Q2 2024 Chewy Inc Earnings Call

[inaudible]

Unknown Executive: Ladies and gentlemen, the chewy second course of 2024 earnings call will begin shortly. We appreciate your patience. During the call, if you have any questions, please press star followed by one on your telephone keypad and take yourself out of that line of questioning. It is star followed by two. We will begin at two minutes past the hour.

Speaker Change: Ladies and gentlemen, the Chewie Second Calls of 2020's Four Islands call will begin shortly. We appreciate your patience. During the call, if you have any questions, please press star for look by one on your telephone keypad and take yourself out of that line of questioning, it is star for look by two. We will begin at two in its past the hour.

Unknown Executive: Good morning, all, and thank you for joining us for the chewy second course of 2024 earnings call.

Speaker Change: Good morning, all and thank you for joining us for the truly second course of 2020 for our new school.

Carly: My name is Carly, and I'll be the core coordinator today. During the presentation, you can register a question by pressing star for about one on your telephone keypad, and to move yourself from that line of questioning, be pressed star followed by two.

Carly: My name is Carly and I'll be the cool coordinator today. During the presentation, you can register a question by pressing star for a bow-one on your telephone keypad and to move yourself from that line of questioning, please press star for a bite too. I'll now hand over to your host, Jen Su, and best of relations to begin.

Jen Sue: I'll now hand over to your host, Jen Sue, Investor Relations, to begin. Thank you for joining us on the call today to discuss our second quarter results for fiscal year 2024. Joining me today are Chewy St. EO Smithing and CFO David Reeder. Our earnings release, which was filed with the FAC earlier today, has been posted to the Investor Relations section of our website. In addition to the earnings release, a presentation summarizing our results is also available on our website at Investor. Chewy.com.

Unknown Executive: We appreciate your patience.

Unknown Executive: During the call, if you have any questions, please press star followed by one on your telephone keypad and take yourself out of that line of questioning. It is star followed by two. We will begin at two minutes past the hour. [inaudible] We will begin at two minutes past the hour. We will begin at two minutes past the hour.

Jen Su: Thank you for joining us on the call today to discuss our second quarter results for fiscal year 2024. Joining me today are chewysteeo, mid-thing, and CFO David Reeder.

Speaker Change: Our earnings release, which was filed with the FAC earlier today, has been posted to the investor relations section of our website. In addition to the earnings release, a presentation summarizing our results to also available on our website at investorthatchewey.com.

Jen Sue: On our call today, we will be making forward-looking statements, including statements concerning Chewy's financial results and performance, industry trends, strategic initiatives, share approaches program, 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, and our quarterly report on Form 10-Q from last quarter, and in our other filings with the SEC, including the quarterly report on Form 10-Q filed earlier today, which could cause actual results to differ materially from this contemplated dire forward-looking statement.

Speaker Change: On our call today, we will be making forward-looking statements, including statements concerning Chewie's financial results and performance industry trends, strategic initiatives, share the environment that we operate in.

Speaker Change: Such statements are considered for looking statements under the private securities litigation reform Act in 1995.

Speaker Change: and our subject to certain risks and certainties and other factors described in the section titled risk factors. And our quarterly report on form pen view from last quarter and in our other filings with the SEC, including the quarterly report on form pen view filed earlier today, which could cause actual results.

Jen 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.

Speaker Change: to give from a purely from this concentrated, dire-forward location statement.

Speaker Change: Reporting 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.

Jen Sue: Also, during this call, we will discuss certain non-DAP financial measures, reference liaisons of these non-DAP items that most directly comparable GAP financial measures are provided on our investor relations website, and in our earnings release, which was filed with the SEC today. These non-dap measures are not intended as a substitute for gap results. Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2023.

Speaker Change: We just claim any obligation to update any forward-looking statements except as required by law.

Speaker Change: Also during this call, we will discuss the non-dap financial measures. Corrections, the liations of these non-dap items that was directly comparable to a natural measure are provided on our Nuster Relations website. And in our earnings release, which was filed with the ATC today.

Speaker Change: He's non-depth measures are not intended as a substitute for gap results.

Speaker Change: Additionally, unless otherwise stated, all comparisons to Best Time State's call will be against the comparable period of fiscal year 2023.

Jen Sue: Finally, the call in its entirety is being webcast on our Investor Relations website. A replay of the audio webcast will also be available on our Investor Relations website shortly.

Speaker Change: Finally, this call in its entirety is being webcast on our Mr. Relations website. A replay of the audio webcast will also be available on our investor relations website shortly. I'd now like to turn the call over to submit.

Sumit Singh: I now like to turn the call over to Smith. Thank you, Jim, and thank you all for joining us on today's call. Our Q2 results reflect another quarter of strong execution against our strategic priorities. We deliver top-line growth at the high end of our guidance range, continued significant with just a deep at the margin expansion and compelling free cashflow generation. Initiatives, including two e-wet care and sponsored ads, are performing well, and I look forward to telling you more about these in a few minutes. With that, let's dive in. Q2 net sales grew by approximately 3% to $2.86 billion.

Submit: Thank you, Jim. And thank you all for joining us on today's call. Our Q2 results reflect another quarter of strong execution against our strategic priorities.

Speaker Change: We delivered top line growth at the high end of our guidance range, continued significant adjusted deeper to margin expansion and compelling free cash flow generation.

Speaker Change: Initiatives, including two event care and sponsored ads are performing well and I look forward to telling you more about these in a few minutes with that dive in.

Speaker Change: Q2 net sales grew by approximately 3% to 2.86 billion dollars.

Sumit Singh: Autoship customer sales grew by approximately 6% or double the rate of company-wide net sales to reach 78% of net sales, reflecting both the convenience and the value of the program and the strength of our non-discretionary categories, including consumables and health, which collectively represented approximately 85% of our net sales in the quarter. In addition to the engagement created through our Autoship program, our ability to grow share of wallet was also evident in Q2 with metrics such as net sales, proactive customer, or NASPAC, which set the new record at $565, growing over 6% in the quarter. Let's back growth is being driven by factors such as strengthening mix of repeatable categories and growth in our premium product lines, for example, premium food and chewy health.

Speaker Change: Audition customer sales grew by approximately 6% or double the rate of company-wide net sales to reach 78% of net sales.

Speaker Change: reflecting both the convenience and the value of the program and the strength of our non-discretinary categories, including consumables and health, which collectively represented approximately 85% of our net sales in the quarter.

Speaker Change: In addition to the engagement created through our watershed program, our ability to grow share of wallet was also evident in Q2, with metrics such as net sales, proactive customer, or next pack, which set a new record at $565 growing over 6% in the quota.

Carly: My name is Carly and I'll be the core coordinator today. During the presentation you can register a question by pressing star for about one on your telephone keypad, and to move yourself from that line of questioning, be pressed star followed by two.

Speaker Change: Next pack growth is being driven by factors such as strengthening mix of repeatable categories and growth in our premium product lines, for example premium food and chewy health.

Jennifer Hsu: I'll now hand over to your host, Jen Hsu, investor relations to begin. Thank you for joining us on the call today to discuss our second quarter results for fiscal year 2024. Joining me today are Chewy St.

Sumit Singh: Also notable this quarter was the strengthening customer engagement through our mobile app. Over the past year or so, we have been hard at work redesigning our mobile app and making the overall user experience more convenient for our customers. This quarter we saw some early signs of this strategy paying dividend. Unique customers who placed orders through our app increased by approximately 13% year over year, with older all mobile app orders increasing approximately 15% year over year. We observed both higher units per order and better retention when customers download and use the Chewy app. On the topic of customers, we ended the second quarter with approximately 20 million active customers and are encouraged to see net ads grow, even if modestly, on a sequential basis for the first time since Q1 2023.

Speaker Change: Also notable this quarter was the strengthening customer engagement through our mobile app. Over the past year or so we have been hard at work redesigning our mobile app and making the overall user experience more convenient for our customers. This quarter we saw some early signs of this strategy paying dividend.

Unknown Executive: EO Smithing and CFO David Reeder. Our earnings release, which was filed with the FAC earlier today, has been posted to the investor relations section of our website. In addition to the earnings release, a presentation summarizing our results is also available on our website at investor.

Speaker Change: Unique customers who placed orders through our app increased by approximately 13% year over year with overall mobile app orders increasing approximately 15% year over year.

Unknown Executive: 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, share approaches programs, and the environment that we operate in. Such statements are considered forward-looking statements under the Private Security's litigation reform act of 1995, and are subject to certain risks, uncertainties, and other factors described in the section titled risk factors in our quarterly report on form 10Q from last quarter, and in our other filings with the SEC, including the quarterly report on form 10Q filed earlier today, which could cause actual results to differ materially from this contemplated dire forward-looking statement.

Speaker Change: We observe both our units for order and better retention when customers download and use the QE app.

Speaker Change: On the topic of customers, we ended the second quarter with approximately 20 million active customers and are encouraged to see net ads grow even if moderately on a sequential basis for the first time since Q1223.

Sumit Singh: Our second quarter performance carried on the trends we saw in Q1 with new customer acquisition, reactivations, and retention exceeding our internal expectations for the second quarter in a row. Additionally, this quarter we observed sequential improvement in growth, churn, and minimal inflationary cost pressure. Moving down the P&L, we delivered another quarter of robust profitability, with growth margin coming in at 29.5%. Our category teams are executing well, effectively navigating a dynamic and normalizing industry, ensuring that we remain competitive on things customers care about most. For example, keeping prices sharp and our assortment fresh, innovative, and delivered quickly.

Speaker Change: Our second quarter performance carried on the trends in the following Q1 with new customer acquisition, reactivations and retention, exceeding our internal expectations for the second quarter in a row.

Unknown Executive: 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-dap financial measures, reference the liations of these non-dap items that most directly comparable gap financial measures are provided on our investor relations website, and in our earnings release, which was filed with the SEC today.

Speaker Change: Additionally, this quarter, we observed sequential improvement in gross churn and minimal inflationary cost pressure.

Speaker Change: Moving down the piano, we delivered another quarter of robust profitability, with gross margin coming in at 29.5%.

Speaker Change: Our category teams are executing well, effectively navigating a dynamic and normalizing industry, ensuring that we remain competitive on things customers care about most. For example, keeping prices sharp and our assortment fresh in a way to and delivered quickly.

Sumit Singh: Though growth margin will fluctuate on a quarterly basis, we expect this metric to continue to expand over time as our higher margin businesses become a larger portion of our total sales. We generated $145 million of adjusted EBITDA in the quarter, representing a 5.1% adjusted EBITDA margin and a year-over-year increase of approximately 190 basis points. Our Q2 adjusted EBITDA results reflect our ongoing rigor around managing our operating expenses and driving operational efficiencies, where we over-delivered relative to our internal expectations. Notably, over 40% of order volume is now benefiting from automation, and our proprietary supply chain software is enabling us to place inventory more optimally across our FC network, thus leading to both lower fulfillment cost and an improved customer experience.

Unknown Executive: These non-dap measures are not intended as a substitute for gap results. Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2023. Finally, the call on its entirety is being webcast on our investor relations website. A replay of the audio webcast will also be available on our investor relations website shortly.

Speaker Change: The gross margin will fluctuate on a quarterly basis. We expect this metric to continue to expand over time. As our higher margin is the season, become a larger portion of our total sales.

Speaker Change: We generated $145 million of adjusted EBITDA in the quota, representing a 5.1% adjusted EBITDA margin. And an year or a year increase of approximately 190 basis points.

Sumit Singh: I now like to turn the call over to Smith. Thank you, Jim, and thank you all for joining us on today's call. Our Q2 results reflect another quarter of strong execution against our strategic priorities. We deliver top-line growth at the high end of our guidance range, continued significant with just a deep at the margin expansion, and compelling free cash flow generation. Initiatives, including two e-wet care and sponsored ads, are performing well, and I look forward to telling you more about these in a few minutes.

Speaker Change: Our Q2 adjusted EBITDA results reflect our ongoing rigor around managing our operating expenses and driving operational deficiencies, where we over-delivered relative to our internal expectations.

Speaker Change: Noteably, over 40% of order volume is now benefiting from automation and our proprietary supply chain software is enabling us to place inventory more optimally across our FC network, thus leading to both lawful film and cost and improved customer experience.

Sumit Singh: With that, let's dive in. Q2 net sales grew by approximately 3% to $2.86 billion. Autoship customer sales grew by approximately 6% or double the rate of company-wide net sales to reach 78% of net sales, reflecting both the convenience and the value of the program and the strength of our non-discretionary categories, including consumables and health, which collectively represented approximately 85% of our net sales in the quarter. In addition to the engagement created through our Autoship program, our ability to grow share of wallet was also evident in Q2, with metrics such as net sales, proactive customer, or NASPAC, which set a new record at $565 growing over 6% in the quarter.

Sumit Singh: We continue to demonstrate strong discipline in managing the controllables while also seeing our business model benefit from fixed cost leverage. Together, these levers enabled us to deliver compelling year-over-year margin expansion and have set us up to materially exceed our profitability commitments for the year.

Speaker Change: We continue to demonstrate strong discipline in managing the controllables, while also seeing our business model benefit from fixed-spost leverage.

Speaker Change: Together, these lovers enabled us to deliver compelling year-over-year margin expansion and have set us up to materially exceed our profitability commitments for the year.

Sumit Singh: Moving on to cash flow. In the second quarter, we generated approximately $91 million of free cash flow and ended the quarter with $695 million of cash, cash equivalent, and marketable securities. Our strong balance sheet combined with our compelling free cash flow generation enabled us to not only invest in strategic initiatives that support our long-term growth and margin objectives but also return capital to our shareholders in a. Now I will shift gears and provide an update on some of Chewy's strategic initiatives and innovations. I am excited to share that since our last earnings call, we have opened two additional Chewy Medicare clinics, one in the Denver, Colorado area, and another in South Florida, increasing our density in both of these markets and bringing our clinic count to six locations against our previously stated target range of four to eight clinic openings in 2024.

