28.2 5 to 15 年，通常允許將租約續約長達 三我們有權每次將租賃期限延長多達若干年。五年 條款。履約和客戶服務中心、獸醫診所和公司辦公室的租賃合同將在2028年之前的各個日期到期，不包括續租期。公司還根據營運租賃和融資租賃租賃某些設備。設備租賃的條款通常涵蓋的時間區間爲 3 to 58,075
As of October 27, 2024, total unrecognized compensation expense related to unvested RSUs was $539.4 million and is expected to be recognized over a weighted-average expected performance period of 2.6 years.
The fair value for RSUs is established based on the market price of Class A common stock on the date of grant.
Service and Performance-Based Awards
The Company granted restricted stock units which vested upon satisfaction of both service-based vesting conditions and company performance-based vesting conditions (“PRSUs”), subject to the employee’s continued employment with the Company through the applicable vesting date. The Company recorded share-based compensation expense for PRSUs over the requisite service period and accounted for forfeitures as they occur.
Service and Performance-Based Awards Activity
The following table summarizes the activity related to the Company’s PRSUs for the thirty-nine weeks ended October 27, 2024 (in thousands, except for weighted-average grant date fair value):
Number of PRSUs
Weighted-Average Grant Date Fair Value
Unvested and outstanding as of January 28, 2024
553
$
28.49
Granted
1,623
$
16.95
Vested
(38)
$
38.50
Forfeited
(105)
$
31.49
Unvested and outstanding as of October 27, 2024
2,033
$
18.94
The following table summarizes the weighted average grant-date fair value of PRSUs granted and total fair value of PRSUs vested for the periods presented:
39 Weeks Ended
October 27, 2024
October 29, 2023
Weighted average grant-date fair value of PRSUs
$
16.95
$
35.71
Total fair value of vested PRSUs (in millions)
$
0.6
$
74.1
16
As of October 27, 2024, total unrecognized compensation expense related to unvested PRSUs was $26.7 million and is expected to be recognized over a weighted-average expected performance period of 2.0 years.
During the thirty-nine weeks ended October 29, 2023, vesting occurred for 93,309 PRSUs, previously granted to an employee of PetSmart LLC (“PetSmart”). The issuance of Class A common stock upon vesting of these PRSUs is treated as a distribution to a parent entity because both the Company and PetSmart are controlled by affiliates of BC Partners.
The fair value for PRSUs with a Company performance-based vesting condition is established based on the market price of Class A common stock on the date of grant.
As of October 27, 2024, there were 83.4 million additional shares of Class A common stock reserved for future issuance under the 2024 Plan.
Share-Based Compensation Expense
Share-based compensation expense is included within selling, general and administrative expenses in the condensed consolidated statements of operations. The Company recognized share-based compensation expense as follows (in thousands):
13 Weeks Ended
39 Weeks Ended
October 27, 2024
October 29, 2023
October 27, 2024
October 29, 2023
RSUs
$
74,567
$
63,394
$
216,616
$
178,165
PRSUs
3,185
954
8,094
732
Total share-based compensation expense
$
77,752
$
64,348
$
224,710
$
178,897
9. Income Taxes
Chewy is subject to taxation in the U.S. and various state, local, and foreign jurisdictions. The Company recorded an income tax provision and an income tax benefit during the thirteen and thirty-nine weeks ended October 27, 2024 of $25.6 million and $215.6 million, respectively. The Company recorded an income tax provision during the thirteen and thirty-nine weeks ended October 29, 2023 of $1.7 million and $4.0 million, respectively.
The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxable income prior to the expiration of tax attributes to support the utilization of these assets.
During the thirty-nine weeks ended October 27, 2024, based on all available evidence, the Company determined that it was appropriate to release the valuation allowance on the Company’s U.S. federal and other state deferred tax assets of $275.7 million. As of October 27, 2024, the Company maintained a full valuation allowance against its foreign net deferred tax assets.
In connection with the Transactions, Chewy assumed $1.9 billion in income taxes which were fully indemnified by affiliates of BC Partners. During the thirty-nine weeks ended October 27, 2024, the Company paid $95.0 million, net of refunds received, and affiliates of BC Partners paid $7.3 million directly in federal and state income taxes relating to the preceding. The Company had an income tax payable of $6.6 million and $108.9 million as of October 27, 2024 and January 28, 2024, respectively.
10. Earnings per Share
Basic and diluted earnings per share attributable to the Company’s common stockholders are presented using the two-class method required for participating securities. Under the two-class method, net income attributable to the Company’s common stockholders is determined by allocating undistributed earnings between common stock and participating securities. Undistributed earnings for the periods presented are calculated as net income less distributed earnings. Undistributed earnings are allocated proportionally to the Company’s common Class A and Class B stockholders as both classes are entitled to share equally, on a per share basis, in dividends and other distributions. Basic and diluted earnings per share are calculated by dividing net income attributable to the Company’s common stockholders by the weighted-average shares outstanding during the period.
