Q3 2025 Chewy Inc Earnings Call

Speaker #1: Hello, everyone, and thank you for standing by. The Chewy third quarter 2025 earnings call will be beginning in one minute's time. We thank you for your patience, and we will begin.

Speaker 1: Hello everyone, and thank you for standing by. The Chewy Q3 2025 earnings call will be beginning in one minute's time. We thank you for your patience. We will begin soon.

Operator: Hello everyone, and thank you for standing by. The Chewy Q3 2025 earnings call will be beginning in one minute's time. We thank you for your patience. We will begin soon.

Speaker #1: soon. At five point

Speaker 2: At 5.7.

[Analyst]: At 5.7.

Speaker #1: Hello and welcome to the Chewy third quarter 2025 earnings call. My name is Emily, and I'll be coordinating your call today. After the presentation, you'll have the opportunity to ask any questions, which you can do so by pressing start, followed by the number one on your telephone keypad.

Speaker 1: Hello and welcome to the Chewy Q3 2025 earnings call. My name is Emily, and I'll be coordinating your call today. After the presentation, you'll have the opportunity to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad. I will now hand over to our host, Natalie Nowak, to begin. Please go ahead.

Operator: Hello and welcome to the Chewy Q3 2025 earnings call. My name is Emily, and I'll be coordinating your call today. After the presentation, you'll have the opportunity to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad. I will now hand over to our host, Natalie Nowak, to begin. Please go ahead.

Speaker #1: I will now hand over to our host, Natalie Nowak, to begin. Please go ahead.

Speaker #3: Thank you for joining us on the call today to discuss our third quarter results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit Singh, Will Billings, our Chief Accounting Officer, and Interim Principal Financial Officer, and Chris Deppe, our Head of Commercial Finance and SP&A.

Speaker 3: Thank you for joining us on the call today to discuss our third quarter results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit Singh, Will Billings, our Chief Accounting Officer and Interim Principal Financial Officer, and Chris Deppy, our Head of Commercial Finance and SP&A. Our earnings release, which was filed with the SEC 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. 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 repurchase program, and the environment in which we operate. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995.

Natalie Nowak: Thank you for joining us on the call today to discuss our third quarter results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit Singh, Will Billings, our Chief Accounting Officer and Interim Principal Financial Officer, and Chris Deppy, our Head of Commercial Finance and SP&A. Our earnings release, which was filed with the SEC 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. 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 repurchase program, and the environment in which we operate. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995.

Speaker #3: Our earnings release, which was filed with the SEC 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.

Speaker #3: 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 repurchase program, and the environment in which we operate.

Speaker #3: Such statements are considered forward-looking statements under the private securities litigation reform act of 1995. These statements involve certain risks and uncertainties and other factors that could cause actual results to differ materially from our forward-looking statements.

Speaker 3: These statements involve certain risks, uncertainties, and other factors that could cause actual results to differ materially from our forward-looking statements. We encourage you to review our SEC filings, including the section titled Risk Factors, in our most recent Form 10-K for a discussion of these risks. 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 assume no obligation to update any forward-looking statements except as required by law. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided on our Investor Relations website and in our earnings release. These non-GAAP measures are not intended as a substitute for GAAP results.

These statements involve certain risks, uncertainties, and other factors that could cause actual results to differ materially from our forward-looking statements. We encourage you to review our SEC filings, including the section titled Risk Factors, in our most recent Form 10-K for a discussion of these risks. 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 assume no obligation to update any forward-looking statements except as required by law. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided on our Investor Relations website and in our earnings release. These non-GAAP measures are not intended as a substitute for GAAP results.

Speaker #3: We encourage you to review our SEC filings, including the section titled "Risk Factors" in our most recent Form 10-K for a discussion of these risks.

Speaker #3: Reported results should not be considered an indication of future performance. Also, note that the forward-looking statements on this call are based on us as of today's date.

Speaker #3: on information available to We assume no obligation to update any forward-looking statements except as required by law. Also, during this call, we will discuss certain non-gap financial measures.

Speaker #3: Reconciliations of these non-gap items to the most directly comparable gap financial measures are provided on our Investor Relations website and in our earnings release.

Speaker #3: These non-gap 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 2024.

Speaker 3: Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2024. Finally, this 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. With that, I'd like to turn the call over to Sumit.

Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2024. Finally, this 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. With that, I'd like to turn the call over to Sumit.

Speaker #3: Finally, this 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 #3: And with that, I'd like to turn the call over to Sumit.

Speaker #2: Thanks, Natalie, and good morning, everyone. Chewy continues to outperform the pet category and expand market share with profits once again growing faster than sales.

Speaker 4: Thanks, Natalie, and good morning, everyone. Chewy continues to outperform the pet category and expand market share, with profits once again growing faster than sales. We are delivering consistent year-over-year profitability gains and remain firmly on track toward our long-term objective of 10% adjusted EBITDA margin. Q3 results build on the momentum from the first half of fiscal 2025 and highlight the structural resilience of our model, as well as the efforts and execution quality of every team member at Chewy. We exceeded the high end of our net sales guidance, expanded margins, and accelerated free cash flow generation. Let's get into the details. First, our financial and customer performance. Q3 net sales grew over 8% year-over-year to $3.12 billion, primarily driven by unit volume growth, not price. Growth in Autoship customer sales outpaced total company growth, increasing 13.6% to $2.61 billion.

Sumit Singh: Thanks, Natalie, and good morning, everyone. Chewy continues to outperform the pet category and expand market share, with profits once again growing faster than sales. We are delivering consistent year-over-year profitability gains and remain firmly on track toward our long-term objective of 10% adjusted EBITDA margin. Q3 results build on the momentum from the first half of fiscal 2025 and highlight the structural resilience of our model, as well as the efforts and execution quality of every team member at Chewy. We exceeded the high end of our net sales guidance, expanded margins, and accelerated free cash flow generation. Let's get into the details. First, our financial and customer performance. Q3 net sales grew over 8% year-over-year to $3.12 billion, primarily driven by unit volume growth, not price. Growth in Autoship customer sales outpaced total company growth, increasing 13.6% to $2.61 billion.

Speaker #2: We are delivering consistent year-over-year profitability gains and remain firmly on track toward our long-term objective of 10% adjusted EBITDA margin. Q3 results build on the momentum from the first half of fiscal 2025 and highlight the structural resilience of our model as well as the efforts and execution quality of every team member at Chewy.

Speaker #2: We exceeded the high end of our net sales guidance, expanded margins, and accelerated free cash flow generation. Let's get into the details. First, our financial and customer performance.

Speaker #2: Q3 net sales grew over 8% year-over-year to $3.12 billion, primarily driven by unit volume growth, not price. Growth in ownership customer sales outpaced total company growth, increasing 13.6% to $2.61 billion.

Speaker #2: As we have discussed before, ownership revenues are highly predictable and allow operational planning to reduce costs and grow margin in a way that gives Chewy unique structural competitive advantages.

Speaker 4: As we have discussed before, Autoship revenues are highly predictable and allow operational planning to reduce cost and grow margin in a way that gives Chewy unique structural competitive advantages. We ended Q3 with 21.2 million active customers, up nearly 5% year-over-year, and delivered improvements across every part of the active customer funnel. Marketing efficiency continues to strengthen as we deploy spend with greater precision, attracting high-quality customers, driving stronger conversion, and improving LTV to CAC ratios. Enhanced mobile app functionality is lifting direct traffic, with app customers and app orders up approximately 15% year-over-year. These improvements supported marketing leverage in the quarter while enabling year-over-year growth in both new customers and reactivations alongside lower churn. Net sales per active customer reached $595, up nearly 5% year-over-year. Now, let's review profitability and free cash flow, after which I will comment on some of our ongoing initiatives.

As we have discussed before, Autoship revenues are highly predictable and allow operational planning to reduce cost and grow margin in a way that gives Chewy unique structural competitive advantages. We ended Q3 with 21.2 million active customers, up nearly 5% year-over-year, and delivered improvements across every part of the active customer funnel. Marketing efficiency continues to strengthen as we deploy spend with greater precision, attracting high-quality customers, driving stronger conversion, and improving LTV to CAC ratios. Enhanced mobile app functionality is lifting direct traffic, with app customers and app orders up approximately 15% year-over-year. These improvements supported marketing leverage in the quarter while enabling year-over-year growth in both new customers and reactivations alongside lower churn. Net sales per active customer reached $595, up nearly 5% year-over-year. Now, let's review profitability and free cash flow, after which I will comment on some of our ongoing initiatives.