Speaker Change: Moving on to cash flow. In the second quarter, we generated approximately $91 million of free cash flow and ended the quarter with $695 million of cash, cash equivalent and marketable securities.

Speaker Change: Our strong balance sheet combined with our compelling free cash flow generation, enabled us to not only invest in strategic initiatives that support our long-term growth and margin objectives.

Speaker Change: but also returned capital to our shareholders in a meaningful way through various sharing purchase transactions which they will describe in more detail.

Sumit Singh: Next bad growth is being driven by factors such as strengthening mix of repeatable categories and growth in our premium product lines, for example premium food and chewy health. Also notable this quarter was the strengthening customer engagement through our mobile app. Over the past year or so we have been hard at work redesigning our mobile app and making the overall user experience more convenient for our customers. This quarter we saw some early signs of this strategy paying dividends.

Speaker Change: Now, I will shift gears and provide an update on some of two strategic initiatives and innovation.

Speaker Change: I'm excited to share that since our last earnings call we have opened two additional two event care clinics.

Speaker Change: One in Denver, Colorado area and another in South Florida, increasing our density in both of these markets and bringing our clinic count to six locations against our previously stated target range of 4 to 8 clinic openings in 2024.

Sumit Singh: Customers who placed orders through our app increased by approximately 13% year over year with overall mobile app orders increasing approximately 15% year over year. We observed both higher units per order and better retention when customers download and use the chewy app. On the topic of customers we ended the second quarter with approximately 20 million active customers. And our encourage to see net ads grow even if modestly on a sequential basis for the first time since q1 2023.

Sumit Singh: With each additional week and month of operations across our clinic footprint, we are steadily accumulating data to prove out our initial TCs around Chewy Medicare. Although it is early, the leading indicators are promising. First, Chewy Medicare is serving as an acquisition funnel, with the proportion of net new customers acquired through our clinics exceeding our expectations. Second, clinic engagement is accelerating our net-packed curves, supported by both spending on veterinary services and strong cross-category shopping behavior. In clinic, many customers are deepening their commitment to the Chewy ecosystem by purchasing pharmacy or food for the first time, and similarly, we are seeing a highly positive impact on Chewy.com visits following a clinic appointment.

Speaker Change: With each additional week and month of operations across our clinic footprint, we are steadily accumulating data to prove out our initial TCs around 2 event care. Although it is early, the leading indicators are promising.

Speaker Change: First, Tui Red Care is serving as an acquisition funnel with the proportion of net new customers acquired through our clinics exceeding our expectations.

Sumit Singh: Our second quarter performance carried on the trends we saw in q1 with new customer acquisition reactivations and retention exceeding our internal expectations for the second quarter in a row. Additionally this quarter we observed sequential improvement in growth churn and minimal inflationary cost pressure. Moving down the P&L we delivered another quarter of robust profitability with growth margin coming in at 29.5%. Our category teams are executing well effectively navigating a dynamic and normalizing industry ensuring that we remain competitive on things customers care about most for example keeping price is sharp and our assortment fresh innovative and delivered quickly.

Speaker Change: Second, clinic engagement is accelerating our next pack curve supported by both spending on veterinary services and strong cross-category shopping behavior.

Speaker Change: Inclinic, many customers are deepening their commitment to the Chui ecosystem by purchasing pharmacy or food for the first time, and similarly, we are seeing a highly positive impact on Chui.com visits following a clinic appointment.

Sumit Singh: Finally and importantly, we continue to see high interest levels from the veterinarian community who view the Chewy Medicare value proposition as compelling and recognize the strength and halo effect of the Chewy brand. That NPS remained high, and we are pleased with the engagement that our brand promise and commitment to veterinarians is resonating. We look forward to sharing more with you in due course as we continue to build out this business. Moving to sponsored ads, our ads business continues to ramp up nicely and is on track to reach the low end of our long-term target of 1-3% of net sales exiting 2024.

Speaker Change: Finally, and importantly, we continue to see high interest levels from the veterinary community who view the Chui Red Care Value proposition as compelling and recognize the strength and halo effect of the Chui brand.

Speaker Change: That NPS remained high and we are pleased with the engagement that our brand promise and commitment to well in areas is resonating.

Sumit Singh: No growth margin will fluctuate on a quarterly basis we expect this metric to continue to expand over time as our higher margin businesses become a larger portion of our total sales. We generated 145 million dollars of adjusted EBITDA in the quarter representing a 5.1% adjusted EBITDA margin and an year over year increase of approximately 190 basis points. Our q2 adjusted EBITDA results reflect our ongoing rigor around managing our operating expenses and driving operational deficiencies where we over delivered relative to our internal expectation.

Speaker Change: We look forward to sharing more video in due course as we continue to build out this business.

Speaker Change: Moving to Sponsored at our ads business continues to ramp up nicely and is on track to reach the low end of our long term target of 1 to 3% of net sales exiting 2024.

Sumit Singh: Performance has continued to exceed expectations, driven by our thoughtful expansion of inventory, including mobile volume, advertiser demand growth, and increasing kick-through rates as we knew 1P technology stack, which will enable us to both improve supplier experience and lower our cost to serve. We are optimistic about further growing and refining this business over time and look forward to keeping you updated on our progress. To conclude, our Q2 results reiterate Chewy's differentiated value proposition, stickiness of our business model, and the efficiency of our rapidly scaling operations, which are enabling us to keep customers engaged as well as deliver strong margin expansion and increasing levels of free cash flow.

Speaker Change: Performance has continued to exceed expectations, driven by our thoughtful expansion of inventory, including mobile volume, advertise the demand growth and increasing kick-through rates, as we refine customer relevancy.

Speaker Change: Furthermore, the team is on track to implement a new one-peat technology stack which will enable us to both improve supplier experience and lower our cost to serve.

Sumit Singh: Notably over 40% of order volume is now benefiting from automation and our proprietary supply chain software is enabling us to place inventory more optimally across our FC network. Thus leading to both lower fulfillment cost and an improved customer experience. We continue to demonstrate strong discipline in managing the controllables while also seeing our business model benefit from fixed cost leverage. Together these levers enabled us to deliver compelling year over year margin expansion and have set us up to materially exceed our profitability commitments for the year.

Speaker Change: We are optimistic about further growing and refining this business over time and look forward to keeping you updated on our progress.

Speaker Change: To conclude, our Q2 results re-direct you is differentiated value proposition.

Speaker Change: Stickyness of our business model and the efficiency of our rapidly-skilling operations which are enabling us to keep customers engaged as well as deliver strong margin expansion and increasing levels of free cash flow.

Sumit Singh: We are in turn both returning capital to shareholders and prudently and strategically investing in areas of our business that we expect will continue delivering attractive long-term returns.

Speaker Change: We are in turn, both returning capital to shareholders and prudently and strategically investing in areas of our business that we expect will continue delivering attractive long-term returns. With that, I will turn the call over today.

Sumit Singh: Moving on to cash flow. In the second quarter we generated approximately 91 million dollars of free cash flow and ended the quarter with $695 million of cash, cash equivalent and marketable securities. Our strong balance sheet combined with our compelling free cash flow generation enabled us to not only invest in strategic initiatives that support our long term growth and margin objectives but also return capital to our shareholders in a meaningful way.

David Reeder: With that, I will turn the call over to Dave. Thank you, Samette. Second quarter net sales of 2.86 billion came at the high end of our guidance range and grew 2.6% year-over-year. These top-line results demonstrate the predictability and durability of our business model even in a normalizing market.

Speaker Change: Thank you, Sumit. Second quarter net sales of 2.86 billion came in at the high end of our guidance range and grew 2.6% year over year. These top line results demonstrate the predictability and durability of our business model even in a normalizing market.

David Reeder: David. Active customers grew modestly on a sequential basis to approximately 20.0 million. As Sumit noted earlier, gross ads, once again, exceeded our internal expectations this quarter, signaling that, in addition to macro-normalization, our efforts with respect to customer engagement continued to gain traction. While we are encouraged by the trend of this metric and the team continues to execute our customer engagement strategy, we believe it is prudent to maintain our 2024 view of approximately flat active customers for the year. Net sales per active customer, or NASPAC, came in at $565, reflecting an increase of 6.2%. NASPAC yet again reached a new record high, demonstrating our continued ability to grow share of wallet.

Unknown Executive: Through various sharey purchase productions which they will describe in more detail.

Speaker Change: Active customers grew modestly on a sequential basis to approximately 20.0 million.

Sumit Singh: Now I will shift gears and provide an update on some of Chewy's strategic initiatives and innovations. I am excited to share that since our last earnings call we have opened two additional Chewy Medicare clinics, one in Denver, Colorado area, and another in South Florida, increasing our density in both of these markets and bringing our clinic count to six locations against our previously stated target range of four to eight clinic openings in 2024.

Speaker Change: I submitted earlier, gross ads once again exceeded our internal expectations this quarter, signaling that in addition to macro normalization, our efforts with respect to customer engagement continue to gain traction.

Speaker Change: While we are encouraged by the trend of this metric and the team continues to execute our customer engagement strategy.

Speaker Change: We believe it is prudent to maintain our 2024 view of approximately flat active customers for the year.

Sumit Singh: With each additional week and month of operations across our clinic footprint, we are steadily accumulating data to prove out our initial TCs around Chewy Medicare. Although it is early, the leading indicators are promising. First, Chewy Medicare is serving as an acquisition funnel with the proportion of net new customers acquired through our clinics exceeding our expectations. Second, clinic engagement is accelerating our net-packed curves supported by both spending on veterinary services and strong cross-category shopping behavior.

Speaker Change: Net sales, proactive customer, Ernest Pat, came in at $565, reflecting an increase of 6.2%.

Speaker Change: Nespac yet again reach the new record high, demonstrating our continued ability to grow

David Reeder: Our subscription-like auto-ship business continues to be a core pillar of strength for Chewy, with auto-ship customer sales of over 2.2 billion in the quarter, growing 5.8% and representing 78.4% of our total net sales, up 230 basis points on a year-over-year basis. Moving to profitability, we reported second quarter gross margin of 29.5%, representing a 120 basis point year-over-year increase, coming in slightly ahead of expectations and underscoring the increasingly attractive mix of our business, as well as our position as a strategic channel for our vendor partners. We believe we have continued headroom to expand gross margin over time.

Speaker Change: Our subscription-like auto-ship business continues to be a core pillar of strength for QE, with auto-ship customer sales of over 2.2 billion in the quarter, growing 5.8% and representing 78.4% of our total net sales.

Sumit Singh: In clinic, many customers are deepening their commitment to the Chewy ecosystem by purchasing pharmacy or food for the first time, and similarly we are seeing a highly positive impact on Chewy.com visits following a clinic appointment. Finally, and importantly, we continue to see high interest levels from the veterinarian community who view the Chewy Medicare value proposition as compelling and recognize the strength and halo effect of the Chewy brand. That NPS remained high and we are pleased with the engagement that our brand promise and commitment to veterinarians is resonating.

Speaker Change: Up 230 basis points on a year over your basis.

Speaker Change: Moving to profitability.

Speaker Change: Re-reported 2nd quarter gross margin of 29.5%.

Speaker Change: representing a 120 basis point year over year increase, come in slightly ahead of expectations and underscoring the increasingly attractive mix of our business as well as our position as a strategic channel for our vendor partners.

Speaker Change: We believe we have continued at room to expand gross margin over time.

David Reeder: Shifting top-rate expenses, please note that my discussion of SGNA excludes share-based compensation expense and related taxes. We continue to demonstrate OPEX leverage in the quarter, with SGNA coming in at 538.8 million, or 18.8% of net sales, representing 100 basis points of improvement on a year-over-year basis, and also shrinking on an absolute dollar basis for the first time. SGNA leverage was driven by continued discipline with respect to corporate payroll and the ongoing benefits resulting from our fulfillment center automation investments and other software and fulfillment-related efficiencies. Second quarter advertising and marketing expense was 190.5 million, or 6.7% of net sales, consistent with our previously stated expectation of 6% to 7% of net sales.

Speaker Change: Shifting top right in expenses, please note that my discussion of S. G. N.A. Excludes share-based compensation expense and related taxes.

Sumit Singh: We look forward to sharing more with you in due course as we continue to build out this business.

Sumit Singh: Moving to sponsor that, our ads business continues to ramp up nicely and is on track to reach the low end of our long-term target of 1-3% of net sales exiting 2024. Performance has continued to exceed expectations driven by our thoughtful expansion of inventory, including mobile volume, advertiser demand growth, and increasing kick-through rates as we refine customer relevancy. Furthermore, the team is on track to implement a new 1P technology stack which will enable us to both improve supplier experience and lower our cost to serve. We are optimistic about further growing and refining this business over time and look forward to keeping you updated on our progress.

Speaker Change: We continue to demonstrate optics leverage in the quarter with SGNA coming in at 538.8 million or 18.8% of net sales representing 100 basis points of improvement on a year over your basis and also shrinking on an absolute dollar basis for the first time.

Speaker Change: S. G. N. A. leverage was driven by continued discipline with respect to corporate payroll and the ongoing benefits resulting from our fulfillment center automation investments and other software and fulfillment related efficiencies.

Speaker Change: 2nd quarter advertising and marketing expense was 190.5 million or 6.7% of net sales consistent with our previously stated expectation of 6% to 7% of net sales.

Sumit Singh: To conclude, our Q2 results reiterate Chewy's differentiated value proposition, stickiness of our business model and the efficiency of our rapidly scaling operations which are enabling us to keep customers engaged as well as deliver strong margin expansion and increasing levels of free cash flow. We are in turn both returning capital to shareholders and prudently and strategically investing in areas of our business that we expect will continue delivering attractive long-term return.