17
The following table sets forth basic and diluted earnings (loss) per share attributable to the Company’s common stockholders for the periods presented (in thousands, except per share data):
13 Weeks Ended
39 Weeks Ended
October 27, 2024
October 29, 2023
October 27, 2024
October 29, 2023
Basic and diluted earnings (loss) per share
Numerator
Earnings (loss) attributable to common Class A and Class B stockholders
$
3,932
$
(35,372)
$
369,946
$
7,694
Denominator
Weighted-average common shares used in computing earnings (loss) per share:
Basic
414,361
430,758
426,203
428,743
Effect of dilutive share-based awards
12,211
—
7,422
2,663
Diluted
426,572
430,758
433,625
431,406
Anti-dilutive share-based awards excluded from diluted common shares
5,701
16,781
7,667
10,868
Earnings (loss) per share attributable to common Class A and Class B stockholders:
Basic
$
0.01
$
(0.08)
$
0.87
$
0.02
Diluted
$
0.01
$
(0.08)
$
0.85
$
0.02
11. Certain Relationships and Related Party Transactions
As of October 27, 2024, the Company had a payable to affiliates of BC Partners of $0.3 million with respect to future tax payments in connection with the Transactions, which was included in accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets. As of January 28, 2024, the Company had a receivable from affiliates of BC Partners of $48.3 million with respect to future tax payments in connection with the Transactions, which was included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets.
As of October 27, 2024 and January 28, 2024, the Company had a receivable from affiliates of BC Partners of $21.2 million and $19.7 million, respectively, with respect to the indemnification for certain tax liabilities in connection with the Transactions, which was included in other non-current assets on the Company’s condensed consolidated balance sheets.
18
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and related notes thereto included in this Quarterly Report on Form 10-Q for the quarterly period ended October 27, 2024 and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2024 (“10-K Report”). This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections herein and in our 10-Q Report for the quarterly period ended April 28, 2024, our actual results may differ materially from those anticipated in these forward-looking statements. Unless the context requires otherwise, references in this 10-Q Report to “Chewy,” the “Company,” “we,” “our,” or “us” refer to Chewy, Inc. and its consolidated subsidiaries.
Investors and others should note that we may announce material information to our investors using our investor relations website (https://investor.chewy.com/), filings with the SEC, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on these channels could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.
Overview
We are the largest pet e-tailer in the United States, offering virtually every product a pet needs. We launched Chewy in 2011 to bring the best of the neighborhood pet store shopping experience to a larger audience, enhanced by the depth and wide selection of products and services, as well as the around-the-clock convenience, that only e-commerce can offer. We believe that we are the preeminent destination for pet parents as a result of our broad selection of high-quality products and expanded menu of service offerings, which we offer at great prices and deliver with an exceptional level of care and a personal touch. We are the trusted source for pet parents and partners and continually develop innovative ways for our customers to engage with us. We partner with approximately 3,500 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding private brands. Through our website and mobile applications, we offer our customers approximately 115,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.
Macroeconomic Considerations
Evolving macroeconomic conditions, including current inflation and interest rates, have affected, and continue to affect, our business and consumer shopping behavior. We continue to monitor conditions closely and adapt aspects of our logistics, transportation, supply chain, and purchasing processes accordingly to meet the needs of our growing community of pets, pet parents and partners. As our customers react to these economic conditions, we will adapt our business accordingly to meet their evolving needs.
We are unable to predict the duration and ultimate impact of evolving macroeconomic conditions on the broader economy or our operations and liquidity. As such, macroeconomic risks and uncertainties remain. Refer to “Cautionary Note Regarding Forward-Looking Statements” and the section titled “Risk Factors” in Item 1A of our 10-Q Report for the quarterly period ended April 28, 2024.
Fiscal Year End
We have a 52- or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that year. Our 2024 fiscal year ends on February 2, 2025 and is a 53-week year. Our 2023 fiscal year ended January 28, 2024 and was a 52-week year.
19
Key Financial and Operating Data
We measure our business using both financial and operating data and use the following metrics and measures to assess the near-term and long-term performance of our overall business, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies, and monitoring our business.
13 Weeks Ended
39 Weeks Ended
(in thousands, except net sales per active customer, per share data, and percentages)
October 27, 2024
October 29, 2023
% Change
October 27, 2024
October 29, 2023
% Change
Financial and Operating Data
Net sales
$
2,877,635
$
2,745,875
4.8
%
$
8,613,949
$
8,321,816
3.5
%
Net income (loss) (1)
$
3,932
$
(35,372)
111.1
%
$
369,946
$
7,694
n/m
Net margin
0.1
%
(1.3)
%
4.3
%
0.1
%
Adjusted EBITDA (2)
$
138,245
$
82,581
67.4
%
$
446,004
$
281,601
58.4
%
Adjusted EBITDA margin (2)
4.8
%
3.0
%
5.2
%
3.4
%
Adjusted net income (2)
$
84,922
$
63,449
33.8
%
$
326,776
$
215,953
51.3
%
Earnings (loss) per share, basic (1)
$
0.01
$
(0.08)
112.5
%
$
0.87
$
0.02
n/m
Earnings (loss) per share, diluted (1)
$
0.01
$
(0.08)
112.5
%
$
0.85
$
0.02
n/m
Adjusted earnings per share, basic (2)
$
0.20
$
0.15
33.3
%
$
0.77
$
0.50
54.0
%
Adjusted earnings per share, diluted (2)
$
0.20
$
0.15
33.3
%
$
0.75
$
0.50
50.0
%
Net cash provided by operating activities
$
183,462
$
79,377
131.1
%
$
388,809
$
386,664
0.6
%
Free cash flow (2)
$
151,767
$
47,692
218.2
%
$
295,889
$
275,762
7.3
%
Active customers
20,160
20,266
(0.5)
%
20,160
20,266
(0.5)
%
Net sales per active customer
$
567
$
544
4.2
%
$
567
$
544
4.2
%
Autoship customer sales
$
2,300,928
$
2,116,458
8.7
%
$
6,775,983
$
6,334,240
7.0
%
Autoship customer sales as a percentage of net sales
80.0
%
77.1
%
78.7
%
76.1
%
n/m - not meaningful
(1) Includes share-based compensation expense and related taxes of $80.4 million and $232.4 million for the thirteen and thirty-nine weeks ended October 27, 2024, compared to $65.8 million and $187.9 million for the thirteen and thirty-nine weeks ended October 29, 2023.