Speaker #2: We ended Q3 with 21.2 million active customers, up nearly 5% year-over-year, and delivered improvements across every part of the active customer funnel. Marketing efficiency continues to strengthen as we deploy spend with greater precision, attract high-quality customers, drive stronger conversion, and improve LTV to CAC ratios.

Speaker #2: Enhanced mobile app functionality is lifting direct traffic, with app customers and app orders up approximately 15% year-over-year. These improvements supported marketing leverage in the quarter, while enabling year-over-year growth in both new customers and reactivations, alongside lower churn.

Speaker #2: Net sales per active customer reached 595 dollars, up nearly 5% year-over-year. Now, let's review profitability and free cash flow, after which I will comment on some of our ongoing initiatives.

Speaker 4: Gross margin expanded roughly 50 basis points year-over-year to 29.8%, driven by sponsored ad growth, a strong Autoship baseline, and favorable category mix. We believe that these gains will structurally enhance our margins going forward. Adjusted EBITDA reached $181 million, up 30% year-over-year. Adjusted EBITDA margin reached 5.8%, representing 100 basis points of year-over-year expansion and flow-through of about 18%. Margin gains reflect strong gross margin execution, disciplined SG&A management, and continued efficiency in advertising and marketing. Finally, we generated approximately $176 million of free cash flow in the quarter, up nearly $70 million sequentially. Our profitability and cash generation enabled us to repurchase $55 million of shares while self-funding strategic investments that position Chewy for durable long-term value creation. Now, I would like to provide an update on some of Chewy's ongoing initiatives, starting with Chewy's health offerings.

Gross margin expanded roughly 50 basis points year-over-year to 29.8%, driven by sponsored ad growth, a strong Autoship baseline, and favorable category mix. We believe that these gains will structurally enhance our margins going forward. Adjusted EBITDA reached $181 million, up 30% year-over-year. Adjusted EBITDA margin reached 5.8%, representing 100 basis points of year-over-year expansion and flow-through of about 18%. Margin gains reflect strong gross margin execution, disciplined SG&A management, and continued efficiency in advertising and marketing. Finally, we generated approximately $176 million of free cash flow in the quarter, up nearly $70 million sequentially. Our profitability and cash generation enabled us to repurchase $55 million of shares while self-funding strategic investments that position Chewy for durable long-term value creation. Now, I would like to provide an update on some of Chewy's ongoing initiatives, starting with Chewy's health offerings.

Speaker #2: Roughly 50 basis points, gross margin expanded year-over-year to 29.8%, driven by sponsored ads growth, a strong ownership baseline, and favorable category mix. We believe that these gains will structurally enhance our margins going forward.

Speaker #2: Adjusted EBITDA reached $181 million, up 30% year-over-year. Adjusted EBITDA margin reached 5.8%, representing 100 basis points of year-over-year expansion and flow-through of about 18%.

Speaker #2: Margin gains reflect strong gross margin execution, disciplined SG&A management, and continued efficiency in advertising and marketing. And finally, we generated approximately $176 million of free cash flow in the quarter, up nearly $70 million sequentially.

Speaker #2: Our profitability and cash generation enabled us to repurchase $55 million of shares while self-funding strategic investments that positioned Chewy for durable long-term value creation.

Speaker #2: Now, I would like to provide an update on some of Chewy's ongoing initiatives. Starting with Chewy's health offerings, Chewy VetCare, or CVC, continues to exceed expectations.

Speaker 4: Chewy Vetcare, or CVC, continues to exceed expectations, driving strong utilization, supporting ecosystem engagement, and strengthening customer loyalty through recurring high-margin services. Each clinic acts as both an acquisition channel and a retention driver, supporting deeper Autoship and health program participation. We have opened two additional CVC practices since our last earnings call, including our first one in Phoenix, bringing our total to 14 locations across five states. Two more clinics are opening soon, keeping us on track with our previously stated plan to open eight to 10 locations this fiscal year. Staying on the topic of Chewy's health offerings, on 30 October, we announced the acquisition of Smart Equine, a leading equine health brand with strong loyalty and repeat purchase behavior. The transaction is expected to be accretive to Adjusted EBITDA margins upon closing.

Chewy Vetcare, or CVC, continues to exceed expectations, driving strong utilization, supporting ecosystem engagement, and strengthening customer loyalty through recurring high-margin services. Each clinic acts as both an acquisition channel and a retention driver, supporting deeper Autoship and health program participation. We have opened two additional CVC practices since our last earnings call, including our first one in Phoenix, bringing our total to 14 locations across five states. Two more clinics are opening soon, keeping us on track with our previously stated plan to open eight to 10 locations this fiscal year. Staying on the topic of Chewy's health offerings, on 30 October, we announced the acquisition of Smart Equine, a leading equine health brand with strong loyalty and repeat purchase behavior. The transaction is expected to be accretive to Adjusted EBITDA margins upon closing.

Speaker #2: Driving strong utilization, supporting ecosystem engagement, and strengthening customer loyalty through recurring high-margin services. Each clinic acts as both an acquisition channel and a retention driver, supporting deeper ownership and health program participation.

Speaker #2: We have opened two additional CVC practices since our last earnings call, including our first one in Phoenix, bringing our total to 14 locations across five states.

Speaker #2: Two more clinics are opening soon, keeping us on track with our previously stated plan to open 8 to 10 locations this fiscal year. Staying on the topic of Chewy's health offerings, on October 30th, we announced the acquisition of Smart Equine, a leading equine health brand with strong loyalty and repeat purchase behavior.

Speaker #2: The transaction is expected to be accretive to adjusted EBITDA margins upon closing. Smart Equine enhances Chewy's premium health and nutraceutical assortment and strengthens our position in high-value wellness categories.

Speaker 4: Smart Equine enhances Chewy's premium health and nutraceutical assortment and strengthens our position in high-value wellness categories. By layering its premium assortment over Chewy's network and scale, we see significant opportunity to enhance our health and wellness mix and expand both net sales within this category as well as margins. Our paid membership program, Chewy Plus, continues to outperform our expectations, driving higher order frequency, broader category engagement, higher mobile app adoption, and stronger auto ship participation. After launching at an introductory price of $49 per year with a 30-day free trial, we raised the annual fee to $79 at the end of October. Early data shows continued growth and strong conversion from free to paid memberships. Paid Chewy Plus members are already delivering gross margins in line with the overall enterprise, and with higher pricing in place, we remain confident in the program's growth and margin potential.

Smart Equine enhances Chewy's premium health and nutraceutical assortment and strengthens our position in high-value wellness categories. By layering its premium assortment over Chewy's network and scale, we see significant opportunity to enhance our health and wellness mix and expand both net sales within this category as well as margins. Our paid membership program, Chewy Plus, continues to outperform our expectations, driving higher order frequency, broader category engagement, higher mobile app adoption, and stronger auto ship participation. After launching at an introductory price of $49 per year with a 30-day free trial, we raised the annual fee to $79 at the end of October. Early data shows continued growth and strong conversion from free to paid memberships. Paid Chewy Plus members are already delivering gross margins in line with the overall enterprise, and with higher pricing in place, we remain confident in the program's growth and margin potential.

Speaker #2: By layering its premium assortment over Chewy's network and scale, we see significant opportunity to enhance our health and wellness mix and expand both net sales within this category, as well as margins.

Speaker #2: Our paid membership program, Chewy Plus, continues to outperform our expectations, driving higher order frequency, broader category engagement, higher mobile app adoption, and stronger ownership participation.

Speaker #2: After launching at an introductory price of $49 per year, with a 30-day free trial, we raised the annual fee to $79 at the end of October.

Speaker #2: Early data shows continued growth and strong conversion from free to paid memberships. Paid Chewy Plus members are already delivering gross margins in line with the overall enterprise, and with higher pricing in place, we remain confident in the program's growth and margin potential.

Speaker #2: I would now like to turn the call over to Will for a detailed recap of our results and guidance. After which, I will make some final closing remarks about 2026 and Chewy's future.