David Reeder: Second quarter adjusted net income was 104.8 million, representing a 62% increase year over year. This quarter's adjusted net income excludes a one-time income tax benefit of approximately 276 million related to the release of evaluation allowance on our U.S. federal and other state deferred tax assets. Net income for the quarter was 299.1 million, which translated into 70 and 68 cents earnings per share on a basic and diluted basis, respectively. Our basic and deluded earnings per share include the one-time tax benefit of 64 and 63 cents, respect.

Speaker Change: 2nd quarter adjusted net income was 104.8 million representing a 62% increase year over year.

Speaker Change: This quarter's adjusted net income excludes a one-time income tax benefit of approximately 276 million related to the release of evaluation allowance on our U.S. federal and other state deferred tax assets.

David Reeder: With that, I will turn the call over to Dave. Thank you, Smith. Second quarter net sales of 2.86 billion came at the high end of our guidance range and grew 2.6 percent year over year.

Speaker Change: Met income for the quarter was 299.1 million, which translated into 70 and 68 cents earnings per share on basic and diluted basis respectively.

Speaker Change: Our basic and diluted earnings per share include the one-time tax benefit of 64 and 63 cents respected.

David Reeder: These top-line results demonstrate the predictability and durability of our business model even in a normalizing market. David Reeder. Active customers grew modestly on a sequential basis to approximately 20.0 million. As Sumit noted earlier, gross ads once again exceeded our internal expectations this quarter, signaling that in addition to macro-normalization, our efforts with respect to customer engagement continued to gain traction.

David Reeder: David. Finally, we reported adjusted EBITDA of 144.8 million, representing a 5.1% adjusted EBITDA margin and 190 basis points of year-over-year margin expansion. Approximately two-thirds of the improvement was driven by gross margin, with the remaining one-third driven by fulfillment and operating expense leverage. We reported free cash flow of 91.5 million in the second quarter, reflecting 123.4 million of net cash provided by operating activities and 31.9 million of capital expenditures. Our significant free cash flow generation and strong balance sheet position afforded us the opportunity to return significant capital to shareholders within the quarter.

Speaker Change: Finally, we reported adjusted EBDA of 144.8 million representing a 5.1% adjusted EBDA margin, and 190 basis points of year over year margin expansion.

Speaker Change: Approximately two thirds of the improvement was driven by gross margin with remaining one thirds driven by fulfillment and operating expense leverage.

David Reeder: While we are encouraged by the trend of this metric, and the team continues to execute our customer engagement strategy, we believe it is prudent to maintain our 2024 view of approximately flat active customers for the year. Net sales per active customer, our NASPAC came in at $565, reflecting an increase of 6.2%. NASPAC yet again reached a new record high, demonstrating our continued ability to grow share of wallet. Our subscription-like auto-ship business continues to be a core pillar of strength for chewy, with auto-ship customer sales of over 2.2 billion in the quarter, growing 5.8% and representing 78.4% of our total net sales, up 230 basis points on a year-over-year basis.

Speaker Change: We reported free cash flow of 91.5 million in the second quarter reflecting 123.4 million of net cash provided by operating activities and 31.9 million of capital expenditures.

Speaker Change: Our significant free cash flow generation and strong balance sheet position afforded us the opportunity to return significant capital to share holders within the quarter.

David Reeder: I will now spend a few moments summarizing the various share repurchase transactions we completed in the quarter. Engine, we repurchased approximately 17.6 million shares of Class A common stock directly from BC Partners for an aggregate repurchase price of 500 million. This repurchase was executed separately from our existing 500 million share repurchase program and allowed us to reduce the ownership position of our largest shareholder. Additionally, during the quarter, we repurchased approximately 1.3 million shares of Class A common stock, spending approximately 32.7 million under our 500 million share repurchase program. At the end of the quarter, we had approximately 467.3 million of remaining capacity under the program for future repurchases.

Speaker Change: I will now spend a few moments summarizing the various shared repurchase transactions we completed in the quarter.

Speaker Change: In June, we repurchased approximately 17.6 million shares of Class A common stock directly from BC partners for an aggregate repurchase price of 500 million.

Speaker Change: This repurchase with executed separately from our existing 500 million share repurchase program and allowed us to reduce the ownership position of our largest shareholder.

David Reeder: Moving to profitability, we reported second quarter-gross margin of 29.5%, representing a 120 basis point year-over-year increase, coming in slightly ahead of expectations and underscoring the increasingly attractive mix of our business as well as our position as a strategic channel for our vendor partners.

Speaker Change: Additionally during the quarter, we repurchased approximately 1.3 million shares of class A common stock, spending approximately 32.7 million under our 500 million share repurchased program.

Speaker Change: At the end of the quarter, we had approximately 467.3 million of remaining capacity under the program for future repurchases.

David Reeder: We believe we have continued headroom to expand gross margin over time. Shifting top-rate expenses, please note that my discussion of SGNA exclude share-based compensation expense and related taxes. We continue to demonstrate OpEx leverage in the quarter with SGNA coming in at $538.8 million, or 18.8% of net sales, representing 100 basis points of improvement on a year-over-year basis and also shrinking on an absolute dollar basis for the first time. SGNA leverage was driven by continued discipline with respect to corporate payroll and the ongoing benefits resulting from our fulfillment center automation investments and other software and fulfillment related efficiencies.

David Reeder: We remain excited about our ability to generate increasing levels of profitability and free cash flow, enabling us to invest in our business both organically and inorganically, as well as return capital to our shareholders. We ended the quarter with more than 695 million in cash, cash equivalents and marketable securities, and we remain debt free with an overall liquidity position of approximately 1.5 billion.

Speaker Change: We were man excited about our ability to generate increasing levels of profitability and free cash flow and enabling us to invest in our business both organically and organically as well as returning capital to our shareholders.

Speaker Change: We ended the quarter with more than $695 million in cash, cash equivalent and marketable securities, and we remained debt free with an overall liquidity position of approximately 1.5 billion.

David Reeder: With that, I'd like to turn to our third quarter and updated full year 2024 guidance. We anticipate third quarter net sales of between 2.84 and 2.86 billion, or approximately 3 to 4% year-over-year growth, and we are maintaining our full year 2024 net sales outlook 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. We are raising our full year 2024 adjusted EBITDA margin guidance to a range of 4.5 to 4.7%.

Speaker Change: With that, I'd like to turn to our third quarter and updated full year 2024 guidance.

Speaker Change: We anticipate third quarter net sales of between 2.84 and 2.86 billion or approximately 3 to 4% year over year growth.

David Reeder: Second quarter advertising and marketing expense was 190.5 million, or 6.7% of net sales, consistent with our previously stated expectation of 6% to 7% of net sales. Second quarter adjusted net income was 104.8 million representing a 62% increase year-over-year.

Speaker Change: And we are maintaining our full year 2024 net fail that look of between 11.6 and 11.8 billion or approximately 4 to 6% year over year growth.

Speaker Change: This range includes the impact of a 53 week, 2024 fiscal year and the 53 week will be fully reflected in the fourth quarter of 2024.

David Reeder: This quarter's adjusted net income excludes a one-time income tax benefit of approximately 276 million related to the release of evaluation allowance on our U.S, federal and other state deferred tax assets. Net income for the quarter was 299.1 million, which translated into 70 and 68 cents earnings per share on basic and deluded basis respectively. Our basic and deluded earnings per share include the one-time tax benefit of 64 and 63 cents respect. David.

Speaker Change: We are raising our full year 2024 adjusted EBITDA margin guidance to arrange a 4.5 to 4.7%.

David Reeder: This second increase of the year demonstrates our continued execution towards a richer product mix and the increasing leverage in our business model. The new guidance midpoint indicates expected adjusted EBITDA margin expansion of approximately 130 basis points year over year. We continue to expect the 2024 Adjusted EBITDA margin profile to follow a similar quarterly twerk trend as that of 2023, declining sequentially throughout the year, averaging to the aforementioned guidance range due to the typical seasonality and timing of certain investments. We also continue to expect full-year capital expenditures in the range of 1.5 to 2 percent of net sales and free cash flow conversion to remain above 80 percent.

Speaker Change: The second increase of the year demonstrates our continued execution towards a richer product mix and the increasing leverage in our business model.

Speaker Change: The new guidance midpoint indicates expected adjusted EBITDA margin, expansion of approximately 130 basis points year over year.

Speaker Change: We continue to expect the 2024 Adjusted EBITDA margin profile to follow with similar quarterly to our trend as that of 2023.

David Reeder: Finally, we reported adjusted EBITDA of 144.8 million, representing a 5.1% adjusted EBITDA margin, and 190 basis points of year-over-year margin expansion. Approximately two-thirds of the improvement was driven by gross margin with remaining one-third driven by fulfillment and operating expense leverage. We reported free cash flow of 91.5 million in the second quarter, reflecting 123.4 million of net cash provided by operating activities and 31.9 million of capital expenditures. Our significant free cash flow generation and strong balance sheet position afforded us the opportunity to return significant capital to shareholders within the quarter.

Speaker Change: Declining sequentially throughout the year.

Speaker Change: averaging to the aforementioned guidance range due to the typical seasonality and timing of certain investments.

Speaker Change: We also continue to expect full-year capital expenditures in the range of 1.5 to 2% of net sales and free cash flow conversion to remain above 80%.

David Reeder: Finally, we are updating both our share-based compensation and shares outstanding expectations for the year. We now expect full-year 2024 stock-based compensation expense, including related taxes, to be approximately 305 million, down from our 330 million guidance at the onset of the year. This reflects the continued discipline with which we are managing our operating expenses. We expect basic shares outstanding at fiscal 2024 year end to be approximately 430 million. This incorporates the nearly 19 million shares that we repurchased during this quarter and does not incorporate any potential future share repurchases. Notably, due to the timing of our 2024 fiscal year end, this share count guidance includes an incremental vesting event for our employees for awards granted during 2024.

Speaker Change: Finally, we are updating both our share-based compensation and share the outstanding expectations for the year.

Speaker Change: We now expect full-year 2024 stock-based compensation expense, including related taxes to be approximately 305 million, down from our 330 million guidance at the onset of the year.

Speaker Change: This reflects the continued discipline with which we are managing our operating expenses.

David Reeder: I will now spend a few moments summarizing the various share repurchase transactions we completed in the quarter. In June, we repurchased approximately 17.6 million shares of Class A common stock directly from BC partners for an aggregate repurchase price of 500 million. This repurchase was executed separately from our existing 500 million share repurchase program and allowed us to reduce the ownership position of our largest shareholder. Additionally, during the quarter, we repurchased approximately 1.3 million shares of Class A common stock spending approximately 32.7 million under our 500 million share repurchase program.

Speaker Change: We expect basic shares outstanding at fiscal 2024 year end to be approximately 430 million. This incorporates the nearly 19 million shares that we repurchased during this quarter and does not incorporate any potential future share repurchases.

Speaker Change: Notably due to the timing of our 2024 fiscal year end, this shared count guidance includes an incremental vesting event for our employees for awards granted during 2024.

David Reeder: With that and enclosing, our second quarter results reflect another quarter of strong execution, solid growth against the backdrop of a normalizing pet industry, and continued margin expansion as our business benefits from incrementally higher profit flow through at scale. I am incredibly proud of the hard work that drove our results this quarter, and want to thank each of our QE team members for their collective efforts.

Speaker Change: With that, and in closing, our second quarter results reflect another quarter of strong execution.

Speaker Change: Solid growth against the backdrop of a normalizing pet industry and continued margin expansion as our business benefits from incrementally higher profit flow through ASKAL.

David Reeder: At the end of the quarter, we had approximately 467.3 million of remaining capacity under the program for future repurchases. We remain excited about our ability to generate increasing levels of profitability and free cash flow enabling us to invest in our business both organically and in organically as well as returning capital to our shareholders. We ended the quarter with more than 695 million in cash, cash equivalents and marketable securities and we remain debt free with an overall liquidity position of approximately 1.5 billion.

Speaker Change: I'm incredibly proud of the hard work that drove our results this quarter and want to thank each of our chewy team members for their collective efforts.

Unknown Executive: I will now turn the call over to the operator for questions. Thank you.

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

Unknown Executive: If you'd like to raise a question, please press star full of 1 on your telephone keypad, and if you'd like to remove yourself from that line of questioning, it is star full of by 2.

Speaker Change: Thank you.

Speaker Change: If you'd like to raise a question, please press star full up by one on your telephone keypad and if you'd like to remove yourself in that line of questioning, it is star full up by two.

Doug Annas: Our first question comes from Doug Annas of JP Morgan. Doug, your line is now open. Thanks so much for taking the questions. I have two.

Speaker Change: Our first question comes from Doug Annus of JP Morgan, Doug your line is now open.

Doug Annas: Last quarter, you talked about signs of green shoots, with pet adoptions exceeding relinquishments for the first time in about two years. So hopefully you could talk more about whether those positive trends are continuing based on the data and surveys that you're seeing.

Doug Annus: Thanks so much for taking the questions, I have two.

David Reeder: With that, I'd like to turn to our third quarter and updated full year 2024 guidance. We anticipate third quarter net sales of between 2.84 and 2.86 billion or approximately 3 to 4% year-over-year growth and we are maintaining our full year 2024 net sales outlook 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.

Doug Annus: Last quarter you talked about signs of green shoots with pet adoptions exceeding relinquishments for the first time in about two years. So, so you could talk more about whether those positive trends are continuing based on the data and surveys that you're seeing.

Sumit Singh: And then, to admit, I know it's early, but just as you think about fiscal 25, is it fair to expect more balanced growth between active customers and that's back then? Thank you.

Doug Annus: and then Sumit, I know it's early, but just as you think about fiscal 25, is it fair to expect more balanced growth between active customers and that's back then. Thank you.

Sumit Singh: Hi, everybody. So, on the first one, household formation trends, at large, we're seeing similar trends this quarter as we did in Q1. I'll be with some seasonality impact as Q2 is typically a peak period for pet adoptions. Primarily due to seasonal travel, during the spring and the summer months, and January, February are typically peak adoption months in the US, at the very least.

Jennifer Hsu: Hey there, Jennifer Hsu.

