Q4 2023 Chewy Inc Earnings Call

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Operator: Ladies and gentlemen, thank you for standing by. The Chewy fourth quarter FY23 earnings call will begin shortly. If you would like to register a question at any time, please press star one on your telephone keypad. Thank you. , , , , , , , , , , , , , , , , Hello and welcome to the Chewy fourth quarter FY23 earnings call. My name is Elliot and I'll be coordinating your call today.

Speaker Change: Ladies and gentlemen, thank you for standing by the Chewy fourth quarter FY 'twenty earnings call will begin shortly.

Speaker Change: We'd like to registered a question at any time. Please press star one on your telephone keypad. Thank you.

Speaker Change: [music].

Operator: If you would like to ask a question during today's event, please press star followed by one on your telephone keypad. Now, I'd like to hand over to Chen Hsu, Vice President and Head of Investor Relations. The floor is yours.

Alex: Hello, and welcome to the Chewy fourth quarter FY 'twenty earnings call. My name is Alex and I'll be coordinating your call today if.

Alex: If you would like to register a question John States events. Please press star followed by one on your telephone keypad.

Jennifer Hsu: Please go ahead. Thank you for joining us on the call today to discuss our fourth quarter and full year results for fiscal year 2023. Joining me today are Chewy's CEO, Sumit Singh, and CFO, David Reeder. Our earnings release and letter to shareholders, which were filed with the SEC earlier today, have been posted to the investor relations section of our website, investor.chewy.com. On our call today, we will be making forward-looking statements, including statements concerning Chewy's financial results and performance, industry trends, strategic initiatives, and the environment that we operate in. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks, uncertainties, and other factors described in the section titled Risk Factors in our annual report on Form 10-K and 8-K filed earlier today and in our Reported results should not be considered an indication of future performance.

Alex: I'd like to hand over to Jan Sue <unk>, Vice President and head of Investor Relations. The floor is yours. Please go ahead.

Jan Sue: Thank you for joining us on the call today to discuss our fourth quarter and full year results for fiscal year 2023, joining me today are <unk> CEO and.

Jan Sue: And CFO, David Reader, our earnings release and letter to shareholders, which were filed with the SEC earlier today have been posted to the Investor Relations section of our website investor <unk> Com.

Jan Sue: On our call today, we will be making forward looking statements, including statements concerning financial results and performance industry trends strategic initiatives and the environment that we operate in such statements are considered forward looking statements under the private Securities Litigation Reform Act of 1995 and are subject to certain risks uncertainties and other factors.

Jan Sue: Described in the section titled Risk factors in our annual report on Form 10-K, and 8-K filed earlier today and in our other filings with the SEC, which could cause actual results to differ materially from those contemplated by our forward looking statements.

Jan Sue: Reported results should not be considered an indication of future performance also note that the forward looking statements on this call are based on information available to US as of today's date, we disclaim any obligation to update any forward looking statements except as required by law also during this call we will discuss certain non-GAAP financial measures reconciliations of these non-GAAP item.

Jennifer Hsu: Also note that the forward-looking statements on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided on our investor relations website and in our earnings release and letter to shareholders, which were filed with the SEC earlier today. These non-GAAP measures are not intended as a substitute for GAAP results.

Jan Sue: The most directly comparable GAAP financial measures are provided on our Investor Relations website and in our earnings release and letter to shareholders, which were filed with the SEC earlier today.

Jan Sue: These non-GAAP measures are not intended as a substitute for GAAP results. Additionally, unless otherwise stated all comparisons discussed today will be against the comparable period of fiscal year 2022. Finally this call in its entirety is being webcast on our Investor Relations website. A replay of the webcast will also be made available on our Investor Relations website shortly.

Jennifer Hsu: Additionally, unless otherwise stated, all comparisons discussed today will be against the comparable period of fiscal year 2022. Finally, this call in its entirety is being webcast on our investor relations website. A replay of the webcast will also be made available on our investor relations website shortly. I'd now like to turn the call over to Smith.

Jan Sue: I'd now like to turn the call over to Smith.

Sumit Singh: Thanks, Jen. And thank you all for joining us on the call today. Before we cover our fourth quarter and full year 2023 results, I'm thrilled to welcome David Reeder, who joined us in February as our Chief Financial Officer. Dave is a key addition to our leadership team, and I look forward to having many of you engage with him in his new role.

Smith: Thanks, Jim and thank you all for joining us on the call today.

Before we cover our fourth quarter and full year 2023 results I'm thrilled to welcome David leader, who joined US in February as our Chief Financial Officer.

Smith: David is a key addition to our leadership team and I look forward to having many of you engage with him in his new role I would also like to thank Stacy Bowman for her support as interim CFO.

Sumit Singh: I would also like to thank Stacy Bowman for her support as Interim CFO. Now, let's review our results. The team delivered a strong finish to the year with our fourth quarter and full year 2023 performance, demonstrating our ability to deliver market share gains growth while simultaneously expanding margins and accelerating free cash flow generation. I will provide an overview of our performance, followed by some perspectives on the pet industry and Chewy's strategic priorities as we embark on 2024. Dave will then discuss our financial results in greater detail and share our guidance for the year.

Smith: Now, let's review our results.

Smith: The team delivered a strong finish to the year with our fourth quarter and full year 2023 performance, demonstrating our ability to deliver market share gaining growth, while simultaneously expanding margins and accelerating free cash flow generation.

Smith: I will provide an overview of our performance followed by some perspectives on the pet industry and chewy strategic priorities as we embark on 2024 days.

Smith: Dave will then discuss our financial results in greater detail and share our guidance for the year.

Sumit Singh: Q4 net sales increased by 4% to $2.83 billion, resulting in full year 2023 net sales of $11.15 billion, representing 10% year over year growth. Our favorable mix of non-discretionary consumables and health categories continues to be a pillar of strength for Chewy, representing approximately 85% of full year 2023 net sales. Additionally, our authorship subscription program, which delivered $8.5 billion in authorship customer sales in full year 2023, continues to provide unparalleled convenience for pet parents while enhancing customer stickiness for Chewy.

Smith: Q4, net sales increased by 4% to $2 $83 billion, resulting in full year 2023, net sales of $11.15 billion, representing 10% year over year growth.

Smith: Our favorable mix of non discretionary consumables and health categories continues to be a pillar of strength for chewy, representing approximately 85% of full year 2023 net sales.

Smith: Additionally, our auto ship subscription program, which delivered eight $5 billion of partnership customer sales and full year 2023 continues to provide unparalleled convenience for pet parents, while enhancing customer stickiness for chewy.

Sumit Singh: Growth in auditorship customer sales meaningfully outpaced overall top line growth, increasing by 8% in the quarter and nearly 15% for the full year 2020. We continue to deepen our engagement with existing customers and deliver compelling volunteer growth. Net sales per active customer or Netspack grew to $555, a year over year increase of approximately 12%.

Growth in auto ship customer sales meaningfully outpaced overall topline growth increasing by 8% in the quarter and nearly 15% for the full year 2023.

Smith: We continue to deepen our engagement with existing customers and delivered compelling wallet share growth net sales per active customer are less back grew to $555 a year over year increase of approximately 12%.

Sumit Singh: We believe there is significant runway for further NESPAC expansion, particularly as we continue to expand our product and services offerings across our pet platform. Progressing through the P&L, we are incredibly proud of our ability to deliver consistent profitability growth over time. Our gross margin exceeded 28% for both the fourth quarter and the full year 2023, representing an improvement over the prior year period. Our performance throughout the holiday season was in line with expectations, including as it relates to promotional activities.

Smith: We believe there is significant runway for further less back expansion, particularly as we continue to expand our product and services offerings across our platform.

Smith: Progressing through the P&L, we are incredibly proud of our ability to deliver consistent profitability expansion over time.

Smith: Our gross margin exceeded 20% for both the fourth quarter and full year 2023, representing an improvement over the prior year periods.

Smith: Our performance throughout the holiday season was in line with expectations, including as it relates to promotional activity.

Sumit Singh: As planned, our sponsored ads program also continued to ramp throughout the latter half of the year and increasingly supported our gross margin performance. We achieved an adjusted EBITDA margin of 3.1% for the quarter and 3.3% for the full year, a continued improvement relative to full year 2022. Our results reflect our ability to deliver improved profitability on a steady and consistent basis even while concurrently investing in planned growth initiatives that we expect will deliver long-term value to shareholders. Finally, expanding margins, coupled with disciplined capital spending, has allowed us to generate meaningful levels of free cash flow. We exceeded our 2023 free cash flow expectations and generated more than $340 million of free cash flow, nearly three times our 2022 free cash flow.

As planned our sponsored ads program also continued to ramp throughout the latter half of the year and increasingly supported our gross margin performance.

Smith: We achieved an adjusted EBITDA margin of three 1% for the quarter and three 3% for the full year, a continued improvement relative to full year 2022.

Smith: Our results reflect our ability to deliver improved profitability on a steady and consistent basis, even while concurrently investing and planned growth initiatives that we expect will deliver long term value to shareholders.

Smith: Really expanding margins coupled with disciplined capital spending has allowed us to generate meaningful levels of free cash flow.

Smith: We exceeded our 2023 free cash flow expectations and generated more than $340 million of free cash flow nearly three times, our 2022 free cash flow we.