Speaker 4: I would now like to turn the call over to Will for a detailed recap of our results and guidance, after which I will make some final closing remarks about 2026 and Chewy's future. Will?

I would now like to turn the call over to Will for a detailed recap of our results and guidance, after which I will make some final closing remarks about 2026 and Chewy's future. Will?

Speaker #2: Will? Thank you, Samet. Third-quarter net sales grew 8.3% year-over-year to 3.12 billion, above the high end of our Q3 guidance range. Gross margin expanded approximately 50 basis points, to 29.8%.

Speaker 2: Thank you, Sumit. Third quarter net sales grew 8.3% year-over-year to $3.12 billion, above the high end of our Q3 guidance range. Gross margin expanded approximately 50 basis points to 29.8%. Q3 SG&A, excluding share-based compensation and related taxes, was $588.6 million, or 18.9% of net sales, and includes approximately $2.7 million of one-time transaction costs, primarily related to the pending Smart Equine acquisition. Excluding SBC and these one-time costs, we delivered SG&A leverage of 20 basis points year-over-year. Consistent with our expectations, we returned to SG&A leverage as our newest automated facility in Houston scaled, and as we cycled past certain transitory costs related to the Dallas FC and inventory pull forward. Advertising and marketing expense was $197.9 million, or 6.3% of net sales, reflecting about 40 basis points of year-over-year leverage. As Sumit noted, this leverage is driven by higher productivity of spend, not reduced investment.

Will Billings: Thank you, Sumit. Third quarter net sales grew 8.3% year-over-year to $3.12 billion, above the high end of our Q3 guidance range. Gross margin expanded approximately 50 basis points to 29.8%. Q3 SG&A, excluding share-based compensation and related taxes, was $588.6 million, or 18.9% of net sales, and includes approximately $2.7 million of one-time transaction costs, primarily related to the pending Smart Equine acquisition. Excluding SBC and these one-time costs, we delivered SG&A leverage of 20 basis points year-over-year. Consistent with our expectations, we returned to SG&A leverage as our newest automated facility in Houston scaled, and as we cycled past certain transitory costs related to the Dallas FC and inventory pull forward. Advertising and marketing expense was $197.9 million, or 6.3% of net sales, reflecting about 40 basis points of year-over-year leverage. As Sumit noted, this leverage is driven by higher productivity of spend, not reduced investment.

Speaker #2: Q3 SG&A excluding share-based compensation and related taxes was 588.6 million, or 18.9% of net sales, and includes approximately 2.7 million of one-time transaction costs, primarily related to the pending Smart Equine acquisition.

Speaker #2: Excluding SBC and these one-time costs, we delivered SG&A leverage of 20 basis points year-over-year. Consistent with our expectations, we returned to SG&A leverage as our newest automated facility in Houston scaled.

Speaker #2: And as we cycled past certain transitory costs related to the Dallas FC and inventory pull-forward, advertising and marketing expense was $197.9 million, or 6.3% of net sales.

Speaker #2: Reflecting on 40 basis points of year-over-year leverage, as Samet noted, this leverage is driven by higher productivity of spend, not reduced investment. We are attracting high-quality customers and are quickly converting them into ownership, Chewy Plus, and health programs, which deepens loyalty and increases lifetime value.

Speaker 2: We are attracting high-quality customers and are quickly converting them into Autoship, Chewy Plus, and health programs, which deepens loyalty and increases lifetime value. These efficiencies reflect more discipline, allocation of marketing dollars, and stronger flywheel effects that we expect to build as we scale. Q3 adjusted net income was $135.7 million, up 59.6% year-over-year, and adjusted diluted earnings per share of $0.32 landed near the high end of our prior guidance range. Third quarter adjusted EBITDA was $180.9 million, representing a 5.8% adjusted EBITDA margin, up 100 basis points year-over-year, and adjusted EBITDA flow-through of 17.9%. Free cash flow for the quarter was $175.8 million, driven by $207.9 million of cash from operating activities and $32.1 million of capital expenditures. For full year 2025, we continue to expect to convert approximately 80% of adjusted EBITDA to free cash flow.

We are attracting high-quality customers and are quickly converting them into Autoship, Chewy Plus, and health programs, which deepens loyalty and increases lifetime value. These efficiencies reflect more discipline, allocation of marketing dollars, and stronger flywheel effects that we expect to build as we scale. Q3 adjusted net income was $135.7 million, up 59.6% year-over-year, and adjusted diluted earnings per share of $0.32 landed near the high end of our prior guidance range. Third quarter adjusted EBITDA was $180.9 million, representing a 5.8% adjusted EBITDA margin, up 100 basis points year-over-year, and adjusted EBITDA flow-through of 17.9%. Free cash flow for the quarter was $175.8 million, driven by $207.9 million of cash from operating activities and $32.1 million of capital expenditures. For full year 2025, we continue to expect to convert approximately 80% of adjusted EBITDA to free cash flow.

Speaker #2: These efficiencies reflect more discipline, allocation of marketing dollars, and stronger flywheel effects that we expect to build as we scale. Q3 adjusted net income was $135.7 million, up 59.6% year-over-year.

Speaker #2: Adjusted diluted earnings per share of $0.32 landed near the high end of our prior guidance range. Third-quarter adjusted EBITDA was $180.9 million, representing a 5.8% adjusted EBITDA margin.

Speaker #2: Up 100 basis points year-over-year, and adjusted EBITDA flow-through of 17.9%. Free cash flow for the quarter was $175.8 million, driven by $207.9 million of cash from operating activities and $32.1 million of capital expenditures.

Speaker #2: For the full year 2025, we continue to expect to convert approximately 80% of adjusted EBITDA to free cash flow. In addition, based on year-to-date performance, we now expect 2025 capital expenditures to come in around 1.3% of net sales.

Speaker 2: In addition, based on year-to-date performance, we now expect 2025 capital expenditures to come in around 1.3% of net sales, below the low end of our prior target range of 1.5% to 2% of net sales. During the quarter, we repurchased approximately 1.5 million shares for $55 million. We ended Q3 with $304.9 million of remaining authorization under our existing repurchase program. We closed the quarter with approximately $675 million in cash and cash equivalents, remained debt-free, and had total liquidity of approximately $1.5 billion. Turning to guidance, recall that in Q2, we raised our full year net sales guidance by $175 million at the midpoint, reflecting our bullishness to outperform a market which is expected to grow low single digits in FY 2025.

In addition, based on year-to-date performance, we now expect 2025 capital expenditures to come in around 1.3% of net sales, below the low end of our prior target range of 1.5% to 2% of net sales. During the quarter, we repurchased approximately 1.5 million shares for $55 million. We ended Q3 with $304.9 million of remaining authorization under our existing repurchase program. We closed the quarter with approximately $675 million in cash and cash equivalents, remained debt-free, and had total liquidity of approximately $1.5 billion. Turning to guidance, recall that in Q2, we raised our full year net sales guidance by $175 million at the midpoint, reflecting our bullishness to outperform a market which is expected to grow low single digits in FY 2025.

Speaker #2: Below the low end of our prior target range of 1.5% to 2% of net sales. During the quarter, we repurchased approximately 1.5 million shares for $55 million.

Speaker #2: We ended Q3 with 304.9 million, or remaining authorization under our existing repurchase program. We closed the quarter with approximately 675 million in cash and cash equivalents, remained debt-free, and had total liquidity of approximately 1.5 billion.

Speaker #2: Turning to guidance, recall that in Q2, we raised our full-year net sales guidance by $175 million at the midpoint, reflecting our bullishness to outperform a market that is expected to grow in the low single digits in FY 2025.

Speaker #2: Today, we are narrowing our full-year 2025 net sales outlook to between $12.58 billion and $12.6 billion, or approximately 8% year-over-year growth when adjusted to exclude the impact of the 53rd week in fiscal year 2024.