Jennifer Hsu: Um...

Speaker Change: So, on the first one household formation trend, at large we're seeing similar trend this quarter as we did in Q1

David Reeder: We are raising our full year 2024 adjusted EBITDA margin guidance to a range of 4.5 to 4.7%. This second increase of the year demonstrates our continued execution towards a richer product mix and the increasing leverage in our business model. The new guidance midpoint indicates expected adjusted EBITDA margin expansion of approximately 130 basis points year-over-year. We continue to expect the 2024 Adjusted EBITDA margin profile to follow a similar quarterly twerk trend as that of 2023, declining sequentially throughout the year, averaging to the aforementioned guidance range due to the typical seasonality and timing of certain investments.

Speaker Change: I'll be with some seasonality impact as Q2 is typically a peak period for Petford Inquishments, primarily due to seasonal travel during the spring and the summer months and January, February, are typically peak at option months in the U.S. at the Northeast.

Sumit Singh: As we've talked about previously, there's no one source of truth for pet household formation growth data. However, big picture, we believe that adoptions in the quarter remain up. From our data, we suggest kind of low teens on a year-to-year basis, and relinquishments remain down, low-to-mid single digits on a year-to-year basis, supporting our continued kind of theory on the green shoots. The absolute number still needs to recover, so when you look at overall pet household year-to-year, it's relatively flatish, but the trends are certain. and the improving.

Speaker Change: And we've talked about previously there's no one source of crude for pet household formation growth data, however big picture.

Speaker Change: We believe that it options in the quarter remain up. From our data, we suggest kind of low teens on a year-old year basis and relinquishments remain down. Load them in single digits on a year of year basis, supporting our continued kind of theory on the green shoes.

Speaker Change: The absolute number still needs to recover, so when you look at all of that household year or year, it's relatively flat-ish, but the trends are certainly improving.

David Reeder: We also continue to expect full-year capital expenditures in the range of 1.5 to 2 percent of net sales and free cash flow conversion to remain above 80 percent. Finally, we are updating both our share-based compensation and shares outstanding expectations for the year. We now expect full-year 2024 stock-based compensation expense, including related taxes to be approximately 305 million, down from our 330 million guidance at the onset of the year. This reflects the continued discipline with which we are managing our operating expenses.

Sumit Singh: On your second question, I think it's helpful to understand, so I would start by saying we're not guiding, but yes, we would certainly hope so, as Chewy continues to grow and customers get attracted to the value propositions of various products and services and lines of businesses that we're introducing. Nest Pack will continue to remain a prevalent force in our revenue and loratham, and at the same time, we certainly hope and expect a return to active customer growth next year. It's also helpful to understand what it is that growth, kind of net adds growth, this quarter, and we believe it's much more as a result of some of the efforts that we've been driving in the last several quarters rather than the macro turning around, although there are certain green shoots and macro which we're encouraged by. You know, quarter or quarter, that doesn't want to grow our turnaround.

Speaker Change: On your second question.

Speaker Change: I think it's helpful to understand, so I would start by saying we're not guiding, but yes, we would certainly hope so, right? As she continues to grow, and...

David Reeder: We expect basic shares outstanding at fiscal 2024 year end to be approximately 430 million. This incorporates the nearly 19 million shares that we repurchased during this quarter and does not incorporate any potential future share repurchases. Notably, due to the timing of our 2024 fiscal year end, this share count guidance includes an incremental vesting event for our employees for awards granted during 2024.

Speaker Change: Customers get attracted to the value propositions of various products and services and lines of businesses that we're introducing. Next pack will continue to remain a prevalent force in, you know, our revenue and more of them. And at the same time, you know, we certainly hope and expect a return to active customer growth next year.

Speaker Change: Right, it's also helpful to understand.

Speaker Change: What it is that growth, kind of net adds growth, this quarter

Speaker Change: And we believe it's much more of the result of some of the efforts that we've been driving in the last several quarters, rather than the macro turning around. Although there are certain green shoots and macro which were encouraged by, you know, they were, you know, quarter or quarter, that isn't what drove our turn around. So we're certainly hopeful.

Sumit Singh: So we're certainly hopeful.

Doug Annas: Great, thank you, Sumit. Thank you.

Speaker Change: then

Sumit: Great, thank you, Sumit.

Mark Mahaney: My next question comes from Mark Marnie of Evercore ISI. Mark, your line is now open. Okay, thanks. Two questions, please: that SGNA being flatish, even slightly down on a year-over-year basis, just talk about that going forward.

Speaker Change: Good night.

David Reeder: With that and in closing, our second quarter results reflect another quarter of strong execution, solid growth against the backdrop of a normalizing pet industry, and continued margin expansion as our business benefits from incrementally higher profit flow through at scale. I am incredibly proud of the hard work that drove our results this quarter and want to thank each of our QE team members for their collective efforts.

Speaker Change: Thank you.

Speaker Change: And next question comes from Mark Manney of Evercore ISI. Mark your line is now open.

Mark Manney: Okay, thanks two questions, please, that SGNA being...

Mark Manney: Flattish Eden slightly down on a year where your base is just talk about that going forward. Are you at a point in the cost, a structure where it's sustainably, you can keep it roughly at this level until you get a material re-exceleration and revenue growth in the side to reinvest in growth.

David Reeder: Are you at a basis, are you at a point in a cost structure where it's sustainably, you can keep it roughly at this level until you get a material re-exceleration and revenue growth and decide to reinvest in growth.

Unknown Executive: I will now turn the call over to the operator for questions. Thank you. If you'd like to raise a question, please press star full of 1 on your telephone keypad, and if you'd like to remove yourself from that line of questioning, it is star full of by 2.

Sumit Singh: And then any quick comments on international markets and particularly on Canada and what you're seeing up in the, I think, especially in the Toronto area. Thank you very much.

Speaker Change: and then any quick comments on international markets and particularly on Canada and what you're seeing up in this, especially in the Toronto area. Thank you very much.

Mark Mahaney: Good morning, Mark. The state reader; I'll take the first part of that question, and then Sumit, maybe I'll just talk a little bit about that. It's an A.D. question. With respect to SGNA, you're exactly right. We're an at-scale revenue business, roughly 78% something north of that of our revenue flowing through auto ships, so highly predictable. And with that type of revenue profile, we are able to get quite a bit of leverage out of, you know, really the three parts of that scale, portions of our business: the fixed fulfillment centers, the at-scale software, and then, of course, our at-scale human capital.

Doug Anmuth: Our first question comes from Doug Annas of JP Morgan. Doug, your line is now open. Thanks so much for taking the questions. I have two. Last quarter, you talked about signs of green shoots with pet adoptions exceeding relinquishments for the first time in about two years. So I hope you could talk more about whether those positive trends are continuing based on the data and surveys that you're seeing. And then to admit, I know it's early, but just as you think about fiscal 25, is it fair to expect more balance growth between active customers and that's back then?

Reeder: Good morning Mark, the State Reeder, I'll take the first part of that question and submit a maybe I'll just talk a little bit about that, it's an 88 question.

Speaker Change: With respect to SGNA, you're exactly right, we're in at-scale revenue business roughly 78% in the southern north of that of our revenue flowing due auto-ship, so highly predictable.

Speaker Change: And with that type of revenue profile, we are able to get quite a bit of leverage out of, you know, really the three parts of that scale portions of our business, the fixed fulfillment centers.

Speaker Change: The At-Scale Software, and then of course our At-Scale Human Capital. And so we did have S.C. and a Excluding Spot Based Comp come down.

David Reeder: And so we did have SGNA, excluding stock-based comp, come down on a year-over-year basis in a relatively meaningful way. Our employees remain incredibly productive.

Sumit Singh: Thank you. On the first one, household formation trends. At large, we're seeing similar trends this quarter, as we did in Q1. I'll be with some seasonality impact as Q2 is typically a peak period for pet relinquishments, primarily due to seasonal travels during the spring and the summer months, and January, February are typically peak adoption months in the US at the very least. As we've talked about previously, there's no one source of truth for pet household formation growth data.

Speaker Change: On a year over year basis and a relatively meaningful way, our employees remain incredibly productive, and that is a trend that we expect on a go-forward basis, to be relatively relatively flat, albeit we are continuing to make investments.

David Reeder: And that is a trend that we expect on a go-forward basis to be relatively, relatively flat, albeit we are continuing to make investments.

Sumit Singh: Sumit, do you want to talk a little bit about Canada? Mark, Canada is going as expected. In some areas exceeding our expectations, particularly in the way that customers are conducting through our app business, you know, in the way that they're building their baskets in Canada. Assortment continues to grow in Canada. Our service receives very high NPS, and customers are continually asking us when we are expanding. Mid-to-high teens traffic is already coming out of Ontario as we build out our awareness in the Canadian marketplace, and also that will help us drive efficiencies from a marketing investment point of view, because the quicker you can gain kind of the base from an awareness point of view up top, the more subsidized direct acquisition costs for us.

Speaker Change: I submit, you want to talk a little bit about Candle?

Mark Manney: Mark Canada is going as expected in some areas exceeding our expectations, particularly in the way that customers are acting through our app business.

Sumit Singh: However, big picture, we believe that it options in the quarter remain up. From our data, we suggest kind of low teens on a year-to-year basis, and relinquishments remain down, and low to mid-single digits on a year-to-year basis, supporting our continued kind of theory on the green shoots. The absolute number still needs to recover. So when you look at overall pet household year-to-year, it's relatively flatish, but the trends are certain, and the Improving.

Speaker Change: You know, in the way that they're building their baskets in Canada, a sort of a continues to grow in Canada. Our service receives very high NBS.

Speaker Change: and customers are continually asking us when we are expanding.

Speaker Change: Mid-to-high, single Mid-to-high teens traffic is already coming out of Ontario as we build out our awareness in the Canadian marketplace and also that will help us drive efficiencies.

Sumit Singh: On your second question, I think it's helpful to understand, so I would start by saying we're also not guiding, but yes, we would certainly hope so, as Chewy continues to grow and customers get attracted to the value propositions of various products and services and lines of businesses that we're introducing, Nest Pak will continue to remain a prevalent force in our revenue and lower tone. And at the same time, we certainly hope and expect to return to active customer growth next year.

Speaker Change: from a marketing investment point of view because the quicker you can gain kind of the base from an awareness point of view up top, the more subsidized the direct acquisition cost for us. So that's been a little bit of our focus in the last few months.

Sumit Singh: So that's been a little bit of our focus in the last few months. We've only been in the market three quarters, and overall results are as flat.

Speaker Change: We've only been in the market three quarters and overall in our results are as flat. We're not planning any incremental or material incremental investment in Canada as we move to the back half of the year. So all of this is incorporated in the profit guidance.

Sumit Singh: We're not planning any incremental or material incremental investment in Canada as we move to the back half of the year, so all of this is incorporated in the process.

Mark Mahaney: Thank you, David. Thank you, Sumit. Thank you very much.

Sumit Singh: It's also helpful to understand what it is that growth, kind of net adds growth this quarter. And we believe it's much more as a result of some of the efforts that we've been driving in the last several quarters rather than the macro turning around. Although there are certain green shoots and macro which we're encouraged by, you know, quarter or quarter, that doesn't want to grow our turn around. So we're certainly hopeful.

Speaker Change: Okay, thank you, David, thank you, Sumit.

Michael Morrison: Our next question comes from Michael Morrison.

Sumit: Thanks start. Thank you very much.

Sumit: Our next question comes from Michael Morson

Unknown Executive: Great.

Michael Morrison: Michael, your line is now open. Hello. Hi, thank you for the question. I was wondering as the industry starts to improve from the COVID poll forward and it's getting healthier with an adoption.

Speaker Change: Michael, your line is not open though

Speaker Change: Hi there, thank you for the question, I was one of you as well.

Speaker Change: The industry expects to...

Speaker Change: Increw from the COVID pull forward and it's getting healthier with net adoption. Did you maybe talk through over the last several years how you've seen the consumer journey change from top of the funnel maybe to bottom? And then as a result as

Michael Morrison: Did you maybe talk through over the last several years how you've seen the consumer journey change from top of the funnel, maybe to bottom? And then, as a result, as households start to improve the last three to six months, what is the reaction you're seeing in the competitive environment, like specifically in the auction from your competitors? Thank you so much.

Unknown Executive: Thank you, Sumit. Thank you.

Mark Mahaney: My next question comes from Mark Marnie of Evercore ISI. Mark, your line is now open. Okay, thanks two questions, please. That SGNA being flatish, even slightly down on a year-over-year basis. Just talk about that going forward. Are you at a basis? Are you at a point in a cost structure where it's sustainably, you can keep it roughly at this level until you get a material re-exceleration and revenue growth and decide to reinvest in growth. And then any quick comments on international markets and particularly on Canada and what you're seeing up in this, especially in the Toronto area. Thank you very much. Good morning, Mark.

Speaker Change: at household start to improve the best 30 to six months. What is the reaction you're seeing in the competitive environment, like specifically in the auction from your competitors? Thank you so much.

Michael Morrison: Good morning, Michael. I'm trying to understand the first question a little bit more. How have you seen customer journey change from the upper funnel to the lower funnel? So, you know, traffic trends continue. Yeah, go ahead. Yeah, if you just think about a more digitally inclined consumer, right? There is the world pre-COVID and then post-COVID, and it's different from walking into like a brick-and-mortar store; it's how that's evolved and then how the competition is evolving. Yeah, yeah, yeah, sure. So overall, it looked clearly, you know, if there was any question about, you know, the secular growth towards ECOM, right?

Speaker Change: We're going Michael, I'm trying to understand the first question a little bit more, how have you seen customer journey change from the upper funnel to the lower funnel?

Speaker Change: So, you know, it's faster than friends continue.

Speaker Change: Jai-Kohen.

Speaker Change: Yeah, if you just think about a more visually inclined consumer, like there's the world precozyed and then post-cozyed, and it's different from walking into, like, a British mortar store, and then how that's evolved, and then how the competition is evolving.