Sumit Singh: We have reached an exciting inflection point in this area and expect to generate substantial free cash flow on a go-forward basis. As we close the curtain on 2023, let me now spend a few moments framing our view of the pet industry and Chewy's outlook. We operate in the approximately $144 billion U.S. pet market, comprised of pet food and supplies at roughly $87 billion, pet health contributing roughly $47 billion, and pet services representing roughly $10 billion.

Smith: We have reached an exciting inflection point in this area and expect to generate substantial free cash flow on a go forward basis.

Smith: As we close the curtain on 2023, let me now spend a few moments framing our view on the pet industry and chewy his outlook.

Smith: We operate in the approximately $144 billion U S pet market comprised of pet food and supplies size that is roughly $87 billion. That's how it's contributing roughly 47 billion and pet services, representing roughly $10 billion.

Sumit Singh: On top of that, following our expansion into Canada in Q3 of 2023, we now also participate in the roughly $10 billion Canadian pet market. The pet category is a recession-resistant, above GDP growth industry that is increasingly moving online. Chewy has been and remains a key driver and beneficiary of this trend. As we enter the new fiscal year, it is helpful to characterize 2024 industry expectations in the context of historical performance. Over a multi-decade period, the overall pet industry grew at an annual rate of in the mid-single digits.

Smith: On top of that following our expansion into Canada in Q3 of 2023, we now also participate in the roughly $10 billion Canadian pet market.

Smith: The pet category is a recession resilient above GDP growth industry that is increasingly moving online.

Smith: He has been and remains a key driver and beneficiary of this trend.

Smith: As we enter the new fiscal year. It is helpful to characterize 2024 industry expectations in the context of historical performance.

Smith: Or a multi decade period, the overall pet industry grew at an annual rate in the mid single digits.

Sumit Singh: This growth is predicated on low single-digit unit growth, in addition to low single-digit pricing growth, with further growth supported by a secular premiumization trend. Looking ahead, the pet category is projected to grow at a similar rate over a multi-year forward period. However, in 2024, year-over-year growth for the industry is expected to be lower than historical average, and unit growth is expected to be muted due to pet household formation trends that remain below historical levels.

Smith: This growth was predicated on low single digit unit growth. In addition to low single digit pricing growth with further growth supported by a secular premium amortization trend.

Smith: Looking ahead, the pet category is projected to grow at a similar rate over a multi year forward period. However, in 2024 year over year growth for the industry is expected to be lower than historical average.

Smith: Unit growth is expected to be muted due to bad household formation trends that remained below historical levels.

Sumit Singh: As it relates to pricing, while we are not anticipating a deflationary environment, we expect no material pricing benefit on industry growth in 2024. These inputs will most likely result in a year of modest growth for the industry, setting up the industry for a return to normality in 2025. Irrespective of the industry environment, we expect to continue to gain market share in 2024. Speaking to our profitability expectations, we expect to deliver continued adjusted EBITDA margin expansion this year, irrespective of the macro and industry growth backdrop. As a foundation, our well-established Chewy retail business is benefiting from economies of scale.

Smith: As it relates to pricing, while we are not anticipating a deflationary environment, we expect no material pricing benefit on industry growth in 2024.

Smith: These inputs will most likely result in a year of modest growth for the industry setting up the industry for a return to normality in 2025.

Irrespective of the industry environment, we expect to continue to gain market share in 2024.

Smith: Speaking to our profitability expectations, we expect to deliver continued adjusted EBITDA margin expansion. This year irrespective of the macro and industry grow the backdrop.

Smith: As a foundation, our well established to the retail business is benefiting from economies of scale on top of this our fast growing chewy health business and importantly, chewy retail initiatives such as sponsored ads are expected to continue to drive gross margin expansion.

Sumit Singh: On top of this, our fast-growing Chewy health business and important Chewy retail initiatives such as sponsored ads are expected to continue to drive gross margin expansion. Additionally, this year, we expect our ongoing automation efforts and OPEX discipline to positively offset our investments delivering SG&A leverage in full year 2024 relative to full year 2023. These collective efforts are expected to drive increasing adjusted EBITDA flow through in 2024.

Smith: Additionally, this year, we expect our ongoing automation efforts and Opex discipline do positively offset our investments delivering SG&A leverage and full year 2024 relative to full year 2023.

Smith: These collective efforts are expected to drive increasing adjusted EBITDA flow through in 2024.

Sumit Singh: When coupled with our high levels of capital efficiency, enabled by the critical mass we have reached with respect to our distribution infrastructure, we expect to generate meaningful and increasing levels of free cash flow in 2024 and the years ahead. Now, let me provide commentary on some of our newer strategic initiatives that we believe will drive sustainable growth and profit in the years ahead. We are excited about strategic priorities, such as our recently announced Chewy VetCare Clinics, which allow us to expand our TAM by another approximately $25 billion to address the entirety of the $47 billion U.S. veterinary health market. Chewy VetCare has the potential to drive both nest pack and active customer growth over time, while also offering a steady state margin profile materially above our current business. We believe Chewy VetCare is a natural extension of our ecosystem and that our thoughtfully designed clinics will be unlike anything in the market, thanks to our proprietary first-party health tech platform and the seamless vertically integrated connectivity to all aspects of the Chewy ecosystem.

Smith: When coupled with our high levels of capital efficiency enabled by the critical mass we have reached with respect to our distribution infrastructure, we expect to generate meaningful and increasing levels of free cash flow in 2024 and the years ahead.

Now, let me provide commentary on some of our newer strategic initiatives that we believe will drive sustainable growth and profit in the future years.

Smith: We are excited about the strategic priorities such as our recently announced chewy best care clinics, which allows us to expand our Tam by another approximately $25 billion to address the entirety of the $47 billion U S pet health market.

Smith: <unk> has the potential to drive both less pack and active customer growth over time, while also offering a steady state margin profile materially above our current business.

Smith: We believe chewy vet care is a natural extension of our ecosystem and that I've talked to really design clinics will be unlike anything in the market. Thanks to our proprietary first party health Tech platform and the seamless vertically integrated connectivity to all aspects of the chewy ecosystem.

Sumit Singh: This includes our B2C e-commerce platform for products, such as core and veterinary diet food, pharmacy, and supplements, our emerging B2C services, such as telehealth and insurance, as well as our B2B solutions for veterinary practitioners to streamline their operations. We anticipate opening four to eight clinics this fiscal year, with our first location slated to launch in Florida, close to our company headquarters, and several additional locations scheduled to open in the first half of 2024. We are very excited to share that our first clinic is already accepting appointments from family and friends, and we expect it to be open to the public soon.

Smith: This includes our B to C e-commerce platform for products, such as core and veterinary diet food pharmacy and supplement our emerging b to C services, such as telehealth in insurance as well as our <unk> solutions for veterinary practitioners to streamline their operations.

Smith: We anticipate opening four to eight clinics this fiscal year with our first location slated to launch in Florida closed to our company headquarters and several additional locations to open in the first half of 2024.

We are very excited to share that our first clinic is already accepting appointments from family and friends and we expect it to be open to the public imminently too.

Sumit Singh: Two key leading indicators of success that we plan to track closely include web hiring and customer demand generation. As it relates to VET hiring, we are encouraged by the early signals around our VET recruitment processes and already have our first sites fully staffed. We look forward to keeping you informed on our progress around this initiative as we progress through the year. Elsewhere, Canada continues to rise to our expectations and overall will remain immaterial to 2024 financials, given that new markets take some time to achieve scale. We are encouraged by the initial customer and supplier response that we have received. We continue to expand our offerings for customers, with the assortment significantly increasing since our launch only a few months ago. We are further excited by the launch of many customer-facing shopping features, such as our mobile app and additional customer-friendly payment and basket building mechanisms, which are expected in the first quarter of 2024.

Smith: Two key leading indicators of success that we plan to attract closely include led hiring and customer demand generation.

Smith: As it relates to that hiring we are encouraged by the early signals around our recruitment processes.

Smith: And already have our first sites fully staffed.

Smith: Look forward to keeping you informed on our progress around this initiative as we progress through the year.

Smith: Elsewhere, Canada continues to ramp for our expectations and overall will remain immaterial to 2024 financials, given that new markets take some time to achieve scale.

Smith: We are encouraged by the initial customer and supplier response that we have received.

Smith: We continue to expand our offerings for our customers with the assortment significantly increasing since our launch only a few months ago.

Smith: We are further excited by the launch of many customer facing shopping features such as our mobile app and additional customer friendly payment and basket building mechanisms, which are forthcoming in the first quarter of 2024.

Sumit Singh: Success metrics that we are tracking closely, such as basket sizes and auto-ship sign-up rates, as well as other customer experience metrics such as delivery speed and reliability, remain healthy, providing positive indications for the business we are building in Canada. In summary, we remain highly focused on advancing our enduring mission of being the most trusted and convenient destination for pet parents and partners everywhere.

Smith: Success metrics that we're tracking closely such as basket sizes, and auto ship sign up rates as well as other customer experience metrics, such as delivery speed and reliability remain healthy providing positive indications for the business. We are building in Canada.

Smith: In summary, we remain highly focused on advancing our enduring mission of being the most trusted and convenient destination for pet parents and partners everywhere and we are incredibly excited about the opportunities ahead for our business.

Sumit Singh: And we are incredibly excited about the opportunities ahead for our business. We believe we are well positioned to continue driving innovation across the category while simultaneously creating significant value for our shareholders. With that, I will turn it over to Dave. Thank you, Sumit.

Smith: We believe we are well positioned to continue driving innovation across the pet category, while simultaneously, creating significant value for our shareholders with that I will turn it over to Dave.