Speaker 2: Today, we are narrowing our full year 2025 net sales outlook to between $12.58 and 12.6 billion, or approximately 8% year-over-year growth when adjusted to exclude the impact of the 53rd week in fiscal year 2024. With even greater confidence in our ability to deliver incremental margins, we are also narrowing our full year 2025 Adjusted EBITDA margin outlook to 5.6% to 5.7%, or approximately 90 basis points of Adjusted EBITDA margin expansion at the midpoint year-over-year. Consistent with our comments last quarter, we expect approximately 60% of our Adjusted EBITDA margin expansion to be driven by improvements in gross margin. We expect fourth quarter 2025 net sales of between $3.24 and 3.26 billion, or approximately 7% to 8% year-over-year growth when adjusted to exclude the impact of the 14th week in Q4 of fiscal year 2024.

Today, we are narrowing our full year 2025 net sales outlook to between $12.58 and 12.6 billion, or approximately 8% year-over-year growth when adjusted to exclude the impact of the 53rd week in fiscal year 2024. With even greater confidence in our ability to deliver incremental margins, we are also narrowing our full year 2025 Adjusted EBITDA margin outlook to 5.6% to 5.7%, or approximately 90 basis points of Adjusted EBITDA margin expansion at the midpoint year-over-year. Consistent with our comments last quarter, we expect approximately 60% of our Adjusted EBITDA margin expansion to be driven by improvements in gross margin. We expect fourth quarter 2025 net sales of between $3.24 and 3.26 billion, or approximately 7% to 8% year-over-year growth when adjusted to exclude the impact of the 14th week in Q4 of fiscal year 2024.

Speaker #2: With even greater confidence in our ability to deliver incremental margins, we are also narrowing our full-year 2025 adjusted EBITDA margin outlook to 5.6 to 5.7%, or approximately 90 basis points of adjusted EBITDA margin expansion at the midpoint year-over-year.

Speaker #2: Consistent with our comments last quarter, we expect approximately 60% of our adjusted EBITDA margin expansion to be driven by improvements in gross margin. We expect fourth-quarter 2025 net sales of between 3.24 and 3.26 billion, or approximately 7 to 8% year-over-year growth when adjusted to exclude the impact of the 14th week in Q4 of fiscal year 2024.

Speaker #2: Our fourth-quarter guidance takes into account the strong year-over-year comps of approximately 7% net sales growth in the fourth quarter last year. We also expect Q4 adjusted diluted earnings per share in the range of $0.24 to $0.27.

Speaker 2: Our fourth quarter guidance takes into account the strong year-over-year comps of approximately 7% net sales growth in the fourth quarter last year. We also expect Q4 adjusted diluted earnings per share in the range of $0.24 to $0.27, which includes an estimated $10 million of closing costs related to the pending acquisition of Smart Equine. And finally, given our performance in the first three quarters of the year, we now expect advertising and marketing expense to come in at approximately 6.5% to 6.6% of net sales for the full year. For the full year 2025, we are also expecting share-based compensation expense, including related taxes of approximately $315 million, and weighted average diluted shares outstanding of approximately 430 million. We now expect 2025 net interest income of approximately $15 million to 20 million. And lastly, we expect our effective tax rate to be between 16% to 18% for 2025.

Our fourth quarter guidance takes into account the strong year-over-year comps of approximately 7% net sales growth in the fourth quarter last year. We also expect Q4 adjusted diluted earnings per share in the range of $0.24 to $0.27, which includes an estimated $10 million of closing costs related to the pending acquisition of Smart Equine. And finally, given our performance in the first three quarters of the year, we now expect advertising and marketing expense to come in at approximately 6.5% to 6.6% of net sales for the full year. For the full year 2025, we are also expecting share-based compensation expense, including related taxes of approximately $315 million, and weighted average diluted shares outstanding of approximately 430 million. We now expect 2025 net interest income of approximately $15 million to 20 million. And lastly, we expect our effective tax rate to be between 16% to 18% for 2025.

Speaker #2: This includes an estimated $10 million of closing costs related to the pending acquisition of Smart Equine. Finally, given our performance in the first three quarters of the year, we now expect advertising and marketing expense to come in at approximately 6.5% to 6.6% of net sales for the full year.

Speaker #2: For the full year 2025, we are also expecting share-based compensation expense including related taxes of approximately 315 million, and weighted average diluted shares outstanding of approximately 430 million.

Speaker #2: We now expect 2025 net interest income of approximately $15 million to $20 million. Lastly, we expect our effective tax rate to be between 16% and 18% for 2025.

Speaker #2: I would now like to turn the call back to Samet for some

Speaker 2: I would now like to turn the call back to Sumit for some closing remarks.

I would now like to turn the call back to Sumit for some closing remarks.

Speaker #1: Thanks,

Speaker 3: Thanks, Will. Before we take your questions, I would like to make a few important remarks. First, on Chewy's margin expansion and its path, cadence, and durability as we head into 2026, Chewy has an unmatched position in a uniquely attractive industry. In Chewy.com, we have the leading sales engine in our industry, evidenced by the 84% of our sales on auto ship layered on top of a built-out world-class fulfillment network. The best-in-class consumer satisfaction that results from this combination leads customers to trust us with ever-increasing levels of business, as you can see from the growth of our pharmacy business and our multi-year steadily rising NSPAC. Q3 shows the result. We delivered both revenue growth and margin expansion, even as we made high-return, targeted investments in the business. Gross margins continue to expand on a structural basis, supported by sponsored ads, category mix, and a growing health ecosystem.

Sumit Singh: Thanks, Will. Before we take your questions, I would like to make a few important remarks. First, on Chewy's margin expansion and its path, cadence, and durability as we head into 2026, Chewy has an unmatched position in a uniquely attractive industry. In Chewy.com, we have the leading sales engine in our industry, evidenced by the 84% of our sales on auto ship layered on top of a built-out world-class fulfillment network. The best-in-class consumer satisfaction that results from this combination leads customers to trust us with ever-increasing levels of business, as you can see from the growth of our pharmacy business and our multi-year steadily rising NSPAC. Q3 shows the result. We delivered both revenue growth and margin expansion, even as we made high-return, targeted investments in the business. Gross margins continue to expand on a structural basis, supported by sponsored ads, category mix, and a growing health ecosystem.

Speaker #1: Will, before we take your closing remarks and questions, I would like to make a few important remarks. First, on Chewy's margin expansion and its path cadence and durability as we head into 2026.

Speaker #1: Chewy has an unmatched position in a uniquely attractive industry. In chewy.com, we have the leading sales engine in our industry evidenced by the 84% of our sales on ownership layered on top of a built-out world-class fulfillment network.

Speaker #1: The best-in-class consumer satisfaction that results from this combination leads customers to trust us with ever-increasing levels of business. As you can see from the growth of our pharmacy business and our multi-year steadily rising NASPAC.

Speaker #1: Q3 shows the result. We delivered both revenue growth and margin expansion even as we made high return targeted investments in the business. Gross margins continue to expand on a structural basis, supported by sponsored ads, category mix, and a growing health ecosystem.

Speaker #1: SG&A leverage is returning as automated facilities scale and as we cycle through transitory costs. Marketing is becoming more efficient as we increase direct share of traffic and grow our business inside the mobile app.

Speaker 3: SG&A leverage is returning as automated facilities scale and as we cycle through transitory costs. Marketing is becoming more efficient as we increase direct share of traffic and grow our business inside the mobile app. To be clear, we grew at approximately twice the market rate, taking share again without pricing below inflation or sacrificing margin. In 2026, we intend to press these competitive advantages and continue our pursuit of scalable self-funding initiatives that simultaneously enhance profitability. While we will always prioritize disciplined, customer-centric growth, our unique flywheel-like operating model gives us high confidence in our ability to deliver consistent, durable EBITDA expansion over the next several years. Our long-term framework is unchanged, and the underlying engines that drive margin expansion are strengthening. We remain firmly on track toward the long-term margin profile of 10% adjusted EBITDA that we outlined at Investor Day.

SG&A leverage is returning as automated facilities scale and as we cycle through transitory costs. Marketing is becoming more efficient as we increase direct share of traffic and grow our business inside the mobile app. To be clear, we grew at approximately twice the market rate, taking share again without pricing below inflation or sacrificing margin. In 2026, we intend to press these competitive advantages and continue our pursuit of scalable self-funding initiatives that simultaneously enhance profitability. While we will always prioritize disciplined, customer-centric growth, our unique flywheel-like operating model gives us high confidence in our ability to deliver consistent, durable EBITDA expansion over the next several years. Our long-term framework is unchanged, and the underlying engines that drive margin expansion are strengthening. We remain firmly on track toward the long-term margin profile of 10% adjusted EBITDA that we outlined at Investor Day.