David Reeder: The state reader, I'll take the first part of that question and then maybe I'll just talk a little bit about that, it's an A.D, question. With respect to SGNA, you're exactly right. We're an at-scale revenue business, roughly 78% starting north of that of our revenue flowing through auto ships, so highly predictable. And with that type of revenue profile, we are able to get quite a bit of leverage out of really the three parts of that scale portions of our business, the fixed fulfillment centers, the at-scale software, and then of course our at-scale human capital.

Speaker Change: [inaudible]

Speaker Change: So overall, it looked clearly, you know, if there was any question about, you know, the secular growth towards e-com, right, that that question is off the table at this point given how rapidly the market shifted to.

Sumit Singh: That question is off the table at this point, given how rapidly the market shifted to ECOMers coming into the pandemic. You know, we were kind of low 20s penetrated for ECOM; coming out of the pandemic, we were, you know, almost low 30s penetrated. Now, some of that growth has gone back into retail as customers have sort of settled out, but the secular trend towards ecom has very much continued. Yeah, this quarter, we saw our traffic pick up low-to-mid single digit on a year-over-year basis, which we hadn't seen for the last couple of quarters. And, like I said, this is, in our opinion, more driven by the efforts that we've made in the last couple of quarters.

Speaker Change: Ecommerce, coming into the pandemic, you know, we were kind of low 20s.

Speaker Change: You're penetrated for e-com coming out of the pandemic, we were, you know, almost 30, penetrated. Now some of that growth has gone back into retail as customers have sort of settled out, but the secular trend towards e-com has very much continued.

David Reeder: And so we did have SGNA excluding stock-based comp come down on a year-over-year basis in a relatively meaningful way. Our employees remain incredibly productive, and that is a trend that we expect on a go-forward basis to be relatively flat, albeit we are continuing to make investments.

Speaker Change: Yeah, this quarter we saw our traffic pickup mid-loaded mid-single digit on a year or year basis, which we hadn't seen for the last couple of quarters.

Speaker Change: And, like I said, this is in our opinion more driven by the efforts that we've made in the last couple of quarters, I'd be happy to talk about that in greater detail. But overall, we are seeing efficiency in the channels.

Sumit Singh: So, Matt, do you want to talk a little bit about Canada? Mark, Canada is going as expected. In some areas exceeding our expectations, particularly in the way that customers are connecting through our app business, in the way that they're building their baskets in Canada. A sortment continues to grow in Canada. Our service receives very high NPS, and customers are continually asking us when we are expanding. Mid-to-high-teens traffic is already coming out of Ontario, as we build out our awareness in the Canadian marketplace, and also that will help us drive efficiencies from a marketing investment point of view, because the quicker you can gain the base from an awareness point of view up top, the more subsidized direct acquisition costs for us.

Sumit Singh: I'm happy to talk about that in great detail, but overall, you know, we are seeing efficiency in the channels, you know, particularly on the lower funnel. And at the same time, we continue to invest, you know, reasonably, you know, appropriately on building awareness, you know, because upper funnel awareness is an important trend to us. So overall, I would say the secular trend continues, and you know, we're best positioned to kind of capture a meaningful portion of the share that's moving online, as we always have.

Speaker Change: in a particular way on the North方 Group.

Speaker Change: And at the same time, we continue to invest, you know, reasonably, you know, appropriately on building awareness.

Speaker Change: You know, because Alpha-Fundal Awareness is an important trend to us.

Speaker Change: So overall, I would say the secular trend continues and we're best positioned to kind of capture a meaningful portion of the share that's moving online as we always have.

Sumit Singh: And your second question on what are we seeing from the competitive environment? So overall, innovation, you know, there's not a great degree of product innovation coming to the market at this particular point. Yeah, most of the, most of the landscape is just trying to understand consumer, predict consumer behavior. The innovations that we've brought to market are resonating well, whether it's, you know, programs that we've launched around, you know, current improvement in ownership or improvement in our segmentation and targeting, or the app business, or the Chewy Plus paid membership programs, etc., etc. And so, you know, we are; these are not really things that are effectively competed against because they build sort of a motor round, you and the ecosystem.

Speaker Change: and your second question on what are we seeing from competitive environment. So overall, innovation, you know, there's not a great degree of product innovation coming to the market at this particular point. Yeah, most of the...

Sumit Singh: So that's been a little bit of our focus in the last few months. We've only been in the market three quarters, and overall results are as flat. We're not planning any incremental or material incremental investment in Canada as we move to the back half of the year, so all of this is incorporated in the process. Thank you, David. Thank you, Sumit. Thank you very much.

Speaker Change: Most of the landscape is just trying to understand consumer, predict consumer behavior, the innovations that we've brought to market or resonating well, whether it's programs that we've launched around current improvement in ownership or improvement in our segmentation and targeting or the app business or the two-year plus paid membership programs in secret and so, you know, we are...

Speaker Change: These are not really things that...

Speaker Change: You know, are effectively committed against because they build sort of a motor round.

Sumit Singh: So we're competing, you know, very effectively there. In terms of sort of promo promotionality, the markets overall relatively stable. And as we expected, and as you would expect, you know, moving towards the back half of the year, there was slightly higher promotionality coming into Q2 and exiting Q2, primarily in non-discretionary categories. So I believe everybody at this point is playing to their strengths. You know, competitors that are stronger in hard goods are really trying to drive elasticity there. You know, our revenue makes of 85% coming from consumables and health really provides us a solid insurance kind of coverage around volatility and demand.

Michael Morrison: Our next question comes from Michael Morrison. Michael, your line is now open. Hello. Hi there. Thank you for the question. I was wondering as the industry starts to improve from the COVID poll forward and it's getting healthier with adoption. Did you maybe talk through over the last several years how you've seen the consumer journey change from top of the funnel, maybe to bottom? And then as a result, as households start to improve these last three to six months, what is the reaction you're seeing in the competitive environment, like specifically in the auction from your competitors? Thank you so much. Good morning, Michael.

Speaker Change: and UND ecosystem. So we're competing very effectively there.

Speaker Change: In terms of sort of promote promotionality, the markets overall are relatively stable And as we expected and as you would expect, you know, moving towards the back of the year There was slightly higher promotionality coming into Q2 and exiting Q2 primarily non-discretionary categories

Sumit Singh: I'm trying to understand the first question a little bit more. How have you seen customer journey change from the upper funnel to the lower funnel? So, you know, traffic trends continue. Yeah, go ahead. Yeah, if you just think about a more digitally inclined consumer, right, I think there is the world pre-COVID and then post-COVID and it's different from walking into, like, the brick and mortar store and then how that's evolved and then how the competition is evolving.

Dutch: So, I believe everybody at this point is playing to their strengths, you know, Dutch

Dutch: Competitors that are stronger and hard goods are really trying to drive velocity there.

Dutch: You know, our revenue makes of 85% coming from consumers and health really provides a solid insurance kind of coverage around the volatility in demand and then as you heard 78% of the volume's going to watershed. So overall we're playing through the playbook.

Sumit Singh: And then, as you heard, 78% of the volumes going to watershed. So overall, we're playing to the playbook.

Michael Morrison: Thank you, Michael. Thank you very much.

Dutch: Thank you.

Eric Sheridan: Our next question comes from Eric Sheridan of Goldman Sachs. Eric, your line is now open. Thank you so much for taking the question. I'm following up on your comments and repaired marks on mobile, maybe a two-parter.

Speaker Change: Thank you Michael. Thank you very much.

Speaker Change: On next question comes from Eric Sheridan of Goldman Sachs, Eric Julyn is now open.

Eric Sheridan: Thank you so much for taking the question, I'm following up on your comments and prepared marks on mobile, maybe a two-parter. Sumit wanted to know if maybe first you could take a step back and talk a little bit about the journey you've been on and improving the mobile experience for consumers and how that's approached up to this point. And in terms of what you're seeing from the consumer on mobile, anything you want to call out in terms of how it might be a tail end for the business beyond just 2024 or any team investment you really need to make in mobile. Thank you.

Sumit Singh: Sumit wanted to know if maybe first you could get a step back and talk a little bit about the journey you've been on improving the mobile experience for consumers and how that's pushed up to this point. And then in terms of what you're seeing from the consumer on mobile, anything you're going to call out in terms of how that might be a tailwind for the business beyond just 2024 or any kind of investment you really need to make a mobile. Thank you.

Sumit Singh: Yeah, yeah, yeah, yeah, sure. So overall, it looked clearly, you know, if there was any question about, you know, the secular growth towards ECOM, right, that question is off the table at this point, given how rapidly the market shifted to ECOMers coming into the pandemic, you know, we were kind of low 20s penetrated for ECOM coming out of the pandemic, we were, you know, almost low 30s penetrated. Now, some of that growth has gone back into retail as customers have sort of settled out, but the secular trend towards ECOM has very much continued.

Sumit Singh: Sure, so I'll start with the second one. If you look at, you know, we started investing in the mobile ecosystem, you know, in the last few years more seriously. We've had an app for several years, but the traffic going through the app, the order is transacting through the app, the conversion, the experience, our focus on retaining customers in the app and those do ecosystem hasn't really, you know, elevated, you know, more than the last several quarters. And so the tailwind that I or some of the early results that I talked about in the script are reflective of the efforts that we've put in that direction.

Speaker Change: So, we start with the second one. If you look at, you know, we started investing in the mobile ecosystem, you know.

Speaker Change: In the last few years, more seriously.

Speaker Change: We've had an app for several years, but they...

Speaker Change: Traffic going through the app, the orders from the acting through the conversion, the experience, our focus on retaining customers in the app and closed due to ecosystem hasn't really elevated more than the last several quarters.

Sumit Singh: Yeah, this quarter we saw our traffic pick up low to mid single digit on a year or a year basis, which we hadn't seen for the last couple of quarters. Yeah, and like I said, this is in our opinion more driven by the efforts that we've made in the last couple of, couple of quarters. I'm happy to talk about that in great detail, but overall, you know, we are seeing efficiency in the channels, you know, particularly on the law fund who, and at the same time, we continue to invest, you know, reasonably, you know, appropriately on building awareness, you know, because upper funnel awareness is an important trend to us. So overall, I would say the secular trend continues and, you know, we're best positioned to kind of capture a meaningful portion of the share that's moving online as we always have.

Speaker Change: And so the tailwind that I, or some of the early results that I talked about in the script are reflective of the efforts that we've put in that direction.

Sumit Singh: We see the opportunity as large; you know, less than 20% of our orders currently contact our app. And if you look at like size businesses, you know, we should be north of 60% of orders going through our app. Now, you know, that's a healthy aspiration, but it's something that we believe, you know, should be achievable over time. You know, we see higher OV, we see greater ownership penetration, we see our ability to keep the customer in a closed new ecosystem. So you're not spending, you know, an external marketing to be able to maintain these healthy relationships and right conversion.

Speaker Change: We see the opportunity as large, you know, less than...

Speaker Change: 20% of our orders currently conducts our app. And if you look at like size businesses, we should be north of 60% of orders going through our app. Now, that's a healthy aspiration, but it's something that we believe should be at you all over time.

Speaker Change: We see higher AOV, we see greater watershed penetration, we see our ability to keep the customer in a closed loop ecosystem, so you're not spending

Speaker Change: You know, an external marketing to be able to maintain these healthy relationships and right conversion. You know, they're one step away from letting you discover letting them discover your best features that are launched.

Sumit Singh: You're, you know, they're one step away from letting you discover, letting them discover your, you know, best features that are launched, you know, it delivers the personalization journey much more effectively. So, you're broadly speaking, I think the effort makes a lot of sense to us.

Sumit Singh: And your second question on what are we seeing from competitive environment? So overall, innovation, you know, there's not a great degree of product innovation coming to the market at this particular point. Yeah, most of the, most of the landscape is just trying to understand consumer, predict consumer behavior. The innovations that we've brought to market are resonating well, whether it's, you know, programs that we've launched around, you know, current improvement in ownership or improvement in our segmentation and targeting, or the app business, or the 2-E plus paid membership programs, etc, etc.

Speaker Change: It delivers the personalisation journey much more effectively. So you're broadly speaking, I think the effort makes a lot of sense to us, and we're early at the same time rapidly in a waiting in the area.

Sumit Singh: And we are, we're early at the same time rapidly innovating in the area.

Unknown Executive: Thank you. Thank you very much.

Speaker Change: Thank you.

Rupesh Parikh: Next question comes from Rupesh, Parick.

Speaker Change: Thank you very much.

Rupesh Parikh: Oh, open, Haima. Rupesh, your line is now open. Good morning. Thanks for taking my questions. So my first question is just on court, on monthly trends. Just want to get a sense of the cadence that trends are in the quarter and then maybe what you're seeing quarter day. And then my second question is hard goods growth actually outpace consumables. So just curious, more color, what you saw in hard goods and just confident in being able to sustain that positive momentum.

Speaker Change: And next question comes from Repesh Parake, oh openheimer, Repesh your line is now open.

Sumit Singh: And so, you know, we are, these are not really things that are effectively competed against because they build sort of a mot around you and the ecosystem. So we're competing, you know, very effectively there. In terms of sort of promo promotionality, the markets overall relatively stable. And as we expected, and as you would expect, you know, moving towards the back-off of the year, there was slightly higher promotionality coming into Q2 and exiting Q2, primarily in non-discretionary categories.

Repesh Parake: Good morning. Thanks for taking my questions. So my first question is just on monthly trends. Just want to get a sense of the key answer trends are in the quarter and then maybe what you're seeing quarter day. And then my second question is hard goods growth actually outpaste consumers. Just to just carry a small color in what you saw in the hard goods and just competent in being able to sustain that positive momentum.

Sumit Singh: Morning, Rupesh. With respect to monthly trends, you know, look, I would, I would say very much as we expected. When you have such a large percentage of your business flow through consumables and even perhaps more importantly, the highest loyalty program that you, he has auto ship. You have a pretty regular cadence from a monthly perspective.