(2) Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP financial measures.
We define net margin as net income divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this 10-Q Report adjusted EBITDA, a non-GAAP financial measure that we calculate as net income excluding depreciation and amortization; share-based compensation expense and related taxes; income tax provision (benefit); interest income (expense), net; transaction related costs; changes in the fair value of equity warrants; severance and exit costs; and litigation matters and other items that we do not consider representative of our underlying operations. We have provided a reconciliation below of adjusted EBITDA to net income, the most directly comparable GAAP financial measure.
We have included adjusted EBITDA and adjusted EBITDA margin in this 10-Q Report because each is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted EBITDA and adjusted EBITDA margin facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and certain variable charges. Accordingly, we believe that adjusted EBITDA and adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
20
We believe it is useful to exclude non-cash charges, such as depreciation and amortization and share-based compensation expense from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision (benefit); interest income (expense), net; transaction related costs; changes in the fair value of equity warrants; and litigation matters and other items which are not components of our core business operations. We believe it is useful to exclude severance and exit costs because these expenses represent temporary initiatives to realign resources and enhance operational efficiency, which are not components of our core business operations. Adjusted EBITDA has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures;
•adjusted EBITDA does not reflect share-based compensation and related taxes. Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy;
•adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital;
•adjusted EBITDA does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction or initiative and include changes in the fair value of equity warrants, severance and exit costs, litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and
•other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, including various cash flow metrics, net income, net margin, and our other GAAP results.
The following table presents a reconciliation of net income (loss) to adjusted EBITDA, as well as the calculation of net margin and adjusted EBITDA margin, for each of the periods indicated:
(in thousands, except percentages)
13 Weeks Ended
39 Weeks Ended
Reconciliation of Net Income (Loss) to Adjusted EBITDA
October 27, 2024
October 29, 2023
October 27, 2024
October 29, 2023
Net income (loss)
$
3,932
$
(35,372)
$
369,946
$
7,694
Add (deduct):
Depreciation and amortization
28,981
25,540
85,436
82,252
Share-based compensation expense and related taxes
80,426
65,799
232,377
187,878
Interest income, net
(3,901)
(10,173)
(31,345)
(27,117)
Change in fair value of equity warrants
564
33,800
122
13,542
Income tax provision (benefit)
25,565
1,704
(215,556)
4,011
Exit costs
—
(778)
—
6,839
Transaction related costs
457
1,041
928
3,167
Other
2,221
1,020
4,096
3,335
Adjusted EBITDA
$
138,245
$
82,581
$
446,004
$
281,601
Net sales
$
2,877,635
$
2,745,875
$
8,613,949
$
8,321,816
Net margin
0.1
%
(1.3)
%
4.3
%
0.1
%
Adjusted EBITDA margin
4.8
%
3.0
%
5.2
%
3.4
%
21
Adjusted Net Income and Adjusted Basic and Diluted Earnings per Share
To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this 10-Q Report adjusted net income and adjusted basic and diluted earnings per share, which represent non-GAAP financial measures. We calculate adjusted net income as net income excluding share-based compensation expense and related taxes, changes in valuation allowances associated with deferred tax assets, changes in the fair value of equity warrants, and severance and exit costs. We calculate adjusted basic and diluted earnings per share by dividing adjusted net income attributable to common stockholders by the weighted-average shares outstanding during the period. We have provided a reconciliation below of adjusted net income to net income, the most directly comparable GAAP financial measure.
We have included adjusted net income and adjusted basic and diluted earnings per share in this 10-Q Report because each is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted net income and adjusted basic and diluted earnings per share facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and certain variable gains and losses that do not represent a component of our core business operations. We believe it is useful to exclude non-cash share-based compensation expense because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude changes in valuation allowances associated with deferred tax assets as this is not a component of our core business operations. We believe it is useful to exclude changes in the fair value of equity warrants because the variability of equity warrant gains and losses is not representative of our underlying operations. We believe it is useful to exclude severance and exit costs because these expenses represent temporary initiatives to realign resources and enhance operational efficiency, which are not components of our core business operations. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Adjusted net income and adjusted basic and diluted earnings per share have limitations as financial measures and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Other companies may calculate adjusted net income and adjusted basic and diluted earnings per share differently, which reduces their usefulness as comparative measures. Because of these limitations, you should consider adjusted net income and adjusted basic and diluted earnings alongside other financial performance measures, including various cash flow metrics, net income, basic and diluted earnings per share, and our other GAAP results.