Speaker #1: And to be clear, we grew at approximately twice the market rate, taking share again without pricing below inflation or sacrificing margin. In 2026, we intend to press these competitive advantages and continue our pursuit of scalable, self-funding initiatives that simultaneously enhance profitability.

Speaker #1: While we will always prioritize disciplined customer-centric growth, our unique flywheel-like operating model gives us high confidence in our ability to deliver consistent durable EBITDA expansion over the next several years.

Speaker #1: Our long-term framework is unchanged, and the underlying engines that drive margin expansion are strengthening. We remain firmly on track towards the long-term margin profile of 10% adjusted EBITDA that we outlined at Investor Day.

Speaker #1: Turning to investment levels into 2026 and beyond, what is temporary versus structural? We are highly disciplined in how we deploy capital. A number of the cost impacts you have seen in recent quarters, such as inventory pull-forwards, one-time launch expenses within fresh food, for instance, and early-stage Chewy Plus incentives, are all temporary by design.

Speaker 3: Turning to investment levels into 2026 and beyond, what is temporary versus structural? We are highly disciplined in how we deploy capital. A number of the cost impacts you have seen in recent quarters, such as inventory pull forwards, one-time launch expenses within fresh food, for instance, and early-stage Chewy Plus incentives, are all temporary by design. Our structural investments include automation and health services. All investments have clear ROI thresholds and measurable payback periods. As we move into 2026 and as we press our unique competitive advantages, we expect the balance of investment to shift towards operating leverage. The framework is simple: invest where returns are compelling and durable, moderate spend where benefits have been captured, and drive leverage using our scale across the platform. We look forward to wrapping up 2025 from a position of strength and to a successful 2026.

Turning to investment levels into 2026 and beyond, what is temporary versus structural? We are highly disciplined in how we deploy capital. A number of the cost impacts you have seen in recent quarters, such as inventory pull forwards, one-time launch expenses within fresh food, for instance, and early-stage Chewy Plus incentives, are all temporary by design. Our structural investments include automation and health services. All investments have clear ROI thresholds and measurable payback periods. As we move into 2026 and as we press our unique competitive advantages, we expect the balance of investment to shift towards operating leverage. The framework is simple: invest where returns are compelling and durable, moderate spend where benefits have been captured, and drive leverage using our scale across the platform. We look forward to wrapping up 2025 from a position of strength and to a successful 2026.

Speaker #1: Our structural investments include automation and health services. All investments have clear ROI thresholds and measurable payback periods. As we move into 2026 and press our unique competitive advantages, we expect the balance of investment to shift towards operating leverage. The framework is simple: invest where returns are compelling and durable, moderate spend where benefits have been captured, and drive leverage using our scale across the platform.

Speaker #1: 2025 from a position of We look forward to wrapping up strength and to a successful 2026. With that, we will now take your questions.

Speaker 3: With that, we will now take your questions.

With that, we will now take your questions.

Speaker #2: Thank you. We will now begin the question-and-answer session. As a reminder, if you would like to ask a question today, please do so now by pressing start, followed by the number one on your telephone keypad.

Speaker 1: Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question today, please do so now by pressing star, followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star, followed by two, to remove yourself from the queue. Our first question today comes from Eric Sheridan with Goldman Sachs. Eric, please go ahead.

Operator: Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question today, please do so now by pressing star, followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star, followed by two, to remove yourself from the queue. Our first question today comes from Eric Sheridan with Goldman Sachs. Eric, please go ahead.

Speaker #2: If you change your mind or you feel like your question has already been answered, you can press start, followed by two to remove yourself from the queue.

Speaker #2: Our first question today comes from Eric Sheridan with Goldman Sachs. Eric, please go ahead.

Speaker #3: Thanks so much for taking the question. Maybe two, if I can. I'm curious, as the team continues to scale offerings like ownership and Chewy Plus, how you continue to evolve your learnings about the lifetime value of customers on the platform.

Speaker 4: Thanks so much for taking the question. Maybe two, if I can. Curious, as the team continues to scale offerings like Autoship and Chewy Plus, how do you continue to evolve your learnings about the lifetime value of customers on the platform? And the second part of the question would be, how do those learnings feed back into your strategic initiatives in support of growth, given the commentary right there towards the end of the call from Sumit on some of your priorities over the next 12 to 18 months? Thanks so much.

Eric Sheridan: Thanks so much for taking the question. Maybe two, if I can. Curious, as the team continues to scale offerings like Autoship and Chewy Plus, how do you continue to evolve your learnings about the lifetime value of customers on the platform? And the second part of the question would be, how do those learnings feed back into your strategic initiatives in support of growth, given the commentary right there towards the end of the call from Sumit on some of your priorities over the next 12 to 18 months? Thanks so much.

Speaker #3: And the second part of the question would be, how do those learnings feed back into your strategic initiatives in support of growth, given the commentary right there towards the end of the call from Samet on some of your priorities over the next 12 to 18 months?

Speaker #3: Thanks so

Speaker #3: much.

Speaker #4: Hey, Eric. Good morning.

Speaker 5: Hey, Eric. Good morning. Thanks for the question. The way, first of all, it's a broad question, so I'll try not to ramble and give you some frameworks on how we're thinking about this and why we believe these sort of build on top of each other. Like an intersecting Venn diagram, there's strong intersection and strong complementarity between the programs. I want you to visualize three sort of flywheels: the Autoship, Chewy Plus, CVC. I want you to then imagine all of these built onto a closed-loop, highly personalized app, mobile app. As you envision that, these are separate programs that essentially compound NSPAC curves, increase retention, cohort retention, reduce churn, and drive both top line as well as greater efficiency in the way that we deliver profitability.

Sumit Singh: Hey, Eric. Good morning. Thanks for the question. The way, first of all, it's a broad question, so I'll try not to ramble and give you some frameworks on how we're thinking about this and why we believe these sort of build on top of each other. Like an intersecting Venn diagram, there's strong intersection and strong complementarity between the programs. I want you to visualize three sort of flywheels: the Autoship, Chewy Plus, CVC. I want you to then imagine all of these built onto a closed-loop, highly personalized app, mobile app. As you envision that, these are separate programs that essentially compound NSPAC curves, increase retention, cohort retention, reduce churn, and drive both top line as well as greater efficiency in the way that we deliver profitability.

Speaker #4: Thanks for the way. First of all, it's a broad question, so I'll try not to ramble and give you some frameworks on how we're thinking about this and why we believe these sort of build on top of each other.

Speaker #4: Like an intersecting Venn diagram, there's strong intersection and strong complementarity between the programs. So I want you to visualize three sort of flywheels: the ownership, Chewy Plus, and CVC. I want you to then imagine all of these built onto a closed-loop, highly personalized mobile app.

Speaker #4: And so as you envision that, these are separate programs that essentially compound NASPAC curves increase retention cohort retention, reduce churn, and drive both topline as well as greater efficiency in the way that we deliver profitability.

Speaker #4: Ownership is a rinse-and-repeat product merchandise program that has high reliability and accuracy, both in terms of planning and delivery, and a high satisfaction rating.

Speaker 5: AutoShip is a rinse and repeat product merchandise program that has high reliability and accuracy, both in terms of planning, in terms of delivery, and high satisfaction rating. Chewy Plus is a program that is designed to accelerate the process of discoverability of multiple offerings at Chewy beyond consumables and health, which are sort of top discoverable categories. In addition to accelerating discovery, it is meant to accelerate NSPAC consolidation. Chewy Plus AutoShip is applicable to the entire cohort of customers that Chewy, Chewy Plus, is more propensed in our intention to grow NSPAC for customers that spend somewhere between $300 and $700 with Chewy, so that there is tremendous incrementality that we can extract from them.

AutoShip is a rinse and repeat product merchandise program that has high reliability and accuracy, both in terms of planning, in terms of delivery, and high satisfaction rating. Chewy Plus is a program that is designed to accelerate the process of discoverability of multiple offerings at Chewy beyond consumables and health, which are sort of top discoverable categories. In addition to accelerating discovery, it is meant to accelerate NSPAC consolidation. Chewy Plus AutoShip is applicable to the entire cohort of customers that Chewy, Chewy Plus, is more propensed in our intention to grow NSPAC for customers that spend somewhere between $300 and $700 with Chewy, so that there is tremendous incrementality that we can extract from them.

