just kind of how you're tracking relative to the 70% to 80% kind of long-term percentage of volume that you've talked about over time. Thanks.

Question: Doug Anmuth - JPMorgan Chase & Co. - Analyst : That's great. Thank you both. Appreciate it. All good. Thank you.

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : Okay, good morning. Thanks for the question. First one, I wanted to revisit the app, which I think you mentioned last quarter was around 20% of revenues. Is there any update on how quickly that percentage could ramp up? How fast can we get to 30% or 40%? And then secondly, how should we think about the P&L impact of that? Can you simply bypass marketing spend and sort of get more leverage on the ad expense line by getting more volumes through your app?

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : All right, perfect. We'll come back on that one. And then just to follow up, in your 10 filing, it looked like there was some new language around a project on the finance IT side. Not meaningful from a capital investment perspective, but can you elaborate on the SG&A portion? How much will that detract in 2025, and are there any deficiencies within the system that this is correcting?

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : Perfect. Thank you both.

Question: Steven Zaccone - Citigroup Inc. - Analyst : Great. Good morning. Thanks very much for taking my question. First question I had was just on pricing summit. You said there was no benefit from pricing in the third quarter. How do you see that playing out in 4Q and then any preliminary views on 2025? It seems like the industry overall has been flattish for some time, so your thoughts on maybe what looks like next year would be helpful.

Question: Steven Zaccone - Citigroup Inc. - Analyst : Okay, that's very helpful. The follow up I had is just in the context of raising the customer count outlook and then the commentary about that strengthening in 2025. How much of that is driven by the industry data points getting a little bit better? You mentioned pet adoptions versus your own idiosyncratic efforts, talking about marketing and stuff of that nature.

Question: Steven Zaccone - Citigroup Inc. - Analyst : Very helpful. Thanks for the question.

Question: Rupesh Parikh - Oppenheimer & Co. Inc. - Analyst : Good morning, and thanks for taking my question. Also, congrats on this quarter. So just going back to the hard goods category, we'd love to get more color in terms of what you saw during the quarter, expectations going forward. And then from a tariff perspective, is there any exposure on the tariff front? Thank you.

Question: Rupesh Parikh - Oppenheimer & Co. Inc. - Analyst : Great, thank you. I'll pass it along.

Question: Mark Mahaney - Evercore ISI - Analyst : Thanks. Two questions, please. So this active customer growth, can you tell how much of that is from reactivated customers, customers you've had in the past who've churned off for whatever reasons and have come back? And if so, any color on what those reasons are? And then secondly, it sounds like competitive intensity is relatively moderate, given your comments on pricing. But other than pricing, is there anything else you're seeing notable in the competitive landscape? Thank you.

Question: Mark Mahaney - Evercore ISI - Analyst : Okay. Thank you, Sumit.

Question: Shweta Khajuria - Wolfe Research LLC - Analyst : Thank you so much for taking my questions. Let me try two, please. One is, could you please talk to some of the marketing channels that are working really well for you were a positive surprise or have been a positive surprise for you over the past couple quarters as you lean into different channels and seeing better returns. That's one. And then second is, could you please talk about trends you saw quarter to date, so through October, November, December, and how the trend did versus your internal expectations? Thanks a lot.

Question: Shweta Khajuria - Wolfe Research LLC - Analyst : Thank you, Sumit. Thanks, Dave.

Question: Anna Andreeva - Piper Sandler Companies - Analyst : Great. Thanks so much. Happy to have made it, and congrats. Nice results. Two questions from us. I wanted to follow up on hard goods. Sumit, just remind us, what's the size of your own brand business within that? Are you starting to see growth there, and should that continue into next year? And is own brands still a higher margin category for Chewy? And secondly, I guess to Dave, FC automation has been a pretty big story here, and you quantified that benefit in the 10-Q to OpEx. Can you remind us how many FCs are automated now? What's the benefit and OpEx savings you see per FC, and how many do you still have to automate ahead into '25 or beyond? Thank you so much.