The following table presents a reconciliation of net income (loss) to adjusted net income, as well as the calculation of adjusted basic and diluted earnings (loss) per share, for each of the periods indicated:
(in thousands, except per share data)
13 Weeks Ended
39 Weeks Ended
Reconciliation of Net Income (Loss) to Adjusted Net Income
October 27, 2024
October 29, 2023
October 27, 2024
October 29, 2023
Net income (loss)
$
3,932
$
(35,372)
$
369,946
$
7,694
Add (deduct):
Share-based compensation expense and related taxes
80,426
65,799
232,377
187,878
Change in fair value of equity warrants
564
33,800
122
13,542
Deferred income tax benefit
—
—
(275,669)
—
Exit costs
—
(778)
—
6,839
Adjusted net income
$
84,922
$
63,449
$
326,776
$
215,953
Weighted-average common shares used in computing earnings (loss) per share and adjusted earnings per share:
Basic
414,361
430,758
426,203
428,743
Effect of dilutive share-based awards (1)
12,211
1,414
7,422
2,663
Diluted (1)
426,572
432,172
433,625
431,406
Earnings (loss) per share attributable to common Class A and Class B stockholders
Basic
$
0.01
$
(0.08)
$
0.87
$
0.02
Diluted (1)
$
0.01
$
(0.08)
$
0.85
$
0.02
Adjusted basic
$
0.20
$
0.15
$
0.77
$
0.50
Adjusted diluted (1)
$
0.20
$
0.15
$
0.75
$
0.50
(1) For the thirteen weeks ended October 29, 2023, our calculation of adjusted diluted earnings per share attributable to common Class A and Class B stockholders requires an adjustment to the weighted-average common shares used in the calculation to include the weighted-average dilutive effect of share-based awards.
22
Free Cash Flow
To provide investors with additional information regarding our financial results, we have also disclosed here and elsewhere in this 10-Q Report free cash flow, a non-GAAP financial measure that we calculate as net cash provided by operating activities less capital expenditures (which consist of purchases of property and equipment, capitalization of labor related to our websites, mobile applications, software development, and leasehold improvements). We have provided a reconciliation below of free cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measure.
We have included free cash flow in this 10-Q Report because it is used by our management and board of directors as an important indicator of our liquidity as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Free cash flow has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. There are limitations to using non-GAAP financial measures, including that other companies, including companies in our industry, may calculate free cash flow differently. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by operating activities, capital expenditures and our other GAAP results.
The following table presents a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated:
(in thousands)
13 Weeks Ended
39 Weeks Ended
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
October 27, 2024
October 29, 2023
October 27, 2024
October 29, 2023
Net cash provided by operating activities
$
183,462
$
79,377
$
388,809
$
386,664
Deduct:
Capital expenditures
(31,695)
(31,685)
(92,920)
(110,902)
Free Cash Flow
$
151,767
$
47,692
$
295,889
$
275,762
Free cash flow may be affected in the near to medium term by the timing of capital investments (such as the launch of new fulfillment centers, pharmacy facilities, veterinary clinics, customer service infrastructure, and corporate offices and purchases of IT and other equipment), fluctuations in our growth and the effect of such fluctuations on working capital, and changes in our cash conversion cycle due to increases or decreases of vendor payment terms as well as inventory turnover.
Key Operating Metrics
Active Customers
As of the last date of each reporting period, we determine our number of active customers by counting the total number of individual customers who have ordered a product or service, and for whom a product has shipped or for whom a service has been provided, at least once during the preceding 364-day period. The change in active customers in a reporting period captures both the inflow of new customers and the outflow of customers who have not made a purchase in the last 364 days. We view the number of active customers as a key indicator of our growth—acquisition and retention of customers—as a result of our marketing efforts and the value we provide to our customers. The number of active customers has grown over time as we acquired new customers and retained previously acquired customers.
Net Sales Per Active Customer
We define net sales per active customer as the aggregate net sales for the preceding four fiscal quarters, divided by the total number of active customers at the end of that period. We view net sales per active customer as a key indicator of our customers’ purchasing patterns, including their initial and repeat purchase behavior.
23
Autoship and Autoship Customer Sales
We define Autoship customers as customers in a given fiscal quarter that had an order shipped through our Autoship subscription program during the preceding 364-day period. We define Autoship as our subscription program, which provides automatic ordering, payment, and delivery of products to our customers. We view our Autoship subscription program as a key driver of recurring net sales and customer retention. For a given fiscal quarter, Autoship customer sales consist of sales and shipping revenues from all Autoship subscription program purchases and purchases outside of the Autoship subscription program by Autoship customers, excluding taxes collected from customers, excluding any refunds, and net of any promotional offers (such as percentage discounts off current purchases and other similar offers) for that quarter. For a given fiscal year, Autoship customer sales equal the sum of the Autoship customer sales for each of the fiscal quarters in that fiscal year.
Autoship Customer Sales as a Percentage of Net Sales
We define Autoship customer sales as a percentage of net sales as the Autoship customer sales in a given reporting period divided by the net sales from all orders in that period. We view Autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention.
Components of Results of Consolidated Operations
Net Sales
We derive net sales primarily from sales of both third-party brand and private brand pet food, pet products, pet medications and other pet health products, and related shipping fees. Sales of third-party brand and private brand pet food, pet products and shipping revenues are recorded when products are shipped, net of promotional discounts and refunds and allowances. Taxes collected from customers are excluded from net sales. Net sales is primarily driven by growth of new customers and active customers, and the frequency with which customers purchase and subscribe to our Autoship subscription program.
