Chewy, Inc. (CHWY), the leading online pet retailer, has reported its financial results for the first quarter of fiscal year 2024, showcasing impressive performance and raising its full-year guidance. The company's unwavering dedication to providing exceptional customer service and a wide range of high-quality pet products has propelled it to new heights, solidifying its position as the trusted destination for pet parents and partners.

Financials

In the first quarter of fiscal year 2024, Chewy reported net sales of $2.88 billion, a 3.1% increase compared to the same period in the previous year. This strong top-line performance was driven by the continued loyalty of Chewy's customer base, particularly in non-discretionary categories such as consumables and health, which accounted for approximately 85% of the company's net sales. Additionally, the company's Autoship subscription program continued to be a pillar of strength, with Autoship customer sales reaching a record $2.2 billion and representing 77.6% of total net sales, up 240 basis points year-over-year.

Chewy's focus on delivering exceptional customer experiences has paid off, as the company saw encouraging customer trends in the quarter. For the first time since 2022, both new customer acquisition and reactivations exceeded the company's internal expectations, driven by the successful execution of its personalization efforts and value proposition enhancements.

Profitability-wise, Chewy set new records across its key metrics. Gross margin for the quarter reached 29.7%, exceeding expectations and representing a 130-basis-point improvement year-over-year. This was driven by the continued strength of the company's growing sponsored ads business, a higher mix shift into healthcare, and a rational promotional environment. Additionally, the company benefited from some one-time items that positively impacted its P&L during the quarter.

Chewy's disciplined approach to cost management also contributed to its strong profitability. First-quarter SG&A expenses, excluding share-based compensation, totaled $533.1 million or 18.5% of net sales, representing a 50-basis-point improvement year-over-year and a 150-basis-point improvement sequentially. This leverage was driven by the company's continued management of payroll and improved cost efficiency in areas such as customer service and G&A expenditures.

As a result of its robust top-line performance and disciplined cost control, Chewy reported first-quarter adjusted EBITDA of $163 million, representing a 5.7% margin and a 170-basis-point improvement compared to the same period last year. The company's strong profitability and cash generation capabilities have enabled it to take a significant step forward in its capital allocation strategy.

Share Repurchase Program

Chewy's Board of Directors has authorized the company's first-ever share repurchase program of up to $500 million, reflecting the management's confidence in the business's long-term growth and profitability potential. This move underscores Chewy's commitment to enhancing shareholder value while also mitigating the dilutive impact of its share-based compensation programs.

Outlook

Looking ahead, Chewy has provided its guidance for the second quarter and updated its full-year 2024 outlook. For the second quarter, the company expects net sales to be between $2.84 billion and $2.86 billion, representing approximately 2% to 3% year-over-year growth. For the full year 2024, Chewy is maintaining its net sales guidance of $11.6 billion to $11.8 billion, which includes the impact of a 53-week fiscal year.

On the profitability front, Chewy has raised its full-year 2024 adjusted EBITDA margin guidance to a range of 4.1% to 4.3%, reflecting a 20%+ adjusted EBITDA flow-through at the midpoint of the guidance range, notably above the company's previous expectation of 15% flow-through on an annual basis. The company continues to expect full-year capital expenditures in the range of 1.5% to 2% of net sales and free cash flow conversion to remain above 80%.

Recent Developments

Chewy's strategic initiatives and innovations have also been a highlight during the quarter. The company launched its new paid membership program, Chewy Plus, which offers a range of benefits including free shipping, cash accrual rewards, and exclusive member perks. Additionally, Chewy has continued to expand its Chewy Vet Care clinic footprint, opening four locations to date, with plans to reach the high end of its stated range of four to eight clinic openings in 2024.

The company's sponsored ads business also continues to ramp up, delivering on its planned product roadmap and offering partners a compelling and high-ROI channel to deploy their marketing dollars. Chewy's expansion into the Canadian market is also progressing as planned, with the rollout of customer-facing features and the continued expansion of its product assortment.

Conclusion

Chewy's strong start to the year, coupled with its strategic initiatives and robust financial performance, underscores the company's ability to navigate the current market environment and deliver compelling results for its shareholders. The company's focus on exceptional customer service, innovative product offerings, and disciplined cost management has positioned it well to capitalize on the continued migration of the pet industry towards e-commerce.

As Chewy looks ahead, the company remains cautiously optimistic about the normalization of the pet industry, with early signs of improvement in pet household formation trends and a positive balance between adoption and relinquishment. With its strong balance sheet, growing free cash flow generation, and strategic investments, Chewy is well-equipped to execute on its long-term growth plans and drive shareholder value.

In the fiscal year 2023, Chewy reported annual net income of $39.58 million, annual revenue of $11.15 billion, annual operating cash flow of $486.04 million, and annual free cash flow of $342.75 million. In the first quarter of fiscal year 2024, the company reported net sales of $2.88 billion, a 3.1% increase compared to the same period in the previous year. Chewy's adjusted EBITDA for the first quarter of fiscal year 2024 was $163 million, representing a 5.7% margin.

Chewy's strong performance and strategic initiatives, coupled with its robust financial position, make it well-positioned to continue delivering value to its shareholders. As the company navigates the evolving pet industry landscape, investors can look forward to Chewy's continued growth and innovation in the years to come.