Dave: Thank you Sumit before covering our quarterly and annual results I'd like to take a moment to explain why I'm. So excited to be part of Chile.

David Reeder: Before covering our quarterly and annual results, I'd like to take a moment to explain why I'm so excited to be part of Chewy. First, I'm a passionate pet parent and one of Chewy's 20 million loyal customers. We believe that the level of service that Chewy provides to customers is unmatched in the industry, and I wanted to be a part of a company that is the most trusted and convenient destination for pet parents and partners everywhere.

Dave: First I'm, a passionate pet parent and one of chewy is 20 million loyal customers. We believe that the level of service that we provide to customers is unmatched in the industry and I wanted to be a part of the company that is the most trusted and convenient destination for pet parents and partners everywhere.

David Reeder: But besides being passionate about the Chewy brand, I'm incredibly excited about the company's opportunity. We have a highly predictable, attractive business model where more than 75% of our approximately 11 billion 2023 sales will be driven by auto ship customer sales, resulting in a subscription-like revenue stream. With our world-class infrastructure now having reached critical mass, we expect to deliver increasingly higher adjusted EBITDA margins and free cash flow. In summary, Chewy appealed to both my heart and my head.

Dave: But besides being passionate about the TUI brand I'm incredibly excited about the company's opportunities we.

Dave: We have a highly predictable attractive business model, where more than 75% of our approximately $11 billion 2023 sales was driven by auto ship customer sales, resulting in a subscription like revenue stream.

Dave: With our World class infrastructure now having reached critical mass, we expect to deliver increasingly higher adjusted EBITDA margins and free cash flow.

Dave: In summary, Chilean appeal to both my heart and my head I couldn't be more excited about the road ahead and I look forward to getting to know many of you over the many quarters to come now.

David Reeder: I couldn't be more excited about the road ahead, and I look forward to getting to know many of you over the many quarters to come. Now, let's review our financial results. Fourth quarter net sales grew 4.2% to $2.83 billion, bringing our full year 2023 net sales to $11.15 billion, representing 10.2% growth year over year and exceeding the high end of the guidance ranges that we provided last quarter. AutoShip customer sales came in at $2.16 billion in Q4, and 8.49 billion for the year. Autoship customer sales outpaced overall top line growth by 390 basis points in Q4 and by 450 basis points in full year 2023. Autoship customer sales represented 76.4% and 76.2% of our total net sales in Q4 and full year 2023, respectively. Chewy continued to consolidate share of wallet with Nespak reaching a Active customers declined slightly on a sequential basis in Q4, in line with expectations, ending the year at $20.1 million.

Speaker Change: Now, let's review our financial results.

Speaker Change: Fourth quarter net sales grew four 2% to $2 83 billion, bringing our full year 2023, net sales to 11.15 billion, representing 10, 2% growth year over year and exceeding the high end of the guidance ranges that we provided last quarter.

Speaker Change: Auto ship customer sales came in at 2.16 billion in Q4.

Speaker Change: $8 49 billion for the year growth in auto ship customer sales outpaced overall topline growth.

Speaker Change: 390 basis points in Q4, and by 450 basis points and full year 2023.

Speaker Change: Auto ship customer sales represented 76, 4% and 76, 2% of our total net sales in Q4 and full year of 2023, respectively.

Speaker Change: Jewelry continued to consolidate share of wallet with NES back, reaching a new record of $555, representing a $59 increase and 11, 9% year over year growth rate.

Speaker Change: <unk> declined slightly on a sequential basis in Q4 in line with expectations ending the year at $21 million.

David Reeder: Moving down the P&L, we've reported Q4 gross margins of 28.2% and Full Year 2023 Gross Margin of 28.4%. On a sequential basis, Q4 Gross Margin decreased by 30 basis points. Reflecting the promotional calendar and peak surcharges typical for the holiday period, gross margin for the year expanded by 40 basis points, aided by our newly launched Sponsored Ads Initiative, which had its strongest contribution in the fourth quarter of 2023. We expect continued growth from Sponsored Ads throughout 2024. Moving to OPEX, please note that my discussion of SG&A excludes share-based compensation expense and related taxes. SG&A totaled $565.4 million, or 20.2% of net sales, and in the fourth quarter. SG&A in the quarter included approximately $14 million of severance-related expenses associated with the corporate restructuring actions taken in the fourth quarter.

Moving down the P&L, we reported Q4 gross margins of 28, 2%.

Speaker Change: And full year 2023 gross margin of 28, 4% on a sequential basis Q4 gross margin decreased by 30 basis points.

Speaker Change: <unk> of the promotional calendar and peak surcharges typical for the holiday period.

Speaker Change: Gross margin for the year expanded by 40 basis points aided by our newly launched sponsored ads initiative.

Speaker Change: <unk> had its strongest contribution in the fourth quarter of 2023, we expect continued growth from sponsored ads throughout 2024.

Speaker Change: Moving to Opex. Please note that my discussion of SG&A excludes share based compensation expense and related taxes.

Speaker Change: SG&A totaled $565 4 million or 22% of net sales.

Speaker Change: In the fourth quarter.

Speaker Change: SG&A in the quarter included approximately $14 million of severance related expenses associated with the corporate restructuring actions taken in the fourth quarter.

David Reeder: For the full year 2023, SG&A represented 19.7% of net sales. For fiscal year 2023, advertising and marketing expense was $742.5 million and represented 6.7% of net sales. Fourth quarter adjusted net income was $80.3 million, and full year 2023 adjusted net income came in at $296.2. We reported an adjusted EBITDA margin of 3.1% for the quarter and 3.3% for the full year, or 30 basis points of margin expansion relative to fiscal 2022. We continue to be proud of our ability to invest in strategic growth initiatives while concurrently delivering higher adjusted EBITDA margins. As Sumit noted earlier, Chewy has reached an exciting inflection point as it relates to free cash flow generation.

Speaker Change: For the full year 2023, SG&A represented 19, 7% of net sales.

Speaker Change: Fourth quarter advertising and marketing expense was 194 million or six 9% of net sales.

For fiscal year, 2023, advertising and marketing expense was $742 5 million and represented six 7% of net sales.

Speaker Change: Fourth quarter adjusted net income was $80 3 million and full year 2023, adjusted net income came in at $296 2 million.

We reported an adjusted EBITDA margin of three 1% for the quarter and three 3% for the full year were 30 basis points of margin expansion relative to fiscal 2022.

Speaker Change: We continue to be proud of our ability to invest in strategic growth initiatives, while concurrently delivering higher adjusted EBITDA margins.

Speaker Change: Estimate noted earlier chewy has reached an exciting inflection point as it relates to free cash flow generation.

David Reeder: In the fourth quarter, we reported free cash flow of $67.2 million, and in fiscal year 2023, we exceeded our free cash flow expectations and generated $342.9 million of free cash flow, representing nearly three times our free cash flow generation in 2020. Our full year 2023 free cash flow reflects $486.2 million of net cash provided by operating activities and $143 million of capital expenditures. Capital expenditures for the year were primarily driven by automation-related investments made across our Fulfillment Center network and ongoing technology projects.

Speaker Change: In the fourth quarter, we reported free cash flow of $67 2 million and in fiscal year 2023, we exceeded our free cash flow expectations and generated $342 9 million of free cash flow, representing nearly three times, our free cash flow generation in 2022.

Speaker Change: Our full year 2023 free cash flow reflects $486 2 million of net cash provided by operating activities and $143 million of capital expenditures.

Speaker Change: Capital expenditures for the year were primarily driven by automation related investments made across our fulfillment center network and ongoing technology projects.

David Reeder: We remain highly disciplined with respect to our capital spending, and 2023 CapEx represents approximately 1.3% of net sales, slightly below our target range of 1.5 to 2% of net sales. We ended the year with $1.1 billion in cash and cash equivalents and marketable securities, over $450 million higher than our ending balance in 2022. We continue to remain debt-free and maintain a strong liquidity position of $1.9 billion.

Speaker Change: We remain highly disciplined with respect to our capital spending and with 2023 capex, representing approximately one 3% of net sales.

Speaker Change: Slightly below our targeted range of one 5% to 2% of net sales.

Speaker Change: We ended the year with $1 1 billion in cash and cash equivalents and marketable securities over $450 million higher than our ending balance in 2022.

Speaker Change: We continue to remain debt free and maintain a strong liquidity position of $1 9 billion.

David Reeder: Now that I have concluded our fourth quarter in full year 2023 recap, I'd like to discuss our first quarter in full year 2024 outlook. Let me start by saying that we have a high degree of confidence in our ability to deliver on the strategic roadmap and the long-term financial model that the team outlined at Chewy's Investor Day in December. We continue to manage Chewy for the long term and are focused on executing in the near-term macroeconomic environment.

Speaker Change: Now that I have concluded our fourth quarter and full year 2023, recap I'd like to discuss our first quarter and full year 2020 for outlook.

Speaker Change: Let me start by saying that we have a high degree of confidence in our ability to deliver on our strategic roadmap and the long term financial model that the team outlined at Chili's Investor Day in December.

Speaker Change: We continue to manage to it for the long term and our focus on executing through the near term macroeconomic environment.

David Reeder: In December, we detailed our pathway to continue delivering market share growth, margin expansion, and meaningful free cash flow generation. We expect to make progress across all three of these areas in the coming year, as we did in 2023. With that, we anticipate first quarter net sales of between 2.84 and 2.86 billion, or approximately 2% year over year growth, and full year 2024 net sales of between $11.6 and $11.8 billion, or approximately 4 to 6% year-over-year growth. This range includes the impact of a 53-week 2024 fiscal year, and the 53rd week will be fully reflected in the fourth quarter of 2024.