Rukhash: Morning Rukhash, with respect to monthly trends, you know, look at, I wait.

Sumit Singh: So I believe everybody at this point is playing to their strengths, you know, competitors that are stronger in hard goods are really trying to drive elasticity there. You know, our revenue makes of 85% coming from consumables and health really provides us a solid insurance kind of coverage around volatility and demand. And then, as you heard, 78% of the volume is going through ownership. So overall, we're playing through the playbook.

Speaker Change: I would say very much as we expected when you have such a large percentage of your business flowed through consumables and even perhaps more importantly, the highest loyalty program that you have auto shift.

Speaker Change: And you have a pretty regular cadence from a monthly perspective and so I would say both the months through second quarter as well as kind of what we've seen entering third quarter I would say very much as we've expected and very much in line with our guidance.

David Reeder: And so I would say both the months through second quarter as well as kind of what we've seen entering third quarter, I would say very much as we've expected, and very much in line with our, with our guide. Williams. With respect to hard goods, from a hard goods perspective, you know, we would characterize hard goods as having kind of stabilized and be broadly flat on a quarter-to-quarter basis. I think the positive signals that we're seeing from hard goods is that we've reached a level of stability, which to us indicates with active customers growth sequentially Q1 to Q2.

Unknown Executive: Thank you. Thank you, Michael. Thank you very much.

Speaker Change: with respect to our goods.

Eric Sheridan: Our next question comes from Eric Sheridan of Goldman Sachs. Eric your line is now open. Thank you so much for taking the question. Following up on your comments and repaired marks on mobile, maybe a two-parter. Sumit wanted to know if maybe first you could get a step back and talk a little bit about the journey you've been on improving the mobile experience for consumers and how that's pushed up to this point.

Speaker Change: from a hard goods perspective, you know, we would characterize hard goods as having kind of stabilized and be broadly flat on a quarter to quarter basis. I think the positive signals that we're seeing from hard goods.

Eric Sheridan: And then in terms of what you're seeing from the consumer on mobile, anything you want to call out in terms of how that might be a tailwind for the business beyond just 2024 or any investment you really need to make a mobile. Thank you.

Speaker Change: is that we reach the level of stability which to us indicates with active customers growth.

David Reeder: For the first time since Q1 of 23, with some of the pet household formation that Sumit highlighted earlier, we feel like hard goods, broadly flat, stabilized at this stage and very much in line and consistent with what we see as a normalizing market in 2024, with perhaps a full return to industry normality and 25 submit anything you do that hard, but no.

Speaker Change: Sequentially Q1 to Q2 for the first time since Q1 of 23, with some of the pet household formation that Sumit highlighted earlier, we feel like hard goods broadly flat.

Sumit Singh: Sure, so I'll start with the second one. If you look at, you know, we started investing in the mobile ecosystem, you know, in the last few years more seriously. We've had an app for several years, but the traffic going through the app, the orders conducting through the app, the conversion, the experience, our focus on retaining customers in the app and tools do ecosystem, hasn't really, you know, elevated, you know, more than the last several quarters.

Sumit Singh: And so the tailwind that I or some of the early results that I talked about in the script are reflective of the efforts that we've put in that direction. We see the opportunity as large, you know, less than 20% of our orders currently transact for our app. And if you look at like size businesses, you know, we should be north of 60% of orders going through our app. Now, you know, that's a healthy aspiration, but it's something that we believe, you know, should be achievable over time.

Speaker Change: Stabilize at this stage and very much in line and consistent with what we see as a normalizing market in 2024, with perhaps a full return to industry normality in 2015. So, if you did add to the hard bits of stuff.

Rupesh Parikh: Thank you for a question. Great. Thank you.

Rupesh Parikh: I'll pass it on.

Rupesh Parikh: Thank you very much.

Pastor Lauren: Thank you, Refosh. Great. Thank you all, Pastor Lauren.

Trevor Young: Next question comes from Trevor Young about. Please, Trevor, your line is not open. Great. Thanks. Two questions here. First on the improvement in med ads, the first sequential growth in more than a year. How much of the contribution there was from Canada and were net ads in the US, you know, maybe flatter even up at this point.

Speaker Change: Thank you very much. Our next question comes from Trevor Young of Barkley's Trevor, your line is now open.

Trevor Young: Great, thanks. Two questions here. First on the improvement in med ads, the first sequential growth in more than a year, how much of the contribution there was from Canada and where net ads in the US, you know, maybe flatter even up at this point.

Trevor Young: And then second one back to the mobile app discussion. What portion of orders are from mobile web at present and, you know, are you able to funnel those users towards the app install more quickly at this point or, you know, do we still have more work to do on the app before you're willing to really push that app install.

Speaker Change: And then second one, back to the mobile app discussion. Well, portion of orders are from mobile web at present and, you know, are you able to funnel those users towards the app install more quickly? At this point, or, you know, do we still have more work to do on the app before you're be willing to, you know, really push that app install?

Sumit Singh: You know, we see higher AOV, we see greater ownership penetration, we see our ability to keep the customer in a closed-loop ecosystem, so you're not spending, you know, an external marketing to be able to maintain these healthy relationships and write conversion. You're, you know, there one step away from letting you discover, letting them discover your, you know, best features that are launched, you know, it delivers the personalization journey much more effectively. So you're broadly speaking, I think the effort makes a lot of sense to us, and we are early at the same time rapidly, you know, waiting in the area. Thank you. Thank you very much.

Sumit Singh: Hey Trevor. So let me add some additional color on how active customers are trending at Chewie. Looking at your question, you're improving our Canada. Canada was Canada is and the was and is and remain kind of relatively material to the scale of the customer base given that the business is only three quarters in. And it's meeting our expectations, but the curves are reasonably balanced there. So overall in material.

Speaker Change: i

Trevor Young: Hey Trevor.

Speaker Change: So, let me add some additional color on how active customers are trending at Chewie.

Speaker Change: Question, you're improving our Canada. Canada is, Canada, what is, and the reason is, and remain kind of, you know, relatively material to the scale of the customer base given that the business is only three quarters in. And it's meeting our expectations, but the curves are reasonably balanced there.

Sumit Singh: So let me add some additional color into how active customers are trending. So new to customer, new to Chewie customers exceeded our internal expectations and remain a larger proportion of the overall gross ads. That indicates to us that they remain the large pool of perspective customers we have yet to introduce to our ecosystem. Additionally, we're reactivating customers at an accelerated pace and are seeing improvements. You know, talked about CRM improvements in the past around personalization and customer segmentation bear fruit specifically. We're taking advantage of our ability to segment and target customers who visit our website and drive purchase conversion.

Speaker Change: So, overall, immaterial. So, let me add some additional color into how active customers are

Speaker Change: So, new to customer, new to two customers, exceeded our internal expectations and remain a larger proportion of the overall gross ads. That indicates to us that they remain the large pool of prospective customers we have yet to introduce to our ecosystem.

Rupesh Parikh: Next question comes from Ruppesh, Parick, oh, Open Hima. Ruppesh, your line is now open. Good morning. Thanks for taking my question. So my first question is just on quarter, on monthly trends, just want to get a sense of the cadence that trends are in the quarter, and then maybe what you're seeing quarter-day. And my second question is hard goods grow with actually out-paced consumables. So just curious more, Colin, what you saw in the hard goods, and just confident in being able to sustain that positive momentum.

Speaker Change: Additionally.

Speaker Change: We're reactivating customers at an accelerated pace.

Speaker Change: and our seeing improvements. You know, I've talked about CRM improvements in the past or on personalization and customer segmentation.

Speaker Change: Bearfruit.

Speaker Change: Specifically, we're taking advantage of our ability to segment and target customers who visit our website and drive purchase conversion. This is an ability that we did not have last year. Hence, kind of my comment to, you know, tying back to.

Rupesh Parikh: Morning, Ruppesh. With respect to monthly trends, you know, look, I would, I would say very much as we expected when you have such a large percentage of your business flow through consumables, and even perhaps more importantly, the highest loyalty program that you we have auto-ship, and you have a pretty regular cadence from a monthly perspective. And so I would say both the months through second quarter, as well as kind of what we've seen entering third quarter, I would say very much as we've expected and very much in line with our, with our guide.

Sumit Singh: This is an ability that we did not have last year; hence, kind of my comment to, you know, tying back to the recent trending is more often than kind of the change or the rate of change in the macro. Third, we've also materially stepped up our efforts on retention, with a greater focus on areas such as onboarding and settling customers post their first order purchase, as well as an enhanced focus on post purchase experience. Whether it is to direct communication with customers or continued improvement and delivery experience or keeping them in the locked app ecosystem, etc., etc.

Speaker Change: The recent trending is more often than kind of the change or the rate of change in the macro.

Speaker Change: Third, we also materially stepped up our efforts on retention with a greater focus on areas such as onboarding and settling customers post their first order purchase, as well as an enhanced focus on post-party experience.

Speaker Change: Whether it is to direct communication with customers or continued improvement in delivery experience or keeping them in the locked app, ecosystem, etc etc. What this does is it helps reduce churn and improve second order purchase rates for these customers.

Rupesh Parikh: Williams. With respect to hard goods, from a hard goods perspective, you know, we would characterize hard goods as having kind of stabilized and be broadly flat on a quarter to quarter basis. I think the positive signals that we're seeing from hard goods is that we've reached a level of stability, which to us indicates with active customers growth sequentially Q1 to Q2. For the first time since Q1 of 23, with some of the pet household formation that Sumit highlighted earlier, we feel like hard goods, broadly flat, stabilized at this stage and very much in line and consistent with what we see as a normalizing market in 2024, with perhaps a full return to industry normality and 25 submit anything you do that hard, but so no. Thank you for your question. Great. Thank you for the one. Thank you very much.

Sumit Singh: What this does is it helps reduce churn and improve second order purchase rates for these customers. So we're seeing an improvement in each of these three areas, which is sort of the internal trending.

Speaker Change: So we're seeing an improvement in each of these three areas, which is sort of the internal trending at truth.

Sumit Singh: Your last question is around, or your other questions are on mobile web, so I'll disappoint you by not sharing this specific details. But yes, I mean, you know, as you would expect from the sources of traffic, you know mobile web is a healthy proportion, and yes, we have the ability now to be able to funnel these into the app. We're not predicting or providing guidance on the rate of this migration. Customer behavior needs to be understood, and you know there's a certain kind of organic trend that customers take regardless of your efforts. So, it's a focused area for us, and we'll continue to shine some light here as we move forward.

Speaker Change: Your last question is around, or your other questions around mobile web, so I'll disappoint you by not sharing this specific details, but yes, I mean, as you would expect from the sources of traffic.

Speaker Change: You know, mobile map is a healthy proportion and yes we have the ability now to be able to funnel these into the app.

Speaker Change: We're not predicting or providing guidance on the rate of this migration, the customer behavior needs to be understood and there's a certain kind of organic trend that customers take regardless of your efforts So it's a focus area for us and we'll continue to shine some light here as we move forward

Trevor Young: Thank you, Sumit. Thank you, Chair. Sure.

Sumit: Thank you, Sumit.

Dylan Carden: Thank you. Our next question comes from Dylan Carden of William Blair. Dylan, your line is not open.

Trevor Young: Thank you, Trevor.

Speaker Change: Good morning.

Speaker Change: Thank you.

Unknown Executive: Next question comes from Trevor Young about please Trevor, your line is not open. Great. Thanks.

Dylan Carden: Appreciate it. I'm curious if there's any nuance to margin as active customer growth returns to the model and particularly, you know, auto ship now 78 plus percent. You know, presumably that's in large part because you have more mature customers making up the balance of the business. You know, should that come in as active customer growth. Accelerates and will you spend on marketing, and how much into sort of a better demand environment would be the two ones that I'm most focused on, but anything you can add there would be helpful.

Speaker Change: Appreciate it. I'm curious if there's any nuance.

Unknown Executive: Two questions here. First on the improvement in med ads, the first sequential growth in more than a year. How much of the contribution there was from Canada and were net ads in the US, you know, maybe flatter even up at this point.

Speaker Change: to margin as active customer growth returns to the model. And particularly, you know, auto-ship now 78 plus percent, you know, presumably that's in large parts because you have more mature customers making up the balance of the business, you know, should that come in as active customer growth.

Sumit Singh: And then second one back to the mobile app discussion. What portion of orders are from mobile web at present, and you know, are you able to funnel those users towards the app install more quickly at this point or, you know, do we still have more work to do on the app before you're be willing to really push that app install. [inaudible] Your last question is around, or your other questions are on mobile web, so I'll disappoint you by not sharing this specific details but yes, I mean, you know, as you would expect from from the sources of traffic, you know mobile web is a healthy proportion and yes we have the ability now to be able to funnel these into the app.

Speaker Change: Accelerates and will you spend on marketing and how much into sort of a better demand environment would be the two ones that I'm most focused on but anything you can add there would be helpful. Thanks.

Dylan Carden: Thanks. I can I can I can start quickly and Dave Dave can can add as he sees fit. You know, the customers that we're acquiring are, in our opinion, higher quality customers than, you know, what have what have what we picked up in the last couple of years. You know, we've stopped and are not keen on picking up customers just for velocity. So the quality of customers as we interpret them, particularly to metrics like, you know, repeatable category penetration, auto ship subscription rates, you know, and three, you know, their second order purchase or their overall kind of third order purchase settlement rates.

Speaker Change: I can start quickly and David can as Anna this is fit. You know the customers that we're acquiring are in our opinion higher quality customers than you know what have what we picked up in the last couple of years.

Speaker Change: You know, we've stopped and are not keen on picking up customers just publicity.

Speaker Change: So the quality of customers as we interpret them, particularly to metrics like repeatable category, penetration, auditions, subscription rates, and their second order purchase or their overall third order purchase, supplement rates.

