Chewy Inc Q4 2024 Earnings Call Transcript

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

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : Hey, everyone. Good morning and excellent results here. Just two questions from us. I want to start on the net actives. A big sequential jump Q3 to Q4. Can you unpack what's driving that change in a little more detail? How much is a function of a better pet spending environment? And how much is Chewy specific in share gaining with all the initiatives in place like the app adjustments in Vet Care? And I've got a follow-up as well. Thanks.

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : That's very helpful. Yeah. I just want to ask about gross margins in Q4. So up about 30 basis points year-on-year, but a little light versus expectations and sort of a slowdown versus the past several quarters. Can you help us understand the momentum on the gross margin side? Just anything specific to call out for Q4 that held margins back in some way? Just how do we think about the expansion opportunity in 2025?

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : Got it. Thank you very much.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Thanks for taking the questions. I was hoping you could talk a little bit more about automation, just I think you're around 50% of volume currently. Can you just update us there? And then perhaps talk about kind of the bridge to the 70% to 80% that's expected over time? And then also just on gross margins, the sponsored ads being the largest contributor to improvement with the 1P platform migration complete, can you just help us understand some of the opportunities that, that opens up for you and the path to 3% over time? Thanks.

Question: Doug Anmuth - JPMorgan Chase & Co - Analyst : Got it. Thank you, both. Appreciate it.

Question: Eric Sheridan - The Goldman Sachs Group Inc - Analyst : Thank you so much. Maybe two, if I can. First, in terms of thinking through the growth investments as a stimulant for 2025, could you delineate between what you see as the landscape for net new customer growth as opposed to potentially stimulating more levels of reactivations across the base as potential driver of growth? And then in terms of the broader consumer landscape, you're looking across either the ages of your cohorts or the income level of your cohorts. Are you seeing any differences in behavior, either in the forms of strengths or weaknesses versus expectations maybe you had 90 days ago? Thanks so much.

Question: Steven Zaccone - Citigroup Inc - Analyst : Great, good morning. Thanks very much for taking my questions. Congrats on the strong results. Sumit, I was curious for your assessment of pet industry landscape. I'll kind of asked 2 in 1. How are you thinking about pet adoption trends relative to the guidance you've provided? And then on the comment about guidance for the year, I think you mentioned minimal impact from pricing. So just kind of curious, what are you seeing from a promotional perspective out there in the pet landscape?

Question: Steven Zaccone - Citigroup Inc - Analyst : Okay. Thanks for all that detail.

Question: Curtis Nagle - BofA Securities Inc - Analyst : Great. Thanks for taking the questions. One, just in terms of the '25 expectations for marketing as a percentage of revenue for the year, assuming that will still be 6% to 7%. And should we expect any quarters through the year to be above 7%? And then I'll have a quick follow-up.

Question: Curtis Nagle - BofA Securities Inc - Analyst : Yeah. A quick one. Just it looks like hard goods outperformed consumables in 4Q, I think you called that out. I guess, what's that relating to? Is anything in terms of people buying new crates or beds or stuff like that for new pets? Or yeah, just what drove the outperformance for hard goods?

Question: Curtis Nagle - BofA Securities Inc - Analyst : Okay. Thank you.

Question: Trevor Young - Barclays - Analyst : Great. Thank you for the questions. First one, Dave, just to your comments on net adds and low single-digit growth in '25, that implies maybe around 600,000 adds throughout the course of the year. I also think you said fairly balanced throughout the year, so that would imply 150,000 Q-on-Q each quarter. Is that the right way to think about it? And then relatedly, why wouldn't it be stronger 1Q to 3Q, given the compares and then maybe a little bit softer in 4Q given the number you just put up? 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 26, 2025 / 12:00PM, CHWY.N - Q4 2024 Chewy Inc Earnings Call

Question: Trevor Young - Barclays - Analyst : Yeah. A follow-up to the earlier questions around kind of fulfillment utilization and so forth. I think the CapEx guide, the 1.5% at the low end, that would imply CapEx growth of upwards of 30% year-on-year after having a flattish year this last year. Could you just help us understand what that incremental spend is going towards? And how do you feel about FC capacity overall for the next, call it, couple of years?

Question: Trevor Young - Barclays - Analyst : Very helpful. Thank you.

Question: Dylan Carden - William Blair & Company - Analyst : Thanks a lot. Quick one here. End of '23, you gave a number that about a third of the industry, the pet industry was online. Do you have a sense a year in kind of where that number is? And is it your understanding that, that kind of migration at this point, coming out of the pandemic, as normalized? Thanks. 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 26, 2025 / 12:00PM, CHWY.N - Q4 2024 Chewy Inc Earnings Call

Question: Dylan Carden - William Blair & Company - Analyst : Thank you very much. Not particularly. I mean I guess the expectation at this point, I know there's been some chatter that people are focused on sort of adoptions and pet growth broadly. But does it stand in your view that as online migration normalizes that you kind of will continue to capture share beyond kind of what the general category does?

Question: Dylan Carden - William Blair & Company - Analyst : Thank you.