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01/09 18:12
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights several positive aspects: a strong financial performance with expected margin expansion, successful product development with Chewy+ and Get Real, and a strategic focus on high-margin verticals. The Q&A section indicates confidence in growth, especially in advertising and Autoship. Despite some uncertainties in SG&A costs, the overall sentiment is optimistic, supported by guidance reflecting growth and expansion. The absence of any major negative factors and the emphasis on strategic growth initiatives suggest a positive stock price movement in the near term.
Net Sales $3.1 billion, an increase of nearly 9% year-over-year. This growth exceeded the high end of the guidance range and was driven by strength in the Autoship program, consumables, health categories, and hard goods business.
Autoship Customer Sales $2.58 billion, representing 83% of Q2 net sales and a 15% year-over-year increase. Growth was attributed to structural volume growth and the popularity of the Autoship program.
Active Customers 20.9 million, reflecting a 4.5% year-over-year growth. The quality of new customers improved, with new customer NSPAC trending mid-single digits higher year-over-year.
NSPAC (Net Sales Per Active Customer) $591, a 4.6% year-over-year increase. This reflects expanded customer share of wallet.
Gross Margin 30.4%, an increase of nearly 90 basis points year-over-year. The growth was driven by the sponsored ads business and favorable mix into premium categories.
Adjusted EBITDA $183.3 million, representing a 5.9% margin and an increase of over 80 basis points year-over-year. This was supported by robust profitability.
Free Cash Flow $105.9 million, reflecting strong cash flow generation.
SG&A (Selling, General, and Administrative Expenses) $592.8 million or 19.1% of net sales, a deleverage of approximately 30 basis points year-over-year. This was due to the ramp-up of the Houston fulfillment center, wind-down of shifts at the Dallas facility, and higher inbound inventory processing costs.
Advertising and Marketing Expense $200.6 million or 6.5% of net sales, consistent with the target range of 6% to 7% of net sales.
Adjusted Net Income $141.1 million, a 34.8% year-over-year increase. Adjusted diluted earnings per share were $0.33.
Share Repurchases Approximately $125 million deployed towards repurchasing 3 million shares in Q2.
Cash and Cash Equivalents $592 million, with an overall liquidity position of approximately $1.4 billion.
Launch of Get Real: Chewy introduced 'Get Real,' a new private brand of healthy fresh dog food, available in three recipes. The product is exclusively available on Autoship and has received positive customer feedback. Capacity has been built to support growth in the Fresh Frozen segment through 2028.
Market Share Gains: Chewy achieved 9% year-over-year net sales growth to $3.1 billion, exceeding industry growth rates of low to mid-single digits, indicating market share gains.
Autoship Program: Autoship customer sales reached $2.58 billion, representing 83% of net sales and growing 15% year-over-year.
Chewy+ Membership Program: The Chewy+ program showed strong growth, with 3% of monthly sales in July attributed to members. Members demonstrated higher spending, frequency, and product attachment rates.
Profitability: Gross margin expanded to 30.4%, and adjusted EBITDA reached $183.3 million, representing a 5.9% margin. Free cash flow was $106 million.
Chewy Vet Care (CVC) Network: Plans to open 8-10 new practices in fiscal 2025, aiming for a total of 20 by year-end. CVC customers show the highest and fastest NSPAC growth.
Expansion of Fresh Food Delivery: Chewy plans to scale its fresh food delivery to a national footprint by the end of 2025, with most deliveries within a 1-day transit time.
Search for permanent CFO: The company is currently operating with an interim CFO, which could lead to potential challenges in financial leadership and strategic decision-making until a permanent CFO is appointed.
Tariff-related cost pressures: Retailers, including Chewy, are preparing for tariff-related cost increases. While Chewy has taken steps to mitigate these pressures, such as onshoring inventory, there is still a risk of increased costs impacting margins or customer pricing.
Temporary SG&A cost increases: The company experienced higher SG&A costs due to the ramp-up of a new fulfillment center, wind-down of shifts at another facility, and increased inbound inventory processing costs. These are expected to be temporary but could impact short-term profitability.