We also periodically provide promotional offers, including discount offers, such as percentage discounts off current purchases and other similar offers. These offers are treated as a reduction to the purchase price of the related transaction and are reflected as a net amount in net sales.
Cost of Goods Sold
Cost of goods sold consists of the cost of third-party brand and private brand products sold to customers, inventory freight, shipping supply costs, inventory shrinkage costs, and inventory valuation adjustments, offset by reductions for promotions and percentage or volume rebates offered by our vendors, which may depend on reaching minimum purchase thresholds. Generally, amounts received from vendors are considered a reduction of the carrying value of inventory and are ultimately reflected as a reduction of cost of goods sold.
Selling, General and Administrative
Selling, general and administrative expenses consist of payroll and related expenses for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources; costs associated with use by these functions, such as depreciation expense and rent relating to facilities and equipment; professional fees and other general corporate costs; share-based compensation; and fulfillment costs.
Fulfillment costs represent costs incurred in operating and staffing fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, payment processing and related transaction costs, and responding to inquiries from customers. Included within fulfillment costs are merchant processing fees charged by third parties that provide merchant processing services for credit cards.
Advertising and Marketing
Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities.
24
Interest Income (Expense), net
We generate interest income from our cash and cash equivalents and marketable securities. We incur interest expense in relation to our borrowing facilities, finance leases, and uncertain tax positions.
Other Income (Expense), net
Our other income (expense), net consists of changes in the fair value of equity warrants, investments, and tax indemnification receivables, foreign currency transaction gains and losses, and allowances for credit losses.
Results of Consolidated Operations
The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results:
13 Weeks Ended
39 Weeks Ended
% of net sales
% of net sales
(in thousands, except percentages)
October 27, 2024
October 29, 2023
% Change
October 27, 2024
October 29, 2023
October 27, 2024
October 29, 2023
% Change
October 27, 2024
October 29, 2023
Consolidated Statements of Operations
Net sales
$
2,877,635
$
2,745,875
4.8
%
100.0
%
100.0
%
$
8,613,949
$
8,321,816
3.5
%
100.0
%
100.0
%
Cost of goods sold
2,033,762
1,964,019
3.6
%
70.7
%
71.5
%
6,072,248
5,958,383
1.9
%
70.5
%
71.6
%
Gross profit
843,873
781,856
7.9
%
29.3
%
28.5
%
2,541,701
2,363,433
7.5
%
29.5
%
28.4
%
Operating expenses:
Selling, general and administrative
626,471
612,375
2.3
%
21.8
%
22.3
%
1,850,299
1,816,653
1.9
%
21.5
%
21.8
%
Advertising and marketing
191,770
179,200
7.0
%
6.7
%
6.5
%
569,103
548,424
3.8
%
6.6
%
6.6
%
Total operating expenses
818,241
791,575
3.4
%
28.4
%
28.8
%
2,419,402
2,365,077
2.3
%
28.1
%
28.4
%
Income (loss) from operations
25,632
(9,719)
n/m
0.9
%
(0.4)
%
122,299
(1,644)
n/m
1.4
%
0.0
%
Interest income, net
3,901
10,173
(61.7)
%
0.1
%
0.4
%
31,345
27,117
15.6
%
0.4
%
0.3
%
Other (expense) income, net
(36)
(34,122)
99.9
%
(0.0)
%
(1.2)
%
746
(13,768)
105.4
%
0.0
%
(0.2)
%
Income (loss) before income tax provision (benefit)
29,497
(33,668)
187.6
%
1.0
%
(1.2)
%
154,390
11,705
n/m
1.8
%
0.1
%
Income tax provision (benefit)
25,565
1,704
n/m
0.9
%
0.1
%
(215,556)
4,011
n/m
(2.5)
%
0.0
%
Net income (loss)
$
3,932
$
(35,372)
111.1
%
0.1
%
(1.3)
%
$
369,946
$
7,694
n/m
4.3
%
0.1
%
n/m - not meaningful
Thirteen and Thirty-Nine Weeks Ended October 27, 2024 Compared to Thirteen and Thirty-Nine Weeks Ended October 29, 2023
Net Sales
13 Weeks Ended
39 Weeks Ended
(in thousands, except percentages)
October 27, 2024
October 29, 2023
$ Change
% Change
October 27, 2024
October 29, 2023
$ Change
% Change
Consumables
$
2,043,173
$
1,984,688
$
58,485
2.9
%
$
6,106,307
$
5,993,689
$
112,618
1.9
%
Hardgoods
296,526
285,028
11,498
4.0
%
901,762
893,301
8,461
0.9
%
Other
537,936
476,159
61,777
13.0
%
1,605,880
1,434,826
171,054
11.9
%
Net sales
$
2,877,635
$
2,745,875
$
131,760
4.8
%
$
8,613,949
$
8,321,816
$
292,133
3.5
%
Net sales for the thirteen weeks ended October 27, 2024 increased by $131.8 million, or 4.8%, to $2.9 billion compared to $2.7 billion for the thirteen weeks ended October 29, 2023. This increase was primarily driven by growth in customer spending from both new and existing customers, and the frequency with which customers purchase and subscribe to our Autoship subscription program. Net sales per active customer increased $23, or 4.2%, in the thirteen weeks ended October 27, 2024 compared to the thirteen weeks ended October 29, 2023, driven by growth across our healthcare and specialty businesses.
