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01/09 18:12
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Net Sales Q3 net sales grew over 8% year-over-year to $3.12 billion, primarily driven by unit volume growth, not price.
Autoship Customer Sales Growth in Autoship customer sales outpaced total company growth, increasing 13.6% to $2.61 billion. This growth is attributed to the predictability of Autoship revenues, which allow operational planning to reduce costs and grow margins.
Active Customers Ended Q3 with 21.2 million active customers, up nearly 5% year-over-year. Improvements were seen across every part of the active customer funnel, supported by enhanced mobile app functionality and marketing efficiency.
Net Sales Per Active Customer (NSPAC) Net sales per active customer reached $595, up nearly 5% year-over-year. This increase reflects stronger customer engagement and loyalty.
Gross Margin Gross margin expanded roughly 50 basis points year-over-year to 29.8%, driven by sponsored ads growth, a strong Autoship baseline, and favorable category mix.
Adjusted EBITDA Adjusted EBITDA reached $181 million, up 30% year-over-year. Adjusted EBITDA margin reached 5.8%, representing 100 basis points of year-over-year expansion. Margin gains reflect strong gross margin execution, disciplined SG&A management, and continued efficiency in advertising and marketing.
Free Cash Flow Generated approximately $176 million of free cash flow in the quarter, up nearly $70 million sequentially. This was enabled by profitability and cash generation, which also supported share repurchases and strategic investments.
SG&A (Selling, General, and Administrative Expenses) SG&A, excluding share-based compensation and related taxes, was $588.6 million or 18.9% of net sales. This includes approximately $2.7 million of onetime transaction costs related to the pending SmartEquine acquisition. Delivered SG&A leverage of 20 basis points year-over-year.
Advertising and Marketing Expense Advertising and marketing expense was $197.9 million or 6.3% of net sales, reflecting about 40 basis points of year-over-year leverage. This was driven by higher productivity of spend, not reduced investment.
Adjusted Net Income Q3 adjusted net income was $135.7 million, up 59.6% year-over-year. Adjusted diluted earnings per share were $0.32, near the high end of the prior guidance range.
Chewy Vet Care (CVC): Expanded with 2 new clinics, including the first in Phoenix, totaling 14 locations across 5 states. Plans to open 8-10 locations this fiscal year.
SmartEquine Acquisition: Acquired SmartEquine, a leading equine health brand, enhancing premium health and nutraceutical offerings. Expected to boost adjusted EBITDA margins.
Chewy+ Membership Program: Outperformed expectations with higher order frequency, broader category engagement, and stronger Autoship participation. Annual fee increased from $49 to $79 with continued growth and strong conversion.
Market Share Growth: Chewy outperformed the pet category, growing faster than the market and expanding its market share.
Net Sales Growth: Q3 net sales grew 8.3% year-over-year to $3.12 billion, driven by unit volume growth.
Autoship Customer Sales: Increased 13.6% year-over-year to $2.61 billion, providing predictable revenue and operational planning advantages.
Marketing Efficiency: Improved with precise spending, attracting high-quality customers, and enhancing LTV to CAC ratios. Mobile app functionality boosted direct traffic and app orders by 15% year-over-year.
Gross Margin: Expanded by 50 basis points year-over-year to 29.8%, supported by sponsored ads growth and favorable category mix.
Free Cash Flow: Generated $176 million in Q3, up $70 million sequentially, enabling share repurchases and strategic investments.
Long-term Margin Goals: On track to achieve a 10% adjusted EBITDA margin, supported by structural investments and operational efficiencies.
Investment Strategy: Focused on scalable, self-funding initiatives with clear ROI thresholds, shifting towards operating leverage in 2026.
Regulatory Risks: The company acknowledges risks, uncertainties, and other factors that could cause actual results to differ materially from forward-looking statements. These risks are detailed in the 'Risk Factors' section of their most recent Form 10-K.
Supply Chain and Operational Costs: Temporary cost impacts such as inventory pull forwards and onetime launch expenses within fresh food are mentioned as challenges. Additionally, the company is managing transitory costs related to automated facilities scaling and other operational adjustments.
Economic and Market Conditions: The company operates in a market expected to grow at low single digits, which could limit growth opportunities. Competitive pressures are also highlighted as the company aims to grow at twice the market rate without sacrificing margins.
Strategic Execution Risks: The company is making high-return targeted investments in automation and health services, which require clear ROI thresholds and measurable payback periods. There is a risk associated with achieving these returns and maintaining disciplined growth.
Acquisition and Integration Risks: The pending acquisition of SmartEquine involves onetime transaction costs and closing costs, which could impact financials. Successfully integrating this acquisition to achieve expected benefits is a potential challenge.
Revenue Growth: Chewy expects full year 2025 net sales to be between $12.58 billion and $12.6 billion, representing approximately 8% year-over-year growth when adjusted to exclude the impact of the 53rd week in fiscal year 2024. Fourth quarter 2025 net sales are projected to be between $3.24 billion and $3.26 billion, reflecting 7% to 8% year-over-year growth.
Adjusted EBITDA Margin: The company has narrowed its full year 2025 adjusted EBITDA margin outlook to 5.6% to 5.7%, representing approximately 90 basis points of adjusted EBITDA margin expansion at the midpoint year-over-year. Approximately 60% of this expansion is expected to be driven by improvements in gross margin.
Capital Expenditures: For full year 2025, capital expenditures are expected to be approximately 1.3% of net sales, below the prior target range of 1.5% to 2% of net sales.
Advertising and Marketing Expense: Advertising and marketing expense for full year 2025 is expected to be approximately 6.5% to 6.6% of net sales.
SmartEquine Acquisition: The acquisition of SmartEquine is expected to be accretive to adjusted EBITDA margins upon closing, enhancing Chewy's premium health and nutraceutical assortment and strengthening its position in high-value wellness categories.
Chewy+ Membership Program: The Chewy+ membership program, which recently increased its annual fee to $79, is expected to continue driving higher order frequency, broader category engagement, and stronger Autoship participation, contributing to margin growth.
2026 and Beyond: Chewy plans to leverage its competitive advantages, including its Autoship sales engine and fulfillment network, to deliver consistent, durable EBITDA expansion over the next several years. The company remains on track toward its long-term margin profile of 10% adjusted EBITDA.
Share Repurchase Program: During the quarter, we repurchased approximately 1.5 million shares for $55 million. We ended Q3 with $304.9 million of remaining authorization under our existing repurchase program.
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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