Macroeconomic uncertainties: The CEO mentioned an evolving macroeconomic environment, which could pose risks to consumer spending and overall business performance.
Chewy+ program profitability: While the Chewy+ membership program is growing, it is expected to generate gross profit dollars at a gross margin rate below the company average in fiscal 2025, which could impact overall profitability.
Fresh & Frozen segment scaling: The company is investing in scaling its Fresh & Frozen food segment, which involves significant capital investment and operational complexity. There is a risk of execution challenges in achieving national distribution and profitability targets.
Net Sales Growth: Chewy expects third quarter 2025 net sales to be between $3.07 billion and $3.1 billion, representing approximately 7% to 8% year-over-year growth. Full year 2025 net sales are projected to be between $12.5 billion and $12.6 billion, reflecting a 7% to 8% year-over-year growth when adjusted for the 53rd week in fiscal year 2024.
Profitability Guidance: The company maintains its full year 2025 adjusted EBITDA margin outlook of 5.4% to 5.7%, with approximately 60% of adjusted EBITDA margin expansion driven by gross margin improvements. Q3 adjusted diluted earnings per share are expected to range between $0.28 and $0.33.
Capital Expenditures: Chewy expects full year 2025 capital expenditures to be at the low end of the previously stated range of 1.5% to 2% of net sales.
Chewy+ Membership Program: The Chewy+ program is expected to account for a mid-single-digit percentage of net sales by year-end 2025 and generate positive gross profit dollars in fiscal 2025. The program will be evaluated for pricing and member benefits as it scales.
Private Brands and Fresh Food Segment: Chewy plans to scale its new private brand, Get Real, in the Fresh & Frozen segment to a national footprint by the end of 2025, with the capability to deliver most fresh food offerings within a 1-day transit time. The company has built sufficient capacity through 2028 to support growth in this segment.
Market Share and Strategic Investments: Chewy aims to accelerate market share gains in the U.S. in the second half of 2025 by investing in programs like Chewy+ and private brands. The company is positioned to mitigate tariff-related pressures and plans to selectively evaluate pricing while protecting product margins.
Share Repurchase Program: In the second quarter, we repurchased approximately 3 million shares for a total of approximately $125 million. At the end of Q2, we had $359.8 million of remaining capacity under our existing program for future repurchases.
The earnings call summary presents a mixed picture. The financial performance and shareholder return plans are average, with no major surprises. Market strategy and product development updates show potential but lack immediate impact. The Q&A section reveals some uncertainties, particularly regarding settlement payments and management's vague responses. While there are positive aspects like private label progress, the overall sentiment remains cautious, leading to a neutral rating. Without specific market cap data, the stock reaction is expected to be mild.
Chewy's earnings call highlights strong financial performance, with significant growth in adjusted net income and a solid cash position. The strategic focus on programs like Autoship and Chewy+ enhances customer retention and profitability, while marketing efficiency improvements are sustainable. Despite some concerns about Q4 margin decline, the overall guidance and strategic initiatives like CVC indicate optimism. The Q&A session reveals positive analyst sentiment, though some guidance specifics were withheld. Given these factors, the stock is likely to see a positive reaction, with potential gains in the 2% to 8% range.
Chewy's earnings call presents a positive outlook with strong financial performance, including a 59.6% YoY increase in adjusted net income and EPS near the high end of guidance. The Q&A highlights successful growth strategies, market share gains, and efficient marketing. Despite some management vagueness on 2026 specifics, the guidance for 2025 appears solid with margin expansion and strategic initiatives like Chewy+ and CVC. No major negative catalysts were identified, and the overall sentiment is positive, suggesting a stock price increase of 2% to 8% over the next two weeks.
The earnings call highlights several positive aspects: a strong financial performance with expected margin expansion, successful product development with Chewy+ and Get Real, and a strategic focus on high-margin verticals. The Q&A section indicates confidence in growth, especially in advertising and Autoship. Despite some uncertainties in SG&A costs, the overall sentiment is optimistic, supported by guidance reflecting growth and expansion. The absence of any major negative factors and the emphasis on strategic growth initiatives suggest a positive stock price movement in the near term.
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