Speaker #4: Chewy Plus is a program that is designed to accelerate the process of discoverability of multiple offerings at Chewy beyond consumables and health, which are sort of the top discoverable categories.

Speaker #4: And in addition to accelerating discovery, it is meant to accelerate NASPAC consolidation. Chewy Plus ownership is applicable to the entire cohort of customers that Chewy Plus is more propensed in our intention to grow NASPAC for customers that spend somewhere between $300 and $700 with Chewy.

Speaker #4: So, there is tremendous incrementality that we can extract from them. A proof point of Chewy Plus, now that we've continued to run the program for another six or seven weeks since the last time we spoke to you, is that penetration in categories like hard goods and specialty is running higher than the average penetration for Chewy Plus, indicating the power of Chewy Plus to consolidate discretionary categories, build AOE, and provide larger basket sizes.

Speaker 5: A proof point of Chewy Plus, now that we've continued to run the program another six or seven weeks since the last time we spoke to you, penetration in categories like hard goods and specialty is running higher than the average penetration for Chewy Plus, indicating the power of Chewy Plus to consolidate discretionary categories, build AOV, and provide larger basket sizes. CVC, as we've spoken in the past and as I spoke on the script, is a lever that essentially expands TAM to incremental $40 billion of health services, but also creates an entire health ecosystem where the customer can start the journey online or offline, and ultimately, Chewy is better off for it, and the customer is better off for it. The mobile app, obviously, is a closed-loop system that pushes more and more direct traffic, much more personalized interactions.

A proof point of Chewy Plus, now that we've continued to run the program another six or seven weeks since the last time we spoke to you, penetration in categories like hard goods and specialty is running higher than the average penetration for Chewy Plus, indicating the power of Chewy Plus to consolidate discretionary categories, build AOV, and provide larger basket sizes. CVC, as we've spoken in the past and as I spoke on the script, is a lever that essentially expands TAM to incremental $40 billion of health services, but also creates an entire health ecosystem where the customer can start the journey online or offline, and ultimately, Chewy is better off for it, and the customer is better off for it. The mobile app, obviously, is a closed-loop system that pushes more and more direct traffic, much more personalized interactions.

Speaker #4: And then CVC, as the as we've spoken in the past, and as I spoke on the script, is a lever that essentially expands TAM to incremental 40 billion dollars of health services but also creates an entire health ecosystem where the customer can start the journey online or offline and better off for it and the customer is better off for ultimately their Chewy is it.

Speaker #4: The mobile app obviously is a closed-loop system that pushes more and more direct traffic, much more personalized interactions, repeat purchase rates, and apps are stronger.

Speaker 5: Repeat purchase rates in apps are stronger. AOVs are stronger. Autoship subscribe rates. There's a lot of complementarity of Chewy Plus and Autoship inside the app, etc. So if you think about the way that we're making investments, at the top level, we have multiple top line and margin-driving initiatives. Then comes the automation and the power of scale that we're, and in future, not too far out, the power of AI to compound those gains across our fulfillment, customer care, and the rest of the company. And then at the bottom, it is built on a really strong unified data layer and modern architecture built around a world-class fulfillment network. So I'm not sure if I hit kind of exactly what you were looking for, but happy to take a follow-up.

Repeat purchase rates in apps are stronger. AOVs are stronger. Autoship subscribe rates. There's a lot of complementarity of Chewy Plus and Autoship inside the app, etc. So if you think about the way that we're making investments, at the top level, we have multiple top line and margin-driving initiatives. Then comes the automation and the power of scale that we're, and in future, not too far out, the power of AI to compound those gains across our fulfillment, customer care, and the rest of the company. And then at the bottom, it is built on a really strong unified data layer and modern architecture built around a world-class fulfillment network. So I'm not sure if I hit kind of exactly what you were looking for, but happy to take a follow-up.

Speaker #4: AOEs are stronger. Ownership subscribe rates show a lot of complementarity of Chewy Plus and ownership inside the app, etc. So if you think about the way that we're making investments at the top level, we have multiple topline and margin-driving initiatives.

Speaker #4: Then comes the automation and the power of scale that we are, and in the future—not too long, not too far out—the power of AI to compound those gains across our company.

Speaker #4: And then at the bottom, it is fulfillment, customer care, and the rest built on a really strong unified data layer and modern architecture, built around a world-class fulfillment network.

Speaker #4: So I'm not sure if I hit exactly what you were looking for, but I'm happy to take a follow-up.

Speaker #3: No, that's super helpful. Thanks so much,

Speaker 4: No, that's super helpful. Thanks so much, Sumit.

Eric Sheridan: No, that's super helpful. Thanks so much, Sumit.

Speaker #3: Samet. Thank

Speaker 1: Thank you. Our next question comes from Doug Unmuth with J.P. Morgan. Please go ahead.

Operator: Thank you. Our next question comes from Doug Unmuth with J.P. Morgan. Please go ahead.

Speaker #2: Doug Anmerth with JP Morgan. Please go ahead. Our next question comes from ahead.

Speaker #5: Thanks so much for taking the questions. Samet, the active customer growth was the strongest it's been in a few quarters. Can you just talk about some of the drivers there and then just how you're thinking about that in 4Q and into '26 along with just health of the industry?

Speaker 6: Thanks so much for taking the questions. Sumit, the active customer growth was the strongest it's been in a few quarters. Can you just talk about some of the drivers there and then just how you're thinking about that in Q4 and into 2026, along with just health of the industry? Then just to follow up on the investment levels in 2026, is there a way to frame just kind of how you're thinking about that relative to what we've seen in 2025? Thank you.

Doug Anmuth: Thanks so much for taking the questions. Sumit, the active customer growth was the strongest it's been in a few quarters. Can you just talk about some of the drivers there and then just how you're thinking about that in Q4 and into 2026, along with just health of the industry? Then just to follow up on the investment levels in 2026, is there a way to frame just kind of how you're thinking about that relative to what we've seen in 2025? Thank you.

Speaker #5: just to follow up on the investment And then there a way to frame just kind of how levels in '26, is you're thinking about that relative to what we've seen in '25?

Speaker #5: Thank you.

Speaker #4: Hey, Doug. Thank you for the question. So, let's start with the active customers. So, yeah, Q3 active customer performance exceeded our expectations and was driven by improvements across the customer funnel.

Speaker 5: Hey, Doug. Thank you for the question. So let's start with the active customers. So yeah, Q3 active customer performance exceeded our expectation and was driven by improvements across the customer funnel. The strength in active customer reflects sort of both gross adds strengthening as well as churn lowering, or improvements in retention, as we would call it. On the acquisition side or gross add side, we're benefiting from higher direct traffic, increasing engagement in the mobile app, and improved conversion across our platforms, both app and web. To give you data points, we lowered first-time-to-app conversion. We increased daily active usages. We improved SEO performance by double-digit gains on a year-over-year basis. Our traffic was up mid-single digits on a year-over-year basis.

Sumit Singh: Hey, Doug. Thank you for the question. So let's start with the active customers. So yeah, Q3 active customer performance exceeded our expectation and was driven by improvements across the customer funnel. The strength in active customer reflects sort of both gross adds strengthening as well as churn lowering, or improvements in retention, as we would call it. On the acquisition side or gross add side, we're benefiting from higher direct traffic, increasing engagement in the mobile app, and improved conversion across our platforms, both app and web. To give you data points, we lowered first-time-to-app conversion. We increased daily active usages. We improved SEO performance by double-digit gains on a year-over-year basis. Our traffic was up mid-single digits on a year-over-year basis.

Speaker #4: The strength in active customers reflects sort of both gross ads strengthening, as well as churn lowering, or improvements in retention, as we would call it.

Speaker #4: On the acquisition side of gross ad spend, we're benefiting from higher direct traffic, increasing engagement in the mobile app, and improved conversion across our platforms, both app and web.

Speaker #4: To give you data points, we lowered first time to app conversion. We increased daily active usages. We improved SEO performance by double-digit gains on a year-over-year basis.