Speaker Change: In December we detailed our pathway to continue delivering market share gaining growth margin expansion and meaningful free cash flow generation.

Speaker Change: We expect to make progress across all three of these areas in the coming year as we did in 2023.

Speaker Change: With that we anticipate first quarter net sales of between $2 84, and $2 86 billion or approximately 2% year over year growth.

Speaker Change: And full year 2024, net sales of between 11.6 and $11 8 billion.

Speaker Change: Or approximately 4% to 6% year over year growth.

Speaker Change: This range includes the impact of a 53 week 2020 for fiscal year.

Speaker Change: And the 50 <unk> week will be fully reflected in the fourth quarter of 2024.

David Reeder: As it relates to the components of our net sales growth, we believe our 2024 growth will be primarily driven by net SPAC expansion. However, in light of the continued macro headwinds and subdued pet household formation trends, we expect active customers to be approximately flat in 2024. Moving to profitability guidance, we anticipate full-year 2024 adjusted EBITDA margins of approximately 3.8%. This will be driven by both continued gross margin expansion, as well as SCNA leverage. We continue to expect capital expenditures in the range of 1.5 to 2% of net sales, taken together with our increasing adjusted EBITDA flow through. Our collective efforts are expected to result in meaningful cash flow generation in 2024, with free cash flow conversion remaining above 80%. As you update your models for 2024, also keep in mind that we expect full year 2024 share-based compensation expense, including related taxes, to be approximately 330 million and basic shares outstanding for the full year to be approximately 449.

Speaker Change: As it relates to the components of our net sales growth. We believe our 2020 for growth will be primarily driven by netback expansion.

Speaker Change: In light of the continued macro headwinds and subdued pet household formation trends, we expect active customers to be approximately flat in 2024.

Speaker Change: Moving to profitability guidance, we anticipate full year 2024, adjusted EBITDA margin of approximately three 8%.

Speaker Change: This will be driven by both continued gross margin expansion as well as SG&A leverage.

Speaker Change: We continue to expect capital expenditures in the range of one 5% to 2% of net sales taken together with our increasing adjusted EBITDA flow through our <unk>.

Speaker Change: <unk> efforts are expected to result in meaningful cash flow generation in 2024 with free cash flow conversion remained above 80%.

As you update your models for 2024 also keep in mind, we expect full year 2024 share based compensation expense, including related taxes to be approximately $330 million in basic shares outstanding for the full year to be approximately $440 million.

Operator: Before we open the call to questions, I'd like to conclude by saying that the team continues to execute and innovate across our key strategic vectors, and we remain incredibly optimistic about Chewy's role in shaping the pet industry. Strategic initiatives, such as Chewy VetCare, are expected to, over time, unlock both top and bottom line benefits, as well as broader cross-selling opportunities throughout the Chewy Inc ecosystem. Our operating discipline and many efforts across margin-accretive verticals are producing attractive and increasing levels of profit flow through, expanding margins, free cash flow, and ultimately positioning us to deliver increasingly attractive returns for our shareholders. With that, I will turn the call over to the operator for questions. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure that your device is unmuted locally.

Speaker Change: Before we open the call to questions I'd like to conclude by saying.

Speaker Change: The team continues to execute and innovate across our key strategic vectors and we remain incredibly optimistic about <unk> role in shaping the pet industry.

Speaker Change: Strategic initiatives, such as chewy back care are expected to overtime.

Speaker Change: Both top and bottom line benefits as well as broader cross selling opportunities throughout the <unk> ecosystem.

Speaker Change: Our operating discipline and many efforts across margin accretive verticals are producing attractive and increasing levels of profit flow through expanding margins free cash flow and ultimately positioning us to deliver increasingly attractive returns for our shareholders.

Speaker Change: With that I will turn the call over to the operator for questions.

Speaker Change: Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.

Speaker Change: You would like to withdraw your question. Please press star followed by check.

Speaker Change: When preparing to ask you a question. Please enjoy your devices on mute locally.

Operator: Our first question comes from Doug Anmuth with J.P. Morgan. Your line is open, please go ahead. Thanks so much for taking the questions. I have two.

Operator: Our first question comes from Doug Anmuth with Jpmorgan. Your line is open. Please go ahead.

Douglas Till Anmuth: Thanks, so much for taking the questions to our first summit David can you just talk about the 24 revenue growth.

Sumit Singh: First, Sumit and David, can you just talk about the 24 revenue growth, obviously, starting with 2% outlook in one shade, but perhaps you can talk about what drives the confidence and acceleration as you go through the course of the year, and if there's anything else you can add just around the cadence in terms of the quarters going forward. And then on active customers, I know you're talking about PLAT for 24. Can you give us any insights into the dynamics between gross ads and what's happening with churn or attrition among existing customers? Thanks. Yeah, so hi, Doug.

Douglas Till Anmuth: Starting with 2% outlook in <unk>, but perhaps you can talk about what drives that.

Douglas Till Anmuth: Confidence in acceleration as you go through the course of the year, if there's anything else you could add around that.

David Leonard Bellinger: In terms of the quarters going forward and then.

David Leonard Bellinger: On active customers now you're talking about flat or 24 could you give us any insights into the dynamics between gross adds.

David Leonard Bellinger: No.

David Leonard Bellinger: Churn or attrition on existing customers. Thanks.

David Leonard Bellinger: Okay.

Speaker Change: Yeah, So hi tech its pleasure to meet you virtually look forward to meeting you in person.

David Reeder: It's a pleasure to meet you, and I virtually look forward to meeting you in person. As we work through the coming quarters, with respect to growth for the year, you know, I think, as Sumit outlined in his portion of the script, we're expecting an environment where pricing is relatively flat, so most of the growth will be on volume as we progress. And that's certainly the trend that we kind of saw in the fourth quarter, and we're extrapolating and extending that trend, given that we're not expecting a lot. With respect to first quarter versus the remaining three quarters as we progress throughout the year, we've guided to 2% year-over-year growth, and so we feel pretty good about that number as we roll into this first quarter. For the remainder of the year, we've got the benefit of the extra week.

Speaker Change: As we work through the coming quarters.

With respect to the growth for the year.

Speaker Change: Sumit are outlined in his portion of the script and we're expecting an environment, where pricing is relatively flat and so most of the growth will be off of volume as we progress through 2024, and that's certainly the trend that we kind of saw in fourth quarter and where.

Extrapolate and extending that trend into 2024, given that we're not expecting a lot of inflation.

Speaker Change: With respect to first quarter versus the remaining three quarters as we progress throughout the year first quarter, we've guided to 2% year over year growth and so we feel pretty good about that number as we as we roll into this first quarter for.

For the remainder of the year, we've got the benefit in the fourth quarter of the extra week.

David Reeder: We do the math on that. We're given the high percentage of recurring business that we have through auto ship as well as consumables. Do the math on that and get about 2% growth for the year from that particular extra week. So the second half of the year, we do believe we'll have not only seasonality as we typically do, but also benefits. Transcribed by https://otter.ai. For customers, the situation is quite, quite similar, actually. So when you look at kind of the discretionary environment is essentially holding back on our side, it's impacting roughly kind of 300 to 400,000 active ads. I've kind of not sized that for you directly; I figured we'd come out and kind of size that for you. So you get a sort of sense for how much of this is being held back. Our cohorts coming out of the pandemic have fully stabilized.

Speaker Change: You do the math on that were given that a high percentage.

Recurring business that we have through auto ship as well as consumables.

Speaker Change: You would do the math on that and get about 2% growth for.

Speaker Change: For the year from a from that particular extra week about $220 million.

Speaker Change: So the second half of the year, we do believe we will have not only seasonality as we typically do but also the benefit of the extra week. So that anything that you would add to that.

Speaker Change: Okay.

Speaker Change: All the customers are.

Speaker Change: The situation is quite quite similar actually so when you look at kind of the discretionary environment, there's essentially holding back on our side, it's impacting roughly kind of 300 to 400000 active up.

Speaker Change: Kind of size that for you directly I figured we'd come out and kind of size that for you. So you get a sense for how much of this is being held back hours or it's coming out of the pandemic our fully stabilized so we're not seeing them.

Sumit Singh: So we're not seeing, you know, any kind of further deterioration in cohort behavior. 2022 cohorts continue to settle out, and we're continuing to see kind of low single-digit, you know, higher churn from them, just like we did from the pandemic cohorts. Our reactivation rate remains impressively high, actually. So we've improved reactivation.

Speaker Change: Any kind of further deterioration in cohort behavior in 2022 cohorts continue to settle out and and we're continuing to see kind of low single digits, you know higher kind of churn from them just like we did from the pandemic cohorts, our reactivation rate remains impressively high actually so we can prove.

Sumit Singh: You know, from a year-to-year point of view, and we will add roughly 15% more reactivated customers this year than we did last year. So, on the balance, I think we're sort of getting into the year with a little bit of a, you know, wait-and-watch approach. We are not expecting our goods category or the discretionary to improve materially, so we're holding that into our forecast. And then, as of right now, we're not expecting, you know, the Canadian business to contribute meaningfully in 2024, as the script sort of outlines.

Speaker Change: <unk> you know from a European point of view, and we will add roughly 15% more reactivated customers. This year than we did last year. So on the balance I think we're sort of getting into the year with a little bit of Oh, you know what.