Sumit Singh: These are sort of indicative metrics on, you know, customer quality. Secondly, you know, we're, we're, you know, the netback curves in these customers, you know, has remained healthy and, you know, given the efficacy of the operation at this point, you know, helps us sort of achieve a higher flow through, even if we have to attract, you know, or bit competitively up kind of in the in the fundamental acquiring them. Third, as you sort of just heard me, you know, share, you know, there's a healthy level of traffic that, you know, visits our website, given our high brand awareness, right that we didn't have the ability to convert.

Speaker Change: These are sort of indicative metrics on customer quality.

Speaker Change: Secondly, you know, we're, you know, the nestback curves in these customers.

Speaker Change: You know, has remained healthy and you know, given the efficacy of the operation at this point, you know, helps us sort of achieve a higher flow through, even if we have to attract, you know, or bit competitively up in the family when acquiring them.

Speaker Change: Thurn as you sort of just heard me share, there's a healthy level of traffic that visits our website given our high brand of awareness.

David Reeder: You know, if we have the ability to pick up appropriate signals from this customer, then we should also have the ability to convert them, you know, effectively at a much lower cap than going out and fishing, you know, for these customers out in the marketplace. So I feel like we're appropriately focused here, appropriately disciplined, and appropriately.

Speaker Change: Right, that we didn't have the ability to convert, you know, if we have the ability to pick up appropriate signals from this customer, then we should also have the ability to convert them, you know, effectively at a much lower cap, then going out and fishing, you know, for these customers out in the marketplace.

Speaker Change: So, I feel like we're appropriately focused here, appropriately disciplined and...

David Reeder: Dave, anything to wrap? Yeah, if I could just build on, you know, some of what Sumit said here. When you, when you think about, you know, nuance, chewies, nuance to margin, if you extract out, you know, you start with that scale revenue, you start with the amount of recurring revenue that we have driven through auto ship. That then throws down into product categories and the expanding product portfolio. That Chewy is now offering everything from kind of core e-commerce ecosystem all the way flowing through healthcare, now flowing through services as well as, you know, additional improvements like sponsored ads, and so not only do you have the ability to retain existing customers in the Chewy ecosystem, providing better service, better products, more capability in terms of care for their pet within.

Speaker Change: appropriately bullish.

Speaker Change: David and I can grab. Yeah, if I could just build on some of what Samit said here.

David: When you think about New Onts, Chew, New Onts to Margin, if you extract out, you start with that scale revenue, you start with the amount of recurring revenue that we have driven through

David: You, that then flows down into...

Sumit Singh: We're not predicting or providing guidance on the rate of this migration customer behavior needs to be understood and you know there's a certain kind of organic trend that customers take regardless of your efforts, so it's a focus area for us and we'll continue to shine some light here as we move forward.

David: Product categories and the expanding product portfolio that Chui is now offering everything from kind of core e-commerce ecosystem all the way flowing through healthcare now flowing through services.

David: as well as additional improvements like sponsored ads.

Unknown Executive: Thank you, Sumit. Thank you, Sheridan. Sure.

David: And so not only do you have the ability

Unknown Executive: Thank you.

David: to retain existing customers.

Dylan Carden: Our next question comes from Dylan Carden of William Blair. Dylan, your line is not open. Appreciate it. I'm curious if there's any nuance to margin as active customer growth returns to the model and particularly, you know, auto ship now 78 plus percent, you know, presumably that's in large part because you have more mature customers making up the balance of the business, you know, should that come in as active customer growth. Accelerates and will you spend on marketing and how much into sort of a better demand environment would be the two ones that I'm most focused on but anything you can add there would be helpful.

David: and that you we ecosystem providing better service, better products.

David Reeder: In Chewy, but your value proposition then to new customers also continues to expand, and so when you look at our, you know, increasing flow through for the second quarter, something like, you know, $56 million on, you know, $77 million of revenue that is a year over your numbers, and what you're really seeing is you're seeing more existing Chewy customers spend more in the Chewy active ecosystem. And then you're also seeing new customers that are coming to Chewy; you're seeing them exposed to more categories and spending more time as a new customer also in the ecosystem.

Julie: Warcapability in terms of care for their pet within Julie.

David: But your value proposition then to new customers.

Speaker Change: also continues to expand. And so when you look at our, you know, increasing flow through for the second quarter something like, you know, fifty six million dollars on, you know, seventy seven million dollars of revenue as a year over your numbers.

Speaker Change: And what you're really seeing is you're seeing more existing chewy customers spend more in the chewy active ecosystem. And then you're also seeing new customers that are coming to chewy, you're seeing them exposed to more categories.

David Reeder: So we're very pleased with the value proposition that we're providing to our customers. We continue to have a very, very high brand score with very satisfied customers, and the trajectory to us in the backdrop of normalizing pet industry is quite pleasing right now.

Speaker Change: and spending more time at a new customer also in the ecosystem. So, we're very pleased with the value proposition that we're providing to our customers.

Dylan Carden: Thanks. I can I can I can start quickly and Dave, Dave can can add as he sees fit, you know, the customers that we're acquiring are in our opinion higher quality customers than, you know, what have what have what we picked up in the last couple of years. You know, we've stopped and are not keen on picking up customers just for velocity. So the quality of customers as we interpret them, particularly through metrics like, you know, repeatable category penetration, auto ship subscription rates, you know, and three.

Speaker Change: We continue to have a very, very high brand score with very satisfied customers and the trajectory to us in the backdrop of the normalizing pet industry is.

Speaker Change: is quite pleasing right now.

Dylan Carden: Very good.

Curtis Nagle: Thank you very much.

Speaker Change: Very good, thank you very much.

Curtis Nagle: Our next question comes from Anna and Dreeva of Piper Sandler, and your line is not open. Great. Thanks so much for taking your question, and we have two. First of all, just to follow up on the positive net ads and congrats on that, so sounds like the segmentation and the targeting initiatives that you guys have been working on are still early on and continuing. To me, I think you said too few tends to be the peak for really good. So, are you expecting that ads to be positive again for the third quarter? I know you've reaffirmed a lot of for the year, and then secondly today really strong growth margins.

Speaker Change: Thank you so much.

Speaker Change: Thank you very much, our next question comes from Anna Andreeva of Pipe the Sandler and your line is not open.

Dylan Carden: You know, their second order purchase or their overall kind of third order purchase settlement rates, these are sort of indicative metrics on customer quality. Secondly, you know, we're we're, you know, the netback curves in these customers, you know, has remained healthy and, you know, given the efficacy of the operation at this point, you know, helps us sort of achieve a higher flow through, even if we have to attract. You know, or bit competitively up kind of in the in the fundamental acquiring them.

Speaker Change: Adi.

Adi: and Gray, thanks so much for taking your question and we have two.

Anna Andreeva: First of just to follow up on the positive net ads and congrats on that.

Speaker Change: So sounds like the segmentation and the targeting initiative.

Anna Andreeva: that you guys have been working on, are still early on and continuing and Sumit, I think you said 2Q tends to be the peak for real inquisgment. So are you expecting that as to be positive again for the third quarter? I know you've reaffirmed a lot.

Dylan Carden: Third, as you sort of just heard me, you know, share, you know, there's a healthy level of traffic that, you know, visits our website, given our high brand awareness, right, that we didn't have the ability to convert. You know, if we have the ability to pick up appropriate signals from this customer, then we should also have the ability to convert them effectively at a much lower cap than going out and fishing, you know, for these customers out in the marketplace.

Speaker Change: for the year. And then, especially today, really strong growth margins. Can you rank the biggest drivers within that? Again, looking at the sponsor, the mixed and promotionality. And how do you feel about sustainability of those? Thanks so much.

Curtis Nagle: Can you bring the biggest drivers within that just again looking at sponsored ads, the mix and promotionality and how do you do about sustainability of those. Thanks so much.

David Reeder: Sure, let me let me actually start on on both of those with net ads first. You know, when we started and guided for this year, what we spoke about was that we expected expected net ads to be flat to slightly down in the first half of this year, and then we expected net ads to be flat to slightly up in the second half of this year. We were largely kind of becoming equal to where we finished fourth quarter of 2020. We haven't really changed that guidance. We do believe that we perform better in the first half than what we initially expected.

Speaker Change: Do you or let me actually start on both of those with net ads first?

Speaker Change: Lola.

Lola: When we started and guided for this year, what we spoke about was that we expected net ads to be flat to slightly down in the first half of this year.

Dylan Carden: So I feel like we're appropriately focused here appropriately disciplined and appropriately bullish. Dave, anything to wrap? Yeah, if I could just build on, you know, some of what Sumit said here. When you think about, you know, nuance, chewies, nuance to margin. If you extract out, you know, you start with that scale revenue, you start with the amount of recurring revenue that we have driven through auto ship. That then flows down into product categories and the expanding product portfolio.

Speaker Change: And then we expected net ads to be flat to slightly off in the second half of this year largely kind of becoming equal to where we finished fourth quarter of 2023. We haven't really changed that guidance.

Speaker Change: We do believe that we perform better in the first half than what we initially expected.

David Reeder: We do believe that we're seeing some signals of a normalizing pet industry. We believe that the actions that we are driving specifically at Chewy are resulting in better than at least internally expected expectations are forecast at the beginning, first half of this year. But at this point in time, we're not really changing our guidance on net ads for the year. We feel like it's a little early to be doing that. I would characterize it as pleased with the first half, pleased with our efforts. We believe we're going to take share irrespective of what's happening macro, but we'll continue to end in the second half of the year with 10 of the guidance that we gave at the beginning.

Speaker Change: We do believe that we're seeing some signals of a normalizing pet industry. We believe that the actions that we are driving specifically at Chewie are resulting in better than at least internally expected expectations or forecasts at the beginning first half of this year.

Dylan Carden: That Chewy is now offering everything from kind of core e-commerce ecosystem all the way flowing through healthcare, now flowing through services as well as, you know, additional improvements like sponsored ads. And so not only do you have the ability to retain existing customers in the Chewy ecosystem, providing better service, better products, more capability in terms of care for their pet within Chewy, but your value proposition then to new customers also continues to expand.

Speaker Change: But at this point time, we're not really changing our guidance on net ads for the year. So we feel like it's a little early to be doing that.

Speaker Change: Please, I would characterize it. Please, with the first half, please, with our efforts. We believe we're going to take share irrespective of what's happening macro. But we'll continue to end in a second half of the year with kind of the guidance that we gave at the beginning. With respect to gross margins.

David Reeder: With respect to gross margins, we've been very pleased with our gross margins. As you would probably expect, we guided full year gross margin now at about 29% for the year. Obviously, we posted higher than that in the first quarter, as well as the second quarter. The biggest drivers on a year of your basis with respect to increasing gross margin, one would be the increase in sponsored ads. We've spoken about sponsored ads having the capability to reach kind of one to 3% of net sales at a quite high margin. And we're at the low end of that range, I would say, you know, towards the low end of that range.

Dylan Carden: And so when you look at our increasing flow through for the second quarter, something like, you know, $56 million on, you know, $77 million of revenue is a year over your numbers. And what you're really seeing is you're seeing more existing Chewy customers spend more in the Chewy active ecosystem. And then you're also seeing new customers that are coming to Chewy, you're seeing them exposed to more categories and spending more time as a new customer also in the ecosystem.

Speaker Change: We've been very pleased with our gross margins as you would probably expect.

Speaker Change: We guided full-year gross margin now at about 29% for the year. Obviously we posted higher than that in the first quarter as well as the second quarter. The biggest drivers on a year of year basis with respect increasing gross margin.

Speaker Change: One would be the increase in sponsored ads. We've spoken about sponsored ads having the capability to reach kind of 1 to 3% of net sales at a quite high margin.

Dylan Carden: So we're very pleased with the value proposition that we're providing to our customers. We continue to have a very, very high brand score with very satisfied customers and the trajectory to us in the backdrop of normalizing pet industry is quite, quite pleasing right now. Very good. Thank you very much. So much.

Speaker Change: We're at the low end of that range, I'd say towards the low end of that range and we think that by the end of this year we'll be at the low end of that range.

David Reeder: And we think that by the end of this year will be at the low end of that range in 2024. So continuing to make good progress on sponsored ads, we characterize that as kind of growth quarter to quarter to quarter to quarter throughout 2024. And that is that is what we're seeing. We're seeing that value prop resonate with our vendors as well as with our customers. Secondarily, in terms of the gross margin, we're continuing to mix up the business; we're continuing to expose more customers at UE to our full product portfolio. That includes health care.

Speaker Change: in 2024. So continuing to make good progress on sponsored ads, we care to rise that as kind of growth quarter to quarter to quarter, throughout 2024 and that is what we're seeing. We're seeing that value drop resonate with our vendors as well as with our customers.

Sumit Singh: Our next question comes from Anna Andreva of Piper Sanla. Anna, your line is not open. Great. Thanks so much for taking our question and we have two. First of all, just to follow up on the positive net ads and congrats on that. So sounds like the segmentation and the targeting initiatives that you guys have been working on are still early on and continuing and to me, I think you said too few tends to be the peak for really equipment.

Speaker Change: Secondarily, in terms of the gross margin, we're continuing to mix up the business, we're continuing to expose more customers at you to our full product portfolio, that includes health care and so as we continue to do that, we continue to mix up that business. So sponsored ads.

Curtis Nagle: And so, as we continue to do that, we continue to mix up that business. So sponsored ads, health care, and then, of course, all the scale that we're getting out of our fixed fulfillment centers. All right, fair enough. Thanks so much. Thank you very much.

Speaker Change: Health Care and then of course all the scale that we're getting out of our fixed fulfillment centers.

Speaker Change: Alright, fair enough, thanks so much.

Sumit Singh: So are you expecting that ads to be positive again for the third quarter. I know you've reaffirmed a lot of for the year. And then secondly today, really strong growth margins. Can you rank the biggest drivers within that just again looking at sponsored ads, the mix and promotionality and how do you do about sustainability of those. Thanks so much.

Curtis Nagle: A final question comes from Curtis Nigel of Bank of America, Maryland. Passes, your line is now open. Terrific.