25
Net sales for the thirty-nine weeks ended October 27, 2024 increased by $292.1 million, or 3.5%, to $8.6 billion compared to $8.3 billion for the thirty-nine weeks ended October 29, 2023. This increase was primarily driven by growth in customer spending from both new and existing customers, and the frequency with which customers purchase and subscribe to our Autoship subscription program. Net sales per active customer increased $23, or 4.2%, in the thirty-nine weeks ended October 27, 2024 compared to the thirty-nine weeks ended October 29, 2023, driven by growth across our healthcare and specialty businesses.
Cost of Goods Sold and Gross Profit
Cost of goods sold for the thirteen weeks ended October 27, 2024 increased by $69.7 million, or 3.6%, to $2.0 billion compared to $2.0 billion in the thirteen weeks ended October 29, 2023. This increase was primarily due to an increase in associated product, outbound freight, and shipping supply costs. The increase in cost of goods sold was lower than the increase in net sales on a percentage basis, reflecting supply chain efficiency gains across our fulfillment network.
Cost of goods sold for the thirty-nine weeks ended October 27, 2024 increased by $113.9 million, or 1.9%, to $6.1 billion compared to $6.0 billion in the thirty-nine weeks ended October 29, 2023. This increase was primarily due to an increase in associated product, outbound freight, and shipping supply costs. The increase in cost of goods sold was lower than the increase in net sales on a percentage basis, reflecting supply chain efficiency gains across our fulfillment network.
Gross profit for the thirteen weeks ended October 27, 2024 increased by $62.0 million, or 7.9%, to $843.9 million compared to $781.9 million in the thirteen weeks ended October 29, 2023. This increase was primarily due to the year-over-year increase in net sales as described above. Gross profit as a percentage of net sales for the thirteen weeks ended October 27, 2024 increased by 80 basis points compared to the thirteen weeks ended October 29, 2023, primarily due to supply chain efficiency gains across our network as well as margin expansion across our consumables, healthcare, and private brands businesses.
Gross profit for the thirty-nine weeks ended October 27, 2024 increased by $178.3 million, or 7.5%, to $2.5 billion compared to $2.4 billion in the thirty-nine weeks ended October 29, 2023. This increase was primarily due to the year-over-year increase in net sales as described above. Gross profit as a percentage of net sales for the thirty-nine weeks ended October 27, 2024 increased by 110 basis points compared to the thirty-nine weeks ended October 29, 2023, primarily due to supply chain efficiency gains across our network as well as margin expansion across our consumables, healthcare, and private brands businesses.
Selling, General and Administrative
Selling, general and administrative expenses for the thirteen weeks ended October 27, 2024 increased by $14.1 million, or 2.3%, to $626.5 million compared to $612.4 million in the thirteen weeks ended October 29, 2023. This was primarily due to an increase of $14.6 million in non-cash share-based compensation expense and related taxes, partially offset by a decrease of $0.5 million in fulfillment costs attributable to automation and supply chain efficiencies within our fulfillment network, while facilities expenses and other general and administrative expenses remained consistent.
Selling, general and administrative expenses for the thirty-nine weeks ended October 27, 2024 increased by $33.6 million, or 1.9%, to $1.9 billion compared to $1.8 billion in the thirty-nine weeks ended October 29, 2023. This was primarily due to an increase of $44.5 million in non-cash share-based compensation expense and related taxes, partially offset by a decrease of $8.0 million in fulfillment costs attributable to automation and supply chain efficiencies within our fulfillment network as well as a decrease of $2.9 million in facilities expenses and other general and administrative expenses attributable to lower corporate headcount.
We have recently undertaken a project that will modernize our finance information technology architecture. At the conclusion of this project, which we believe will occur towards the end of our 2025 fiscal year, we aim to have, among other things, (i) the ability to produce financial information across different segments of the Company, which supports scalability for future growth, (ii) expanded visibility and analytical capabilities with respect to our data, and (iii) an infrastructure that enables the use of artificial intelligence and other system advancements that will create further efficiencies for our team members. The project will not require meaningful capital investment.
Advertising and Marketing
Advertising and marketing expenses for the thirteen weeks ended October 27, 2024 increased by $12.6 million, or 7.0%, to $191.8 million compared to $179.2 million in the thirteen weeks ended October 29, 2023. Our marketing expenses increased due to additional investment in our lower and upper funnel marketing channels as well as expansion into Canada, contributing to new customer acquisition, customer retention, and an increase in wallet share from our large and stable customer base.
26
Advertising and marketing expenses for the thirty-nine weeks ended October 27, 2024 increased by $20.7 million, or 3.8%, to $569.1 million compared to $548.4 million in the thirty-nine weeks ended October 29, 2023. Our marketing expenses increased due to additional investment in our lower and upper funnel marketing channels as well as expansion into Canada, contributing to new customer acquisition, customer retention, and an increase in wallet share from our large and stable customer base.
Interest Income (Expense), net
Interest income for the thirteen weeks ended October 27, 2024 decreased by $6.3 million, to $3.9 million compared to interest income of $10.2 million in the thirteen weeks ended October 29, 2023. This decrease was due to a decrease in interest income generated by cash and cash equivalents and marketable securities and an increase in interest expenses incurred.