Speaker Change: And Walter approach, we were not expecting hard goods category with a discretionary to improve materially. So we're holding that into our forecast and then as of right. Now we're not expecting you know the Canadian business to contribute meaningfully in 2024.

Speaker Change: Script sort of outlined.

Sumit Singh: In addition to that, I think two more points I would add are all of our premium businesses, whether it's premium consumables, premium health, supplements, et cetera, acquisition remains strong, and customer participation remains strong, as well as some kind of participation into ownership. You know, sign-up rates are actually also pretty healthy. Hopefully, that gives you some color on the customer cohort, and I'll. Good. Thank you both.

Speaker Change: In addition to that I think two more points I would add is our all of our premium business, whether it's premium consumables premium melt.

Speaker Change: Supplement etcetera.

Speaker Change: Position remains strong and customer participation remains strong as well as kind of our sufficient into water ship.

Speaker Change: Sign up rates are actually also pretty healthy so hopefully that gives you some color on.

Speaker Change: But from a cohort analysis.

Speaker Change: Okay. Thank you both I appreciate that.

Operator: I appreciate that. We now turn to Mark Mahaney with Evercore ISI. Your line is open, please go ahead.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: We now turn to Mark Mahaney with Evercore ISI. Your line is open. Please go ahead.

Operator: Hey, I just wanted to ask about the advertising revenue opportunities. And I know you talked about what you've seen so far, and your outlook seems relatively constructive for the year. Can you explain that a little bit more?

Mark Stephen F. Mahaney: And I just wanted to ask about the advertising revenue opportunities and I know you talked about what you've seen so far and your outlook seems relatively constructive for the year can you peel that back a little bit more.

Sumit Singh: And where do you think you are on kind of ad load versus where you could be? Where do you think you are in terms of endemic and maybe non-endemic advertising versus where you could be? And any, you know, clear lessons that you've drawn so far that, you know, make you reasonably confident about the outlook for the year? Thanks a lot. Hey Mark, this is Smith. I'll take that one.

Mark Stephen F. Mahaney: And where do you think you are on AD load versus where you could be where do you think you are in terms of endemic in maybe non endemic advertising in terms of where you could be in any.

Mark Stephen F. Mahaney: <unk>.

Mark Stephen F. Mahaney: Clear lessons that you've drawn so far that make you reasonably confident about the outlook for the year. Thanks a lot.

Speaker Change: It might be somewhat I'll take that one so.

Sumit Singh: Well, coming out of last year, you know, we fully ramped up our search product, and we have recently launched branded product. And, you know, we are currently, you know, ramping up the onsite portion of the ad revenue; we have the offsite portion of the ad revenue that starts ramping up towards the back half of this year. And so what you'll see is essentially, you know, the ad load is split between kind of 70% on the onsite and 30% on the offsite. And, you know, the blended margin flow through is obviously pretty high that we're taking to the bottom line. Here, but more so on the onsite and less on the offsite.

Speaker Change: Coming out of last year are.

Speaker Change: We are fully ramped into search product, we have recently launched branded product.

Speaker Change: We are currently you know ramping up the onside portion of the AD revenue, we have the offside portion of the AD revenue that starts ramping up towards the back half of this year and so what you'll see is essentially the automotive split between kind of 70% on the onside, 30% on the off site.

Speaker Change: And the blended margin flow through is obviously pretty high.

Speaker Change: Looking to the bottom line here, but more so on the onsite and less on the Offsite and then supplier participation rates are pretty healthy or losses are pretty healthy as well, we're continuing to comp on an LTV basis, not on a per transaction basis, which as you know I appreciate that given kind of the power of the ownership of the business itself or the record.

Sumit Singh: And then, you know, supplier participation rates are pretty healthy, and our ROASs are pretty healthy as well. You know, we're continuing to comp on an LTV basis, not on a per transaction basis, which is, you know, appreciated given the kind of power of the authorship. Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: Repeat revenue as you would expect we're leading with consumables followed by hard goods and health, we ought to be able to do more little more.

Operator: What else can I tell you about the ad business? Overall, we're pleased with the progress. Thank you. Sure. Our next question comes from Dylan Carden with William Blair. Your line is open. Please go ahead.

Speaker Change: Careful making sure that we are completely respecting regulatory kind of constraints that per se.

Speaker Change: What else can I tell you about the idleness.

Speaker Change: Overall, we're pleased with the progress response, a little bit.

Speaker Change: Okay. Thank you sumit.

Speaker Change: Sure.

Speaker Change: Our next question comes from Dylan Carden with William Blair. Your line is open. Please go ahead.

Sumit Singh: Appreciate it. Sumit, back to that kind of cohort analysis on the churn side, I wonder if you could kind of speak to it on the NESPAC side. And I guess the broad question would be how relevant some of your historic cohort spending metrics are and just whether or not there's any impact from higher levels of auto-ship if those customers kind of set it and forget it and don't yield up in the same fashion because they don't visit the site with the same frequency. Any detail there would be helpful.

Dylan Douglas Carden: I appreciate it.

Dylan Douglas Carden: She went back to that kind of cohort analysis on the churn side I Wonder if you could kind of speak to it on the tech side and I guess the broad question would be.

Dylan Douglas Carden: How relevant some of your historic cohort spending metrics are.

Dylan Douglas Carden: And just whether or not there was any impact from higher levels of auto ship, if those customers kind of set it and forget it and don't yield up in the same fashion because they don't have the site with the same frequency any detail there would be helpful. Thanks.

Sumit Singh: Thanks. Yeah, so, you know, the NASPAC side of the house will continue to be driven by both health as well as, you know, participation and ownership. Those are the two primary drivers of NASPAC expansion that we see in 24. And the, you know, so those are the pluses. The minuses are obviously you don't get the pricing benefit in Nespac that you saw last year.

Speaker Change: Yeah. So you know.

Speaker Change: The netback side of the house will be continued to be driven by both the health as well as participation in auto ship over the two primary drivers of that expansion that we see in 'twenty four.

Speaker Change: So those are the pluses and minuses are always saying you don't get the pricing benefit in that spot that you saw last year or so if you average out to <unk> benefit over the last four years.

Sumit Singh: So if you average out Nespac's benefit over the last four years, you know, we essentially have 80% of the NASDAQ growth that came since the time of the IPO in 2019, on the back of organic, you know, work that the team has done, right? Improvement in ownership, improvement in health, launch of a pharmacy, growth in the supplements business, etc, etc. And, you know, 20% or less have come from inflation. But if you look at last year, right, the weight on inflation was higher as Nespac kind of grew. So this year, we're not expecting the impact of pricing or inflation on this. And so Nespac is going to grow, you know, on the back of pure ownership and health.

Essentially you have 80% of the desktop growth up Cam since the time of the IPO in 2019 on tobacco for organic.

Speaker Change: That the team has done quite an improvement in authorship improvement in health lots of pharmacy growth and the supplements business et cetera, et cetera, and you know, 20% or less has come from inflation, but if you look at last year. The weight on inflation was higher as best buy kind of groups. So this year, we're not expecting to see erosion in 'twenty four we're not expecting the impact to us.

Speaker Change: Our inflation in this and so on FX is going to grow on the back of pure auto ship and held on the health side. If you look at cohort analyses were likely going to add you know north of 1 million customers to pharmacy.

Sumit Singh: On the health side, if you look at cohort analyses, we're likely going to add, you know, north of 1 million customers to pharmacy. And, you know, that is a direct expansion of NESPAC in addition to, you know, the usual subscription rate growth that we will drive towards in the order. So those two will be a combination. We just don't get any pricing benefit.

Speaker Change: And you know that is a direct expansion off of that.

Speaker Change: In addition to the.

Speaker Change: The usual different rate growth definitely will drive towards and dealership business. So those two will be a combination we just don't get any pricing benefit this year.

Speaker Change: Okay.

Speaker Change: Got it.

Speaker Change: <unk>.

Operator: Thank you. Our next question comes from Anna Andreeva with Needham & Company. Your line is open, please go ahead.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Andrew Lazar with Needham and company. Your line is open. Please go ahead.

Operator: Great. Thanks so much for taking our questions. We have two.

Andrew Lazar: Great. Thanks, so much for taking our questions. We have two on the adjusted EBITDA I think the guide implies a slightly less than the 15% incremental margins you guys outlined during the analyst day, and you mentioned the diet does imply some opex leverage so should we.

David Reeder: On the adjusted EBITDA, I think the guide implies slightly less than the 15% incremental margins you guys outlined during the analyst day. And you mentioned the guide does imply some PECS leverage. So should we expect more muted gross margin gains for the year? Just any color there would be super helpful.

Andrew Lazar: Expect more muted gross margin gains for the year, just any color there would be super helpful. And then secondly, capex as you mentioned came in a little lower than the guide for 'twenty three I should we expect it to stay at similar a one 3% of sales or below 424.

David Reeder: And then secondly, CAPEX, as you mentioned, came in a little lower than the guide for 23. Should we expect it to stay at a similar 1.3% of sales or below for 24? Any thoughts on initiating a buyback, just given this ramping free cash flow generation? Thanks so much. Hi Anna.

Andrew Lazar: Any thoughts on initiating a buyback.

Andrew Lazar: Given this ramping free cash flow generation. Thanks, so much.