Speaker Change #100: Thank you very much. Our final question comes from Curtis Nagel, or Bank of America, Maryland. That's is your line, it's now open.

Sumit Singh: Thanks very much to for me just one. I wonder if you could talk a little bit more in terms of competitive trends, particularly from the larger online platforms. I think you mentioned in this is consistent with, you know, other calls that maybe you were seeing on the pressure or just, you know, some ramping up on hard goods, but just generally speaking from the larger platforms, you know, what are you seeing there? Competitive friends quarter over quarter, haven't really changed. We see, you know, secular trending towards econ, continue. We see us picking up a healthy portion of that growth that is moving online on hard goods.

Curtis Nagel: Thanks very much to you for me, just one.

Curtis Nagel: I wonder if you could talk a little bit more in terms of competitive trends, particularly from the larger on my platforms. I think you'd mentioned, as is consistent with other calls, maybe you were seeing, and it's a pressure, we're just, you know, some ramping up of hard goods, but just, as generally speaking, from the larger platforms, you know, what are you seeing there?

David Reeder: Sure, let me let me actually start on on both of those with net ads first. When we started and guided for this year, what we spoke about was that we expected expected net ads to be flat to slightly down in the first half of this year. And then we expected net ads to be flat to slightly up in the second half of this year. Largely kind of becoming equal to where we finished fourth quarter of 2020.

Curtis Nagel: [inaudible]

Speaker Change #102: Competitor friends, quarter over quarter, haven't really changed. We see it, you know.

Speaker Change #103: Secular trending towards E-Com, continue, we see us taking up a healthy portion of that.

Sumit Singh: We've stabilized, you know, coming into the air. I mentioned hard goods as an opportunity for Chewy, and you know, our teams have rallied behind that. We've added a sort; meant we've sharpened conversion without really incrementally driving up discounting too much. So it's not like we've actually overspent on our promotion site to drive the last city. So the results are more kind of organic inputs of conversion. So hard goods we consider as, you know, not declining, more towards kind of stabilizing at this point. You know, on consumables and health, we are competing very effectively, out competing in several areas across those type of lines of business.

Speaker Change #104: Growth that is moving online.

David Reeder: We haven't really changed that guidance. We do believe that we perform better in the first half than what we initially expected. We do believe that we're seeing some some signals of a normalizing pet industry. We believe that the actions that we are driving specifically at Chewy are resulting in better than at least internally expected expectations are forecast at the beginning first half of this year. But at this point in time, we're not really changing our guidance on net ads for the year.

Speaker Change #104: On Hard Goods, we've stabilized, you know, coming into the year I mentioned Hard Good doesn't opportunity for chewy and...

Speaker Change #104: In our teams have rallied behind that, we've added a sort of meant, we've sharpened conversion Without really incrementally driving up this counting too much, so it's not like we've actually overspent on our promotion side to drive the last city

Speaker Change #104: So the results are more organic inputs of conversion. So hard goods we consider as not declining more towards stabilizing at this point.

Speaker Change #105: You know, on consumables and health, we are competing very effectively, out-competing in several areas. We're across those type of lines of businesses.

David Reeder: We feel like it's a little early to be doing that. I would characterize it as pleased with the first half, pleased with our efforts. We believe we're going to take share irrespective of what's happening macro, but we'll continue to end in the second half of the year with kind of the guidance that we gave at the beginning. With respect to gross margins, we've been very pleased with our gross margins, as you would probably expect, we guided full year gross margin now at about 29% for the year.

Sumit Singh: So, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, it's like, you know, Plus, paid membership has been trending as per expectation. Our rate of customer acquisition is exceeding internal forecast. Our rate of conversion from free to paid is exceeding our internal forecast. Engagement remains high.

Speaker Change #106: Chewy Plast, paid membership has been...

Speaker Change #106: You know, trending as per expectation, our rate of customer acquisition is exceeding internal forecasts.

Speaker Change #106: Our rate of conversion from free to pay the exceeding our internal forecast.

Sumit Singh: So broadly speaking, I would characterize competitive trends as fairly stable on a quarter-to-quarter basis.

Speaker Change #106: Engagement remains high. So broadly speaking, I would characterize, you know, competitive trends are fairly stable on a quarter of a quarter basis.

Sumit Singh: Yeah, I mean, just a quick one on the clinics. Just sounds like, you know, in terms of, I guess acquiring that, you know, things are going well. Maybe diving is a little bit more in terms of, you know, what's resonating: is it conversations that strengthen the brand, you know, where are you recruiting that's primarily from. Yeah, so I would characterize the effort as, you know, broad based. So it's two things: it's a the halo of the chewy brand that has always, you know, been known and we wanted to be known for, you know, a customer's first mentality that, you know, carries over to our partners.

David Reeder: Obviously we posted higher than that in the first quarter, as well as the second quarter. The biggest drivers on a year of your basis with respect to increasing gross margin, one would be the increase in sponsored ads. We've spoken about sponsored ads having the capability to reach kind of one to 3% of net sales at a quite high margin. And we're at the low end of that range. I'd say, you know, towards the low end of that range.

Speaker Change #107: and you're going to follow up, correct? Understood.

Speaker Change #108: Yeah, I'm just a quick one on the clinics just...

Speaker Change #109: Sounds like in terms of acquiring bets, things are going well. Maybe diving is a little bit more in terms of what's resonating, is it compensations, it's strength in the brand, and what where are you recruiting that's primarily from?

Speaker Change #110: Yes, so I would characterize the effort as, you know, broad-based, so it's two things. It's in the halo of the chewy brand that is always...

David Reeder: And we think that by the end of this year will be at the low end of that range in 2024. So continuing to make good progress on sponsored ads. We characterize that as kind of growth quarter to quarter to quarter to quarter throughout 2024. And that is that is what we're seeing. We're seeing that value prop resonate with our vendors as well as with our customers. Secondarily, in terms of the gross margin, we're continuing to mix up the business.

Speaker Change #110: You know, being known and we wanted to be known for, you know, a customer's first mentality that, you know, carries over to our partners. So it's not just a customer's first mentality, it's a partner first mentality as well.

Sumit Singh: So it's not just a customer's first mentality; it's a partner first mentality as well. Number two, you know, we've really tried to understand the inputs of, you know, what drives that satisfaction, that retention. You know, some of these are as simple as, you know, picking up, you know, that's from, you know, the right stages of their career stage, that's that are looking for growth opportunities. Vets that are looking, you know, to spend more of their hours treating patients versus their hours, you know, solving back office challenges or entering data. Yeah, so we've taken these type of, you know, dissatisfaction drivers or satisfaction drivers and dissatisfaction drivers and turned them into satisfaction drivers, right.

Speaker Change #110: Number 2, we really try to understand the inputs of what drives Vets at its faction, Vets retention. Some of these are as simple as, you know,

David Reeder: We're continuing to expose more customers at UE to our full product portfolio. That includes health care. And so as we continue to do that, we continue to mix up that business. So sponsored ads, health care, and then of course all the scale that we're getting out of our fixed fulfillment centers. All right, fair enough.

Speaker Change #110: Pickin' up, you know, vets from, you know, the right stages of their career stage, vets that are looking for growth opportunities, vets that are looking, you know, to spend more of their hours creating patients versus their hours, you know, solving back office challenges or entering data.

Unknown Executive: Thanks so much.

Speaker Change #110: So we've taken these type of dissatisfaction drivers, dissatisfaction drivers and dissatisfaction

David Reeder: So we've, you know, our tech allows us to reduce the amount of work that our vets spends in back office by over 50%, making them more efficient, you know, and also more, more available to spend time in the front office or the, or treating their patients, which is what they'd like to do. You know, we are spending time and building relationships, you know, with kind of sources of recruitment going all the way back to universities, you know, associations showcasing them, the power of technology, the power of experience combined together. So I think it's early days, but our approach to the market has been, you know, one that kind of works backwards from the veterinarians and tries to solve an experiential, you know, gap via kind of mentality and technology both.

Curtis Nagle: Thank you very much. Final question comes from Curtis Nigel of Bank of America, Maryland. Passes your line is now open.

Speaker Change #110: Right, so we, you know, our tech allows us to reduce.

Speaker Change #110: The amount of work that a vet spends.

Sumit Singh: Terrific. Thanks very much to for me just one. I wonder if you could talk a little bit more in terms of competitive trends, particularly from the larger online platforms. I think you mentioned in this is consistent with you know other calls that maybe you were seeing enough pressure or just you know some ramping up on hard goods, but just generally speaking from the larger platforms, you know, what are you seeing there.

Speaker Change #110: In that office by over 50% making them more efficient and also more available to spend time in the front office or treating their patients, which is what they like to do.

Speaker Change #110: You know, we...

Speaker Change #110: are spending time.

Speaker Change #110: and building relationships, you know, with kind of sources of recruitment going all the way back to universities.

Speaker Change #110: Association.

Speaker Change #110: showcasing them the power of technology, the power of experience combined together. So I think it's early days, but our approach to the market has been one that kind of works backwards from the veterinarians.

Sumit Singh: Competitive friends quarter over quarter haven't really changed. We see, you know, secular trending towards ecom continue. We see us picking up a healthy portion of that growth that is moving online on hard goods. We've stabilized, you know, coming into the air. I mentioned hard goods is an opportunity for chewy and you know our teams have rallied behind that we've added a shortman we've sharpened conversion without really incrementally driving up discounting too much.

Speaker Change #110: and tries to solve an experiential gap via kind of mentality and technology vote.

David Reeder: And that's resonating.

David Reeder: Sorry, happy to take a follow. I encourage, if I could just build on Smith's comment with respect to the brands, about half of the customers that have visited our clinics have subsequently placed orders actually on our ecommerce site. And so, so not only, you know, are we resonating with, you know, our vet community as well as our technician and kind of nurse community on the veterinarian side, but that service offering that has historically been very good at Huey is flowing through not only on the vet, the vet care side, but then also, you know, it's synergistically flowing back.

Speaker Change #110: and that's resonating. I'm happy to take a follow-up.

Speaker Change #110: and Kurt, if I could just build on submit appointment with respect to the brands about half of the customers that have visited our clinics have subsequently placed orders.

Sumit Singh: So it's not like we've actually overspent on our promotion site to drive the last city. So the results are more kind of organic inputs of conversion. So hard goods we consider as you know not declining more towards kind of stabilizing at this point. You know on consumables and health we are competing very effectively out competing in several areas with you know across those type of lines of business. Plus, paid membership has been trending as per expectation.

Atchewi: Atchewi on our e-commerce site.

Speaker Change #112: So not only are we resonating with our vet community as well as our technician and kind of nurse community on the veterinarian side But that service offering that has historically been very good at chewy.

Speaker Change #112: is flowing through not only on the vet care side, but then also, you know, it's synergistically flowing back to the e-commerce side as well.

David Reeder: to the e-commerce side as well. Understood. Thanks, sir. Yes, sir. Thanks, Eric. Thank you. Thank you very much. We currently have no further questions, and this concludes the day's call. Thank you to everyone for joining. You may have disconnected your lines. Thank you very much.

Sumit Singh: Our rate of customer acquisition is exceeding internal forecasts. Our rate of conversion from free to paid is exceeding our internal forecast. Engagement remains high. So broadly speaking, I would characterize competitive trends as fairly stable on a quarter or quarter basis.

Speaker Change #112: Thanks for watching!

Speaker Change #113: Thank you. Thank you very much. We currently have no further questions and this concludes today's call. Thank you to everyone for joining. You may have disconnect your lines.

Sumit Singh: Do you have a follow-up current? Yeah, I mean, just a quick one on the clinics. Just sounds like, you know, in terms of, I guess acquiring that, you know, things are growing well. Maybe diving is a little bit more in terms of, you know, what's resonating. Is it conversations that strengthen the brand? You know, what, where are you recruiting that's primarily from? Yeah, so I would characterize the effort as, you know, broad based, so it's two things.

Speaker Change #114: [inaudible] you

Sumit Singh: It's a halo of the chewy brand that has always, you know, been known and we wanted to be known for, you know, a customer's first mentality that, you know, carries over to our partners. So it's not just a customer's first mentality. It's a partner first mentality as well. Number two, you know, we've really tried to understand the inputs of, you know, what drives, that satisfaction, that retention, you know, some of these are as simple as, you know, picking up, you know, the rest from, you know, the right stages of their career stage, that's that are looking for growth opportunities.

Sumit Singh: Vets that are looking, you know, to spend more of their hours treating patients versus their hours, you know, solving back office challenges or entering data. So we've taken these type of, you know, dissatisfaction drivers or satisfaction drivers and dissatisfaction drivers and turn them into satisfaction drivers, right? So we've, you know, our tech allows us to reduce the amount of work that our vet spends in back office by over 50% making them more efficient, you know, and also more, more available to spend time in the front office or the, or treating their patients, which is what they'd like to do.

Sumit Singh: You know, we are spending time and building relationships, you know, with kind of sources of recruitment going all the way back to universities, you know, associations showcasing them, the power of technology, the power of experience combined together. So I think it's early days, but our approach to the market has been, you know, one that kind of works backwards from the veterinarians and tries to solve an experiential, you know, gap why a kind of mentality and technology vote. And that's that's resonating.

David Reeder: Sorry, happy to take a follow. I encourage if I could just build on Smith comment with respect to the brands about about half of the customers that have visited our clinics have subsequently placed orders. Actually, on our ecommerce site. And so, so not only, you know, are we resonating with, you know, our vet community, as well as our technician and kind of nurse community on the veterinarian side. But that service offering that has historically been very good at Huey is flowing through not only on the vet, the vet care side, but then also, you know, it's energetically flowing back, to the e-commerce side as well. Understood. Thanks, sir. Yes, sir. Thanks, Eric. Thank you. Thank you very much.

Unknown Executive: We currently have no further questions and this concludes the day's call. Thank you to everyone for joining. You may have disconnect your lines. Thank you very much.