Interest income for the thirty-nine weeks ended October 27, 2024 increased by $4.2 million, to $31.3 million compared to interest income of $27.1 million in the thirty-nine weeks ended October 29, 2023. This increase was due to interest income generated by cash and cash equivalents and marketable securities exceeding interest expenses incurred.
Other Income (Expense), net
Other expense for the thirteen weeks ended October 27, 2024 decreased by $34.1 million, to $0.0 million compared to other expense of $34.1 million in the thirteen weeks ended October 29, 2023. This decrease was primarily due to increases in the fair value of equity warrants, tax indemnification receivables, and equity investments.
Other income for the thirty-nine weeks ended October 27, 2024 increased by $14.5 million, to $0.7 million compared to other expense of $13.8 million in the thirty-nine weeks ended October 29, 2023. This increase was primarily due to increases in the fair value of equity warrants, tax indemnification receivables, and equity investments, partially offset by foreign currency transaction losses.
Liquidity and Capital Resources
We finance our operations and capital expenditures primarily through cash flows generated by operations. Our principal sources of liquidity are expected to be our cash and cash equivalents, marketable securities, and our revolving credit facility. Cash and cash equivalents consisted primarily of cash on deposit with banks. Cash and cash equivalents totaled $506.6 million as of October 27, 2024, a decrease of $95.6 million from January 28, 2024. Marketable securities consisted primarily of equity investments and totaled $0.9 million as of October 27, 2024, a decrease of $530.9 million from January 28, 2024.
We believe that our cash and cash equivalents, marketable securities, and availability under our revolving credit facility will be sufficient to fund our working capital, capital expenditure requirements, and contractual obligations for at least the next twelve months. In addition, we may choose to raise additional funds at any time through equity or debt financing arrangements, which may or may not be needed for additional working capital, capital expenditures, share repurchases, or other strategic investments. Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of our 10-Q Report for the quarterly period ended April 28, 2024. Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all.
Cash Flows
39 Weeks Ended
($ in thousands)
October 27, 2024
October 29, 2023
Net cash provided by operating activities
$
388,809
$
386,664
Net cash provided by (used in) investing activities
$
445,482
$
(237,458)
Net cash used in financing activities
$
(929,741)
$
(10,938)
27
Operating Activities
Net cash provided by operating activities was $388.8 million for the thirty-nine weeks ended October 27, 2024, which primarily consisted of $369.9 million of net income, partially offset by $61.0 million of non-cash adjustments such as deferred income tax benefit of $275.7 million, share-based compensation expense of $224.7 million, and depreciation and amortization expense of $85.4 million, and a cash decrease of $23.9 million from working capital. Cash decreases from working capital were primarily driven by an increase in inventories, receivables, and other current assets, partially offset by an increase in payables and other current liabilities.
Net cash provided by operating activities was $386.7 million for the thirty-nine weeks ended October 29, 2023, which primarily consisted of $7.7 million of net income, $307.9 million of non-cash adjustments such as share-based compensation expense of $178.9 million and depreciation and amortization expense of $82.3 million, and a cash increase of $90.5 million from working capital. Cash increases from working capital were primarily driven by an increase in other current liabilities and payables, partially offset by an increase in inventories, receivables, and other current assets.
Investing Activities
Net cash provided by investing activities was $445.5 million for the thirty-nine weeks ended October 27, 2024, primarily consisting of $538.4 million for the maturities and sales of marketable securities, partially offset by $92.9 million for capital expenditures related to the launch of new and future pharmacy facilities, veterinary clinics, and fulfillment centers as well as additional investments in IT hardware and software.
Net cash used in investing activities was $237.5 million for the thirty-nine weeks ended October 29, 2023, primarily consisting of $126.2 million for the purchases of marketable securities, net of maturities and $110.9 million for capital expenditures. Capital expenditures were related to the launch of new and future fulfillment centers and additional investments in IT hardware and software.
Financing Activities
Net cash used in financing activities was $929.7 million for the thirty-nine weeks ended October 27, 2024 primarily consisting of $875.2 million for repurchases of common stock, $53.7 million for income taxes paid for, net of proceeds from, the parent reorganization transaction, principal repayments of finance lease obligations, and payments for secondary offering costs.
Net cash used in financing activities was $10.9 million for the thirty-nine weeks ended October 29, 2023, and consisted of payments made pursuant to the tax sharing agreement with related parties, principal repayments of finance lease obligations, and payment of debt modification costs.
Other Liquidity Measures
ABL Credit Facility
We have a senior secured asset-based credit facility (the “ABL Credit Facility”) which matures on August 27, 2026 and provides for non-amortizing revolving loans in the aggregate principal amount of up to $800 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility provides the right to request incremental commitments and add incremental asset-based revolving loan facilities up to $250 million, subject to customary conditions. We are required to pay a 0.25% per annum commitment fee with respect to the undrawn portion of the commitments, which is generally based on average daily usage of the facility. Based on our borrowing base as of October 27, 2024, which is reduced by standby letters of credit, we had $777.6 million of borrowing capacity under the ABL Credit Facility. As of October 27, 2024 and January 28, 2024, we did not have any outstanding borrowings under the ABL Credit Facility, respectively.