Speaker Change: Sure Hi, Anna Let me, let me, let me take that one and let me, let me speak a little bit more broadly, perhaps and philosophically about profitability first we outlined at capital markets day, our philosophy, and our path to 10% EBITDA margin and the corresponding free cash flow.

David Reeder: Let me take that one and speak a little bit more broadly, perhaps, and philosophically about profitability first. You know, we outlined at Capital Markets Day our philosophy and our path to 10% EBITDA margin and the corresponding free cash flow that would, of course, come from that. And so when we think about profitability within 2024, we are expecting to get leverage not only on the gross margin line but also on the operating expense line as well. And specifically within gross margin, let me call out a few areas. Given our infrastructure and the fact that it's reached critical mass, we're actually able to flow through incremental volume at a much higher accretive rate for the company. So as we get more volume, given the infrastructure we've built out, we have moderated capex on a go-forward basis, and the fall-through is higher for that incremental volume. At fixed cost absorption, if you will.

Speaker Change: That would of course come from that and so when we think about profitability within 2024, we are expecting to get leverage not only on the gross margin line, but also on the operating expense line as well and specifically within gross margin, let me call out a few areas.

Speaker Change: Given our our infrastructure and the fact that it's reached critical mass, we're actually able to flow through incremental volume at a much higher accretive right for the company. So so as we get more volume given the infrastructure. We've built out we have moderated capex on a go forward basis the fall through is higher.

Speaker Change: For that incremental volume.

Speaker Change: Fixed cost absorption. If you will in addition to that we also have product mix. So we're mixing up from a product perspective, as we continue to grow into health care into pharmacy that also averages up or accrete up our gross margin and then finally within the gross margin line.

David Reeder: In addition to that, we also have product mix. So we're mixing it up from a product perspective as we continue to grow into health care, into pharmacy, that also averages up or accretes up our gross margin. And then, within the gross margin line, we also have sponsored ads that we've already spoken about a little bit.

Speaker Change: We also have sponsored ads, we've already spoken about a little bit we expect sponsored ads we've ramped those in the fourth quarter, we expect to continue to grow those quarter to quarter to quarter sequentially throughout 2024, and so that's the accretion that we expect to occur on the gross margin line with respect to Opex.

David Reeder: We expect sponsored ads; we've ramped those in the fourth quarter. We expect to continue to grow those quarter to quarter, sequentially throughout 2024. And so that's the accretion that we expect to occur on the gross margin line. With respect to OPEX, you know, we are making some investments on the OPEX side. We expect our core OPEX to continue to scale. But then, of course, we're thoughtfully entering Canada as we expand into Toronto.

Speaker Change: We are making some investments on the Opex side, we expect our core opex to continue to scale.

Speaker Change: Then of course, we're thoughtfully entering Canada as we expand into Toronto and of course, we're also investing in our long term initiatives around that care and so the rate and pace of those investments will be thoughtfully.

David Reeder: And of course, we're also investing in our long-term initiatives around veterinary care. And so the rate and pace of those investments will be, you know, thoughtfully managed as we proceed throughout the year. But we're expecting to get benefits and profitability from both gross margin as well as... On the CapEx side of the house, we've guided long term for a point and a half to two points of net sales. You're correct, last year, at 23, we were slightly below that.

Speaker Change: Thoughtfully managed as we proceed throughout the year, but we're expecting to get benefits and profitability from both gross margin as well as as well as opex on the Capex side of the house, we've guided long term a point and a half to two points of net sales you're.

Speaker Change: You are correct last year in 'twenty, three we were slightly below that I think a good midpoint would be take the midpoint of that guidance between one and a half and and 2% and think about the midpoint of the guidance. We've given you on the top line.

David Reeder: I think a good midpoint would be take the midpoint of that guidance between one and a half and two percent and think about the midpoint of the guidance we've given you on the top line. That'll put you in a good spot from a capital expense standpoint, and cash flow. All right. Thank you so much.

Speaker Change: I will put you in a good spot from a from a capital expenditures perspective.

Speaker Change: We do expect to generate meaningful free cash flow is as we mentioned in our script.

Speaker Change: Alright, thank you so much.

Operator: Best of luck. Thank you. Our next question comes from Steven Zaccone with Citigroup. Your line is open, please go ahead. Great. Good afternoon. Thanks for taking my question. And Dave, congrats on the new role.

Speaker Change: Thank you Ana Thank you.

Speaker Change: Our next question comes from Steven Zaccone with Citigroup. Your line is open. Please go ahead.

Steven Emanuel Zaccone: Great. Good afternoon. Thanks for taking my question and Dave Congrats on the new role.

Sumit Singh: Sumit, I wanted to ask about the broader pet industry. You know, we've heard about some higher promotional activity, and then some trade down activity, in terms of the pet food space. What are you seeing in your business? And I guess, as you think through the year, do you think we're in the worst of it now? Or could the space get a little bit more competitive as we get into the back half? Thanks. Yeah, there's a lot in that question. Let me kind of unpack it.

Steven Emanuel Zaccone: I wanted to ask about the broader pet industry.

Steven Emanuel Zaccone: We've heard about some higher promotional activity and then some trade down activity.

Steven Emanuel Zaccone: In terms of the pet food space, what are you seeing in your business and I guess as you think through the year do you think we are in the worst of it now or could this things get a little bit more competitive as we get into the back half. Thanks.

Speaker Change: Yeah, there's a lot in that question.

Speaker Change: Steve Let me kind of unpack it so let's separate promotional amendment, so Q4 proven environmentally the rational.

Sumit Singh: So let's start with the promotional environment. The Q4 promo environment was rational and in line with our expectations. It was modestly higher than 2023.

Speaker Change: In line with our expectations.

Speaker Change: Was modestly higher than 2023, but we had been signaling that you know all the way up through 2023, and so you know 'twenty one 'twenty two.

Sumit Singh: But we'd been signaling that, you know, all the way through 2023. And so, you know, 21 and 22, Q1 and Q2 didn't hadn't picked up, and Q4, we did see kind of the 30 to 50 basis point incrementality and promotion pickup that we were forecasting throughout the year. Obviously, we were able to absorb it, given that we were planning for it.

Speaker Change: Q1, and Q2 didn't hadn't picked up in Q4, we did see kind of the 30 to 50 basis point increments allergy and promotion pick up that we were forecasting throughout the year.

Speaker Change: Obviously, we were able to absorb that given that we were planning for it to the good.

Sumit Singh: So the good part, the silver lining here is that, you know, we've sort of returned to normality from a promotional standpoint, in our opinion, from a pre-pandemic, post-pandemic world, right? Post-pandemic, we sort of through the pandemic, we got this benefit of sort of, you know, floating, as a result of either supply pullbacks or, or, or just general normal demand So all of that being normalized, we don't expect the promotional environment to remain more volatile or to become more volatile as we move through 2024. That's sort of the assumption that we're generally, when you look at the industry, so let me kind of shift to industry trends. So generally, when you look at the industry, if you take the 90 billion pet food and supplies category, over the past decade, unit growth has been driven mainly by supplies and treats. So that's all discretionary.

Speaker Change: The silver lining here is that we.

Speaker Change: Sort of return to normality from a promotional standpoint in our opinion from a pre pandemic post pandemic worldwide post pandemic.

Speaker Change: Through the pandemic, we got this benefit of sort of our float.

Speaker Change: As a result of us getting either supply pullbacks or or or just general normal demand generation. So all of that is normalized we don't expect promotional environment to remain more volatile or to become more volatile as we move through 2020 for it that's one of the assumptions that we're making in.

Speaker Change: Generally when you look at the industry. So let me kind of shift to industrial trends.

Generally when you look at the industry. If you take the 90 billion pet food and supplies category over the past decade unit growth has been driven by mostly supplies entry. So that's all discretionary and.

Sumit Singh: And pricing growth has been driven by premiumization trends, right? So, you know, when you put that in context in today's macro, it helps you understand why the industry is expecting kind of modest unit growth in 24 and limited pricing benefits given that we're coming out of inflationary environments and getting into 24. And there are no premiumization trends that sort of continue. It's more of a mainstream kind of focus as we move towards the 24 cap.

Speaker Change: And pricing growth has been driven by premium amortization trends right. So yes.

Speaker Change: So when you put that in context in today's macro it helps you understand why the industry is expecting kind of modest unit growth in 'twenty, four and limited pricing benefit given that we're coming out of the inflationary environment getting into 'twenty four and there is no premium ization trends that sort of continue its more of a mainstream kind of focus as we move towards towards the 2040 kept per year and.

Sumit Singh: And then meanwhile, when you take the $20 billion, you know, remaining pet health merchandising category, right, where we continue to remain kind of clear winners there, and again, continue to expect to grow kind of both volume and translation into Nespac expansion, you know, coupled with kind of the ownership, you know, trend that we've talked about. So that's, that's the general industry when you look at when you kind of further pare that down into inputs, and you look at adoption data. So, pet adoptions were down 30% year over year coming out of Q4. Search for new pets and new pet interest was down 16% coming out of the year.

Speaker Change: Meanwhile, when you take the $20 billion remaining that held merchandising category right.

Speaker Change: We continue to remain kind of clear winners there and continue to expect to grow kind of both volume and translating into a netback expansion.

Speaker Change: Bold with kind of the auto ship, you know trends that we've talked about.

General industry. When you look at when you kind of further pared that down into inputs and you look at adoption data. So pet options were down 30% year over year coming out of Q4 search for new pet and new pet interest was down 16% coming out of the year and that has further degraded by somewhere around 6% to 8% year over year right. So so coming in.