Speaker #4: Our traffic was up mid-single digits on a year-over-year basis. So the combination of SEO, plus the app, and overall increased traffic was then met with better experiences on the platforms that drove higher conversion, and as such, new customer conversion was better.

Speaker 5: So the combination of SEO plus app and overall increased traffic was then met with better experiences on the platforms that drove higher conversion, and as such, new customer conversion was better. So these things added up in Q3 and, in our opinion, are durable moving forward. Retention, at the same time, continues to strengthen as customers deepen their engagement, especially across categories like premium consumables, healthcare. Hard goods, once again, were strong, I think, 18% year-over-year growth. And as customers increasingly consolidate their spend with us, given that they're finding both value and convenience at Chewy. Now, moving to the subpart of the same question. So you're asking about how we're thinking about Q4 and then 2026. So 2026, we expect durability in Net Adds file continuing to increase. Let me hit Q4 more directly.

So the combination of SEO plus app and overall increased traffic was then met with better experiences on the platforms that drove higher conversion, and as such, new customer conversion was better. So these things added up in Q3 and, in our opinion, are durable moving forward. Retention, at the same time, continues to strengthen as customers deepen their engagement, especially across categories like premium consumables, healthcare. Hard goods, once again, were strong, I think, 18% year-over-year growth. And as customers increasingly consolidate their spend with us, given that they're finding both value and convenience at Chewy. Now, moving to the subpart of the same question. So you're asking about how we're thinking about Q4 and then 2026. So 2026, we expect durability in Net Adds file continuing to increase. Let me hit Q4 more directly.

Speaker #4: So these things added up in Q3 and in our opinion, are durable moving forward. Retention at the same time continues to strengthen as customers deepen their engagement, especially across categories like premium consumables, healthcare, hard goods, once again was strong.

Speaker #4: 18% year-over-year growth. I think, as customers increasingly consolidate their spend with us, given that they're finding both value and convenience at Chewy. Now, moving to the subpart of the same question.

Speaker #4: So, you're asking about how we're thinking about Q4 and then '26. So, '26, we expect ads to continue to increase. Let me hit Q4 more directly.

Speaker #4: So, the implied moderation in Q4, if you calculate the fill-in-the-blanks kind of question, you'll end up at the high end of low single digits for Q4.

Speaker 5: So the implied moderation in Q4, if you calculate the fill-in-the-blank kind of question, you'll end up at the high end of low single digit for Q4. And that perhaps offers some moderation of roughly 150,000 customers from Q3 on a sequential basis, right? So the implied moderation in Q4 is largely comp-driven and reflects timing more than anything else. We're cycling a much stronger Q4 from last year in terms of Net Adds that naturally creates a tougher comparison. I should also note that when looking at Q4 quarter to date, we like the momentum that we're seeing on Net Adds, and we're running ahead of our forecast. There's still half the quarter left to go, so for now, it's prudent to hold kind of the conservatism that we're bringing forward here. What else? Okay. Now, moving to the second part of your second question, which was investment levels.

So the implied moderation in Q4, if you calculate the fill-in-the-blank kind of question, you'll end up at the high end of low single digit for Q4. And that perhaps offers some moderation of roughly 150,000 customers from Q3 on a sequential basis, right? So the implied moderation in Q4 is largely comp-driven and reflects timing more than anything else. We're cycling a much stronger Q4 from last year in terms of Net Adds that naturally creates a tougher comparison. I should also note that when looking at Q4 quarter to date, we like the momentum that we're seeing on Net Adds, and we're running ahead of our forecast. There's still half the quarter left to go, so for now, it's prudent to hold kind of the conservatism that we're bringing forward here. What else? Okay. Now, moving to the second part of your second question, which was investment levels.

Speaker #4: And that perhaps offers some moderation of roughly 150,000 customers from basis, right? So the implied moderation in Q4 is largely comp-driven. And reflects timing more than anything else.

Speaker #4: We're cycling a much stronger Q4 from last year in terms of net ads, which naturally creates a tougher comparison. I should also note that when looking at Q4 quarter-to-date, we like the momentum that we're seeing on net Q3 on a sequential basis, and we're running ahead of our forecast.

Speaker #4: There still have to quarter left to go. So for now, it's prudent to hold kind of the conservatism that we're bringing forward here. What else?

Speaker #4: Okay. Now moving to the second part of your second question, which was investment levels. Wait one second. Let me just read this framework for Doug. Can you repeat the second question?

Speaker 5: Wait, one second. Let me just read this. Framework for Doug, can you repeat the second question?

Wait, one second. Let me just read this. Framework for Doug, can you repeat the second question?

Speaker #3: Just really just trying to understand your comments toward the end there, just on investment levels in '26 relative to what we've seen in

Speaker 4: Just really trying to understand your comments toward the end there, just on investment levels in 2026 relative to what we've seen in 2025.

Doug Anmuth: Just really trying to understand your comments toward the end there, just on investment levels in 2026 relative to what we've seen in 2025.

Speaker #3: '25.

Speaker #4: Okay. So first of all, I would like to perhaps just say that we've seen 2025 being characterized as an investment year. The reality is, I mean, we're driving both strong top-line growth and meaningful margin expansion.

Speaker 5: Yeah. Okay. So first of all, I would like to perhaps just say that we've seen 2025 being characterized as an investment year. And the reality is, I mean, we're driving both strong top-line growth and meaningful margin expansion. We're growing at more than 2x the market. We've narrowed our margin guidance, delivering 90 basis points of expansion at midpoint. And we're doing this simultaneously, growth and margin kind of moving together. 2026 is going to be better, right? So we expect to take share. And at the same time, investment levels are more structural and durable investment levels moving forward while we continue to self-fund a bunch of the temporary investments that you've seen us take in kind of Q1 or Q2 of this year.

Sumit Singh: Yeah. Okay. So first of all, I would like to perhaps just say that we've seen 2025 being characterized as an investment year. And the reality is, I mean, we're driving both strong top-line growth and meaningful margin expansion. We're growing at more than 2x the market. We've narrowed our margin guidance, delivering 90 basis points of expansion at midpoint. And we're doing this simultaneously, growth and margin kind of moving together. 2026 is going to be better, right? So we expect to take share. And at the same time, investment levels are more structural and durable investment levels moving forward while we continue to self-fund a bunch of the temporary investments that you've seen us take in kind of Q1 or Q2 of this year.

Speaker #4: We're growing at more than two times the market. We've narrowed our margin guidance, delivering 90 basis points of expansion at midpoint. And we're doing this with growth and margin moving together.

Speaker #4: '26 is going to be better, right? So we expect to take share. And at the same time, investment levels are more structural and durable investment levels moving forward while we continue to self-fund a bunch of the temporary investments that you've seen us take in kind of Q1 or Q2 of this year.

Speaker #4: So overall, we're going to be thinking about investments in a much more strategic manner and fund structural investments while pulling back on temporary investments because we feel they can self-fund them.

Speaker 5: So overall, we're going to be thinking about investments in a much more strategic manner and fund structural investments while pulling back on temporary investments because we feel we can self-fund them. The business is continuing to perform better and better each quarter as we move from 2025 into 2026, especially as our fulfillment centers scale, our customer service scales, and our marketing drives greater efficiency into 2026.

So overall, we're going to be thinking about investments in a much more strategic manner and fund structural investments while pulling back on temporary investments because we feel we can self-fund them. The business is continuing to perform better and better each quarter as we move from 2025 into 2026, especially as our fulfillment centers scale, our customer service scales, and our marketing drives greater efficiency into 2026.

Speaker #4: The business is continuing to perform better and better each quarter as we move from Q3 2025 into Q4 2026, especially as our fulfillment centers scale, our customer service scales, and our marketing drives greater efficiency into 2026.

Speaker #3: Great. Thank you,

Speaker 4: Great. Thank you, Sumit.

Doug Anmuth: Great. Thank you, Sumit.

Speaker #2: Thank you. Our next question comes from Steven Zaccone with Citigroup. Please go ahead.

Speaker 1: Thank you. Our next question comes from Steven Zaccone with Citigroup. Please go ahead, Steven.

Operator: Thank you. Our next question comes from Steven Zaccone with Citigroup. Please go ahead, Steven.