Share Repurchase Activity
On May 24, 2024, our Board of Directors authorized the Company to repurchase up to $500 million of its Class A common stock, par value $0.01 per share (the “Class A common stock”), and/or Class B common stock, par value $0.01 per share (the “Class B common stock” and together with the Class A common stock, the “common stock”), pursuant to a share repurchase program (the “Repurchase Program”). The actual timing and amount of any share repurchases remains subject to a variety of factors, including stock price, trading volume, market conditions, compliance with applicable legal requirements, and other general business considerations. We are not required to repurchase any specific number of shares of common stock. The Repurchase Program has no expiration date and may be modified, suspended, or terminated at any time.
28
On June 26, 2024, the Company entered into an agreement (the “Stock Repurchase Agreement”) with Buddy Chester Sub LLC, an entity affiliated with the Sponsors (the “Seller”), to repurchase an aggregate of 17,550,000 shares of Class A common stock from the Seller at a price per share of $28.49, resulting in an aggregate repurchase price of $500 million (the “Stock Repurchase”).
On September 18, 2024, the Company entered into an agreement (the “Concurrent Stock Repurchase Agreement”) with the Seller to purchase $300 million of shares of Class A common stock from the Seller at a price per share of $29.40, resulting in the repurchase of an aggregate of 10,204,081 shares of Class A common stock (the “Concurrent Stock Repurchase”).
During the thirty-nine weeks ended October 27, 2024, 2,930,257, 17,550,000, and 10,204,081 shares of Class A common stock were repurchased and subsequently cancelled and retired pursuant to the Repurchase Program, Stock Repurchase, and Concurrent Stock Repurchase for a total cost of $75.2 million, $500.0 million, and $300.0 million, respectively, excluding the cost of commissions and excise taxes. The authorized value of shares available to be repurchased under the Repurchase Program excludes the cost of commissions and excise taxes and as of October 27, 2024, the remaining value of shares of common stock that were authorized to be repurchased under the Repurchase Program was $424.8 million. As of October 27, 2024, the total unpaid cost of share repurchases was $7.3 million and was entirely attributable to excise taxes.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 2 in the “Notes to Condensed Consolidated Financial Statements” of this 10-Q Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the quantitative and qualitative disclosures about market risk disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2024.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this 10-Q Report, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of October 27, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the thirteen weeks ended October 27, 2024.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning legal proceedings is provided in Item 1 of Part I, “Financial Statements (Unaudited)–Note 5– Commitments and Contingencies–Legal Matters” and is incorporated by reference herein.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended April 28, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to shares of Class A common stock repurchased by Chewy, Inc. during the thirteen weeks ended October 27, 2024:
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share (2)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3)
Approximate Dollar Value of Shares That May Yet Be Purchased Under The Plans or Programs (in millions) (3)(4)
July 29, 2024 - August 25, 2024
774,185
$
24.37
774,185
$
448.4
August 26, 2024 - September 29, 2024
11,038,651
$
29.31
834,570
$
424.8
September 30, 2024 - October 27, 2024
—
$
—
—
$
424.8
Total
11,812,836
1,608,755
(1) The purchased shares consisted of 1,608,755 shares of Class A common stock repurchased pursuant to the Repurchase Program and 10,204,081 shares of Class A common stock repurchased pursuant to the Concurrent Stock Repurchase.
(2) Average price paid per share under the Repurchase Program excludes the cost of commissions and excise taxes associated with the repurchases. For the period of August 26, 2024 through September 29, 2024, the average price paid per share pursuant to the Repurchase Program and Concurrent Stock Repurchase was $28.25 and $29.40, respectively.
(3) On May 24, 2024, the Company’s Board of Directors authorized the Company to repurchase up to $500 million of the Company’s common stock pursuant to the Repurchase Program. The Repurchase Program has no expiration date and may be modified, suspended or terminated at any time. Refer to Note 2 in the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q for additional information.
(4) Approximate dollar value of shares that may yet be purchased under the Repurchase Program excludes the cost of commissions and excise taxes associated with the repurchases.
Item 5. Other Information
Rule 10b5-1 Plan Elections
於2022年3月17日，法院發出了一份訂單，暫停州級衍生訴訟，等候下文所述的聯邦衍生訴訟解決。 2024年9月11日, David Reeder，該公司的 財務長, 採用 根據S-K規則第408項定義的“Rule 10b5-1交易安排”，以“賣出以支付”爲指令，期限不確定，指示公司出售A類普通股以滿足因限制性股票單位(RSU)歸屬而產生的稅收扣繳義務。該交易安排旨在滿足《交易法》下Rule 10b5-1(c)的積極防禦。根據安排出售的股份數量目前無法確定，因爲該數量將根據滿足歸屬條件的程度和結算時我們A類普通股的市場價格而有所變化。
於2022年3月17日，法院發出了一份訂單，暫停州級衍生訴訟，等候下文所述的聯邦衍生訴訟解決。 2024年9月11日, William Billings，該公司的 首席會計主管, 採用 根據《S-K法規》第408條規定的“10b5-1規則交易安排”，採取無固定期限的“賣出以覆蓋”的指示，指示公司出售A類普通股份以滿足源於限制性股票單元歸屬而產生的稅收扣繳義務。該交易安排旨在滿足《證交法》10b5-1(c)條款的積極防禦。根據此安排將出售的股份數目目前尚不確定，因爲該數量將根據歸屬條件的滿足程度以及結算時我們A類普通股的市場價格而變動。
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