Sumit Singh: And that has further degraded by somewhere around 6 to 8% year over year. So, coming into the year, trends haven't picked up yet. And of course, there's a lot more year to play. We continue to be a little bit protected or insured given that 85% of the business is coming from consumables and health, both categories where we continue to gain share, meaningfully so in healthcare and reasonably so in consumables, you know, with hard goods as the lagging category. That's how I would characterize it. I'd be happy to take a follow-up if I left any. Okay, thank you very much.

Speaker Change: The ear trends haven't picked up yet and of course, there is a lot more year to play we continue to be a little bit.

Speaker Change: Protected are insured given that 85% of the business is coming from consumables and held both categories, where we continue to gain share meaningfully so in health care and reasonably so in consumables.

Speaker Change: With hard goods as the lagging category.

Speaker Change: But that's how I would characterize that happy to take a follow up if I left anything out.

Speaker Change: Okay. Thank you very much.

Speaker Change: Okay.

Speaker Change: We now turn to Nathan further with Morgan Stanley. Your line is open. Please go ahead.

Nathan: Thanks for taking my question, everyone. So thinking about the 50 basis points of EBITDA margin expansion guidance for the year can you help us walk through the key drivers to get there and what could really drive upside for that and then anything you can share on how much international expansion is weighing on margins. Thank you.

Operator: We now turn to Nathan Feather with Morgan Stanley. Your line is open, please go ahead. Thanks for taking my question, everyone. So thinking about the 50 basis points of even a margin expansion guided to for the year, you know, can you help us walk through the key drivers to get there and what could really drive upside for that? And then anything you can share on how much international expansion is weighing on margins. Thank you.

Speaker Change: Sure. Let me, let me start with the EBITDA expansion of 50 bps that we guided it's really when you think about.

Speaker Change: When you think about the growth there, let's just let's talk about the gross margin line first it's really the three items that I mentioned before we've got the opportunity given our fixed infrastructure and.

David Reeder: Sure, let me start with the EBITDA expansion of 50 BIPs that we guided. Look, it's really when you think about when you think about the growth there, let's talk about the gross margin line first. It's really the three items that I mentioned before.

Speaker Change: To get some fixed cost absorption out of the model. So if volume grows faster than we expect throughout the course of the year.

Speaker Change: And that's going to be a benefit to us it's going to flow through at a higher rate given that we don't have to correspondingly make.

David Reeder: We've got the opportunity, given our fixed infrastructure, to get some fixed cost absorption out of the model. So if volume grows faster than we expect throughout the course of the year, then that's going to be a benefit to us. It's going to flow through at a higher rate, given that we don't have to correspondingly make the same level of investment to ship that incremental volume, and so we're going to get some nice fixed cost absorption to the extent that volume picks up throughout the year. In addition to that, we have been product mixing up the business. As we expand into health care and into pharmacy, [inaudible] I know we really kind of ramped that up in a bit more meaningful way in the fourth quarter of this year.

Speaker Change: At the same level of investment to ship that incremental volume and so we're going to get some nice fixed cost absorption to the extent that volume picks up throughout the year. In addition to that we have been product mixing up the business.

Speaker Change: As we expand into health care into pharmacy into services.

Speaker Change: All of those are accretive to us from a corporate margin perspective, and so as those become a larger part of our business over time, which they have.

And then that margin will fall all the way through the P&L to the bottom line and then of course that the final piece is a piece that we've spoken about a little bit here and that sponsored ads.

Speaker Change: We really kind of ramped that up in a bit more meaningful way in the fourth quarter of 'twenty three and as I mentioned, we expect sponsored ads to grow throughout 2020 for Q1 to Q2 to Q3 and into Q4. So that's an area of growth for us that are that as accretive as well.

David Reeder: And as I mentioned, we expect sponsored ads to grow throughout 2024. You know, Q1 to Transcribed by https://otter.ai. Well, on the OPEC side, I'll just kind of reiterate that, you know, the rate and pace of those investments will be the rate and pace at which the business needs those investments to be made. So we have committed to profitable growth at Capital Markets Day, and we do believe that we are going to deliver that profitable growth. But we also want to continue to invest for the future.

Speaker Change: On the on the Opex side.

Speaker Change: Just kind of reiterate that.

Speaker Change: Rate and pace of those investments will be the rate and pace at which the business needs of those investments to be made so we are committed to profitable growth at capital markets day.

Speaker Change: We do believe that we are going to deliver that profitable growth, but we also want to continue to invest for the future and so we feel like this business plan that we've kind of outlined for you today for the full year.

David Reeder: And so we feel like this business plan that we've kind of outlined for you today for the full year, irrespective of the macro environment, it is, it is a plan to continue to take share. And then, of course, it's also a plan to deliver profitable growth and meaningful free cash. Our next question comes from Alex Steiger with Goldman Sachs. Your line is open. Please go ahead.

Speaker Change: Irrespective of the macro environment. It is a it is a plan to continue to take share.

Speaker Change: And then of course, it's also a plan to deliver profitable growth and meaningful free cash flow I would add.

Speaker Change: Our next question comes from Alex <unk> with Goldman Sachs. Your line is open. Please go ahead.

Operator: Great, thank you for taking my questions. First one on competition. So how would you characterize the competitive landscape as we enter 2024? And what gives you confidence in continuing to gain market share this year? And then one follow-up on the Q4 EBITDA outperformance. So can you maybe just help us understand the contribution from the various initiatives you've laid out versus some of the efficiencies you're seeing on automation and or OPEX disciplines? Thank you. Sure, I'll take the first one, Smith.

Alex: Great. Thank you for taking my question.

First one on competition. So how would you characterize the competitive landscape as you enter 2024, and what gives you the confidence in continuing to gain market share. This year and then one follow up on the Q4 EBITDA outperformance. So can you maybe just help us understand the contribution from the various initiatives you've laid out.

Alex: Some of the efficiencies, you're seeing on automation and or Opex discipline. Thank you.

Speaker Change: Sure I'll take the first wanted to Smith.

Sumit Singh: So in terms of competitive intensity, it's not elevated from our point of view, but promotional intensity was obviously higher coming out of Q4. Ad intensity and ad competition remains high. If you look at CPCs, CPCs were up roughly 14-16% in Q4, but they were met with demand given that supplies had recovered in Q4 of this year. So we were anticipating higher CPCs given bidding intensity was higher coming into the holiday season. The three, there's, at least from what we can tell, there's kind of three, you know, companies that are taking a share.

Smith: So in terms of competitive intensity in it's not elevated from our point of view promotional intensity was obviously higher coming out of Q4.

Speaker Change: AD intensity of that competition remains high if you look at CPC CPC is we're up roughly 14% to 16% in Q4, but they were met with demand given that supplies that recovered in Q4 of this year. So we were anticipating higher CPC is given kind of bidding bidding intensity was higher coming into the holiday season that has pared back.

Speaker Change: Some as we've come into Q1, some part of that is not really expecting some part of that is.

Speaker Change: When you look at across the industry, we believe.

Speaker Change: Three there is at least from what we can tell there's kind of three.

Speaker Change: Companies that are taking share.

Sumit Singh: Chewy is clearly gaining share in the market, you know, Walmart and Amazon are the next two competitors, you know, from a, but each of each, each of the portfolios has kind of different strengths, in my opinion, with, you know, someone like Chewy kind of being able to sort of span the entire gamut. So what I mean by that is, you know, our performance. Our performance continues to be supported by non-discretionary categories, which make up 85% of our sales. And so we excel in many pockets within that 85% In the current environment, you know, some of the other companies that I'm mentioning have likely been, you know, primarily winners in that, in the discretionary categories where we are not winning. So that lower mix of hard goods is both a strength and an opportunity for Chewy, given that it shields us from, you know, the discretionary impact that you've seen, you know, announced in some other places.

Chewy is clearly gaining share in the market Walmart and Amazon are the next two competitors.

Speaker Change: From a but each of each each of the portfolio has kind of different strengths in my opinion.

Speaker Change: With someone like chewy, and kind of being able to sort of span the entire government here. So what I mean by that is you know our performance.

Speaker Change: Our performance continues to be supported by non discretionary categories, which make up 85% of our sales and so we excel in many pockets in that 85% in the current environment. Some of these other companies that I'm mentioning have been likely you know.

Speaker Change: Primarily winners in that in the discretionary categories, where we're not winning so that lower mix of hard goods as both the strength and an opportunity to chewy given that its shields us from the discretionary impact that you've seen.

Speaker Change: And some of the other other places and then Walmart has unsurprisingly shined in the value segment.

Sumit Singh: And then Walmart has unsurprisingly shined in the value segment amidst the current macro backdrop, you know, including kind of outside successes that have been seen in areas like private label, where, you know, as we were candid in the investor day presentation, we do not have a kind of like-for-like assortment, but it's part of our strategic plan to come out and provide strategic, you know, like-for-like assortments there. So if you kind of summarize it, what we believe Chewy remains differentiated from both these players or the industry generally through our comprehensive offering that we provide to the pet parent, the type of relationships and the loyalties that we build, the quasi-subscription business, and the strength of that ecosystem, the pet health ecosystem, which is first-party proprietary that extends both through products and services across our retail offerings.

Speaker Change: Current macro backdrop.

Speaker Change: Including kind of outside successes that have been seen in areas like private label, where as we were accounted in the Investor day presentation. We do not have kind of like for like assortment, but as part of our strategic plan to come out and provide strategic.

Speaker Change: Like for like assortment there. So if you kind of summarize it what we what is important to I think noted as we believe chewy remains differentiated from both these players or the industry generally.

Speaker Change: Through a comprehensive offering that we provide to the pet parent the type of relationships and the loyalty that we built the quasi subscription business on the strength of that.

Speaker Change: <unk> system the <unk>.

Speaker Change: Ecosystem, which is first party proprietary that extensible to product and services.

Speaker Change: Cross our all of our retail offerings.

David Reeder: All of this positions us well to compete in 2024. Alongside that, we've made several investments in future categories, which are both top-line growth and margin-expanding categories. So we feel bullish about our ability to compete through 24 as well as at an accelerating pace as we come out of 24 into 25. Now, let me address the EBITDA question that was posed. But I want to speak a little bit more broadly about the year

Speaker Change: All of it positions us well to compete in 2024.

Speaker Change: Long side that we've made several investments in future categories, which are both topline growth and margin expanding categories.

Speaker Change: So we feel bullish about our ability to compete through 'twenty four as well as accelerating pace as we come out of 24% to 25 and 26.

Speaker Change: Thank you Sumit, let me, let me address the EBITDA question.

Speaker Change: Was posed.

Speaker Change: Let me speak a little bit more broadly about about the year first when you compare 2023 versus 2022, we did expand gross margin by roughly 40 bps on a year over year basis, and so when you. When you look at how that flowed through from an EBITDA perspective, I think what.

David Reeder: When you compare 2023 versus 2022, we did expand gross margin by roughly 40 bps on a year-over-year basis. And so when you look at how that flowed through from an EBITDA perspective, I think what you saw us do, what you saw us execute in 2023, was you saw us execute with long-term investments in the business, but still return a good portion of the gross margin expansion to the bottom line in the EBITDA margin line. So we were quite pleased by our ability to take gross margin as it expanded and then push it all the way through the P&L to the EBITDA margin line on a year-over-year basis. With respect to the fourth quarter, we did grow gross margin slightly on a year-over-year basis in the fourth quarter by 10 bps. We did have some timing issues with respect to expenses. So, on a year-over-year basis, suggested EBITDA did decrease from 3.4 to 3.1 percent.

Speaker Change: What you saw us do well.

Speaker Change: Why you saw us execute in 2023, whereas you saw us execute with long term investments in the business.

Speaker Change: Still return a good portion of the gross margin expansion to the bottom line and the EBITDA margin line and so so we were quite pleased by our ability to take gross margin as it expanded and then push it all the way through the P&L.

Speaker Change: Two the EBITDA margin line on a year over year basis with respect to fourth quarter. We did grow gross margin slightly on a year over year basis in fourth quarter by by 10 bps, we did have some timing issues.

Speaker Change: With respect to expenses and so on a year over year basis, adjusted EBITDA decreased from three four to three 1%.

David Reeder: I would characterize, again, many of those as the investments that we were making throughout the year to be able to support both our international business... As well as Chewy Vet Care as the primary reason for that, but again, for the full year, I was quite pleased with our ability. I would just add that, you know, when we started the year, we sort of carved out, you know, a bunch of growth initiatives that we were impacting that we'd sized for you. And as we move through the year, we increasingly find the ability to self-fund a lot of these initiatives, ending the year strong. And as you've seen, we kind of provide guidance for 2024. We continue to invest in growth initiatives for the future and are self-funding a bunch of that alongside the expansion that is very helpful. Thank you. Our final question today comes from Rupesh Parikh on Oppenheimer. The line is open.

Speaker Change: I would characterize again many of those as the investments that we're making throughout the year to be able to support both our international expansion is really as well as chewy vet care as the primary reason for that.

Speaker Change: But again for the full year quite pleased with our ability to deliver profitable growth.

Speaker Change: I would just add that when we started the year, we'd sort of carved out.

Speaker Change: Bunch of growth initiatives that will impact that.

Speaker Change: Good sized for you and as we move through the year, we increasingly found the ability to self fund a lot of these initiatives ending the year strong.

As you've seen us kind of provided guidance for 2024, we continue to invest in growth initiatives for the future.

Speaker Change: At our self funding a bunch of that alongside the thing would be that expansion that we're providing here.

Speaker Change: Very helpful. Thank you.

Speaker Change: Sure.

Parikh: Our final question today comes from refresh Parikh with Oppenheimer.

Parikh: Oppenheimer. Your line is open. Please go ahead.

Operator: Please go ahead. Good afternoon, and thanks for taking my question. So, a question for Dave.

Parikh: Good afternoon, and thanks for taking my question. So a question for Dave So you've obviously been there a few weeks now.

Operator: So you've obviously been there for a few weeks now. So it's still early, but I was just curious if you see any new opportunities in the business. Thanks for the question, Rupesh, and I look forward to meeting you all in person. You know, this is my fifth week at Chewy, and I think one of the things that I am most pleased to report is that the business performance trajectory, the opportunity set, all of the things that kind of went into my diligence thesis when I was joining Chewy, all of it seems very much in line with what my expectations were. And specifically, you know, the consistency, predictability, and repeatability of the revenue stream was high on my list of items to kind of test, as built with auto ship and consumables. The infrastructure is world class.

Parikh: So early but just curious if you see any new opportunities in the business.

Rupesh Dhinoj Parikh: Thanks for the question refresh and look forward to meeting you all in person.

Mike: This is Mike.

Dave: My fifth week at Chewy, and I think one of the things that I am I am most pleased to report is that the business performance trajectory the opportunity set all of the things they kind of went into my my diligence thesis when I was joining chewy.

Dave: All of it seems very much in line with what my expectations were and specifically.

Dave: The consistency predictability the repeatability of the revenue stream.

Dave: <unk> was high on my list of items to kind of test.

Dave:

Dave: <unk> build with auto ship and consumables and the infrastructure is.

<unk> is world class.

David Reeder: The build out of our infrastructure and the critical mass that we have there, and our ability to ship some significant incremental volume through the same footprint as that volume becomes available for us to tap in the industry. I do believe we're going to get not only moderating CapEx but increasing free cash flow. The margin opportunities as we mix up the business from health care are meaningful. And then, finally, when you think a little bit longer term, you know, some of the opportunities that we have to penetrate direct vet care, expand internationally, and add incremental services. I think all those theories that I had about the business, about Chewy, as well as, of course, the loved brand, all of those things are in place. I'm incredibly excited.

The build out of our of our infrastructure and the critical mass that we have there and our ability to ship some significant incremental volume through the same footprint as that volume becomes available for us to tap in the industry.

Dave: I do believe we're going to get not only moderating capex, but increasing free cash flow and the margin opportunities as we mix up the business from health care.

Dave: Our meaningful and then finally, when you think a little bit longer term.

Dave: Some of the opportunities that we have to penetrate direct vet care expand international adding incremental services.

Dave: Thank all of those theses that I had about the business about shui as well as of course, the the love the brand.

Dave: All of those things are are as built I'm incredibly excited to be here.

David Reeder: Did you have a follow-up question, Rupesh? Yeah, and I guess just my follow-up question. So you know, it sounds like this, your house pet household formation is likely going to be weak. So if you guys think about a return of positive net active customer growth, is that, essentially, you just need a better macro and a return to stronger pet household formation? Is that the key missing ingredient at this point? That is definitely one of them. But that's not the only one.

Dave: Do you have a follow up for refresh.

Speaker Change: Yeah, and I guess, just my follow up question. So you know it sounds like this your household household formation.

Speaker Change: We generally weak so as you guys think about a return to positive net.

Speaker Change: Active customer growth is that essentially you just need a better macro and a return to stronger about household formation is that the key missing at this point.

Speaker Change: And that is definitely one of them.

Speaker Change: But that's not the only one I mean, we continue to pick up customers at a pretty healthy clip all of the other categories that are performing within you know continue to resonate loudly.

Sumit Singh: I mean, we continue to pick up, you know, customers at a pretty healthy clip; all of the other categories that we're performing within, you know, continue to resonate loudly. You know, in pharmacy, I mentioned north of a million customers migrating over, which is obviously not showing up in the active customer file, but you see that in the NASPAC number and the Amplified Revenue Group. And then, you know, all of the newer innovations that we're looking at, whether it's the introduction of new marketing channels that we might be experimenting with at any given point or the launch of new verticals such as services. These are all, you know, customer acquisition types, both acquisition and retention. So yes, there is the macro, you know, but we're also focused on what is controllable on our side and making sure that no, no storm goes unturned.

Speaker Change: No in pharmacy, I mentioned north of a million customers migrating over which is obviously not showing up in the active customer file, but you show that you show that in the netback number in the amplified revenue growth number.

Speaker Change: And then you know all of the new innovations that we're looking at whether it's the introduction of new marketing channels that you might be experimenting with at any given point or launching of new verticals such as services. These are all you know customer acquisition, both acquisition and retention type verticals. So yes, there is the macro.

Speaker Change: But we're also focused on what is controllable on our side and making sure that no no stone goes unturned per se.

Operator: Great, thank you. Thank you. Ladies and gentlemen, this concludes our Q&A and today's Chewy fourth quarter and full year 2023 earnings call. We'd like to thank you for your participation. You may now disconnect your lines.

Speaker Change: Great. Thank you.

Speaker Change: Sure.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, this concludes our Q&A on todays chewy fourth quarter and full year 2020.

Speaker Change: Three earnings call.

Speaker Change: Thank you for your participation you may now disconnect your lines.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].