Speaker #2: Steven. Hey, good

Speaker 7: Great. Good morning. Thanks very much for taking my question. I want to follow up on Doug's question there. When you think about 2026, can you share a little bit more on your preliminary outlook for demand? You talked about Net Adds, but how do you think about the overall backdrop of the industry? And obviously, 2025 has been an improvement versus 2024. So how do you think about 2026? And then in that context, pricing. We haven't really seen it in the industry. Do you see that being more of a tailwind as we get into next year? Thanks very much.

Steven Zaccone: Great. Good morning. Thanks very much for taking my question. I want to follow up on Doug's question there. When you think about 2026, can you share a little bit more on your preliminary outlook for demand? You talked about Net Adds, but how do you think about the overall backdrop of the industry? And obviously, 2025 has been an improvement versus 2024. So how do you think about 2026? And then in that context, pricing. We haven't really seen it in the industry. Do you see that being more of a tailwind as we get into next year? Thanks very much.

Speaker #6: Morning. Thanks very much for taking my question. I want to follow up on Doug's question there. When you think about '26, can you share a little bit more on your preliminary outlook for demand?

Speaker #6: Can you talk about net ads, but how do you think about the overall backdrop of the industry? And obviously, '25 has been an improvement versus '24.

Speaker #6: So, how do you think about '26? And then in that context, pricing—we haven't really seen it in the industry. Do you see that being more of a tailwind as we get into next year?

Speaker #6: Thanks very much.

Speaker 5: Yeah, sure. So as of this point, we're looking at 2026 more or less like 2025. When we entered 2025, we were expecting stronger industry normalization by the time we exited 2025, as defined in terms of net household formation, in terms of pricing returning back into the industry, and strong demographic growth across the category. As we exit 2025, our current read is to view 2026 more or less like 2025. So industry growing at low single digit, perhaps the low end of mid-single digit. Net household formation kind of remaining flattish. If you look at the shelter and adoption numbers, we're running at about 100,000 to 150,000 surplus between adoption and returns. We would like to see this number probably five, six times higher to be able to call it a normalized industry.

Sumit Singh: Yeah, sure. So as of this point, we're looking at 2026 more or less like 2025. When we entered 2025, we were expecting stronger industry normalization by the time we exited 2025, as defined in terms of net household formation, in terms of pricing returning back into the industry, and strong demographic growth across the category. As we exit 2025, our current read is to view 2026 more or less like 2025. So industry growing at low single digit, perhaps the low end of mid-single digit. Net household formation kind of remaining flattish. If you look at the shelter and adoption numbers, we're running at about 100,000 to 150,000 surplus between adoption and returns. We would like to see this number probably five, six times higher to be able to call it a normalized industry.

Speaker #4: As of this point, we're looking at '26, more or less. Like, yeah, sure, 2025. When we entered '25, we were expecting stronger industry normalization by the time we exited 2025.

Speaker #4: As defined in terms of net household formation, in terms of pricing returning back into the industry, and strong demographic growth across the category. As we exit 2025, our current read is to view '26 more or less like '25.

Speaker #4: So industry growing at low single digit, perhaps the low end of mid-single digit. Net household formation kind of remaining flattish. We are if you look at the shelter and adoption numbers, we're running at about 100,000, 150,000 surplus between adoption and returns.

Speaker #4: We would like to see this number probably 5 to 6 times higher to be able to call it a normalized industry. Pricing, if you look at pricing growth in the industry, typically you’d see a 1.5 to 2 percent pricing improvement on a year-over-year basis.

Speaker 5: Pricing, if you look at pricing growth in the industry, typically, you'd see 1.5, 1 to 2% pricing improvements on a year-over-year basis. We'll wait for 2026 to kind of signals to become a little more clear. I'll address your pricing question here in one second. For the most part, we're viewing 2026 much like 2025. Underneath of it, as you heard us comment, we plan to bring forward a plan that is very clearly share-taking in 2026. I'll stay away from guidance, and we will come talk to you more in March when we report Q4 and discuss 2026. In terms of latest perspective on pricing, so pricing has remained rational and stable with no material benefit or detriment from inflation or deflation in recent quarters, right? As I alluded, we're maintaining healthy and regular dialogue with our supplier partners.

Pricing, if you look at pricing growth in the industry, typically, you'd see 1.5, 1 to 2% pricing improvements on a year-over-year basis. We'll wait for 2026 to kind of signals to become a little more clear. I'll address your pricing question here in one second. For the most part, we're viewing 2026 much like 2025. Underneath of it, as you heard us comment, we plan to bring forward a plan that is very clearly share-taking in 2026. I'll stay away from guidance, and we will come talk to you more in March when we report Q4 and discuss 2026. In terms of latest perspective on pricing, so pricing has remained rational and stable with no material benefit or detriment from inflation or deflation in recent quarters, right? As I alluded, we're maintaining healthy and regular dialogue with our supplier partners.

Speaker #4: And we'll wait for 2026 to kind of either signals to become a little more clear. I'll address your pricing most part, we're viewing '26 much like question here in one second.

Speaker #4: Underneath it, as you've heard us comment, we plan to bring forward a plan that is very clearly share-taking. In 2026, I'll stay away from the guidance, and we will come talk to you more in March when we report Q4 and discuss 2026.

Speaker #4: In terms of the latest perspective on pricing, pricing has remained rational and stable, with no material benefit or detriment from inflation or deflation in recent quarters, right?

Speaker #4: And as I alluded, we're maintaining healthy and regular dialogue with our supply partners and watching this very closely. For the most part, we believe 2026 is going to be a structural unit volume growth year. Perhaps the pricing benefit is going to be slightly larger than what we've seen in 2025, which was nearly muted or zero.

Speaker 5: So far, we're watching this very closely. For the most part, we believe 2026 is going to be a structural unit volume growth year. Perhaps the pricing benefit is going to be slightly larger than what we've seen in 2025, which was nearly muted or zero. More to come when we talk 2026.

So far, we're watching this very closely. For the most part, we believe 2026 is going to be a structural unit volume growth year. Perhaps the pricing benefit is going to be slightly larger than what we've seen in 2025, which was nearly muted or zero. More to come when we talk 2026.

Speaker #4: So more to come when we talk 2026.

Speaker #3: Great. I appreciate the detail. Happy holidays.

Speaker 4: Great. Appreciate the detail. Happy holidays.

Steven Zaccone: Great. Appreciate the detail. Happy holidays.

Speaker #4: You

Speaker #4: You too. Thank you.

Speaker 5: You too.

Sumit Singh: You too.

Speaker 1: Thank you. Our next question comes from Nathan Feather with Morgan Stanley. Nathan, please go ahead.

Operator: Thank you. Our next question comes from Nathan Feather with Morgan Stanley. Nathan, please go ahead.

Speaker #2: Our next question comes from Nathan Feather with Morgan Stanley. Nathan, please go

Speaker #2: ahead. Hey, everyone.

Speaker 6: Hey, everyone. Congrats on the strong quarter, and thanks for taking the question. Two on my end. First, we talked about the strong Net Adds. And with that, marketing's still showing really nice leverage year on year. So what's working in the customer acquisition funnel to help you be more efficient in acquiring cohorts? Should that persist? And then on the margin side, the full year 2025 margin guidance does imply Q4, even margins take a step down on a sequential basis. Can you just help us think through the margin puts and takes as we head into Q4? Thank you.

Nathan Feather: Hey, everyone. Congrats on the strong quarter, and thanks for taking the question. Two on my end. First, we talked about the strong Net Adds. And with that, marketing's still showing really nice leverage year on year. So what's working in the customer acquisition funnel to help you be more efficient in acquiring cohorts? Should that persist? And then on the margin side, the full year 2025 margin guidance does imply Q4, even margins take a step down on a sequential basis. Can you just help us think through the margin puts and takes as we head into Q4? Thank you.

Speaker #5: Congrats on starting the quarter, and thanks for taking the question. Two on my end. First, we talked about the strong net ads. And with that, marketing is still showing really nice leverage year on year.

Speaker #5: So what's working in the customer acquisition funnel to help you be more efficient in acquiring cohorts? Should that persist? And then on the margin side, the full year '25 margin guidance does imply for QE margins take a step down on a sequential basis.

Speaker #5: and takes as we head into Q4? Thank Can you just help us think through the margin puts you.

Speaker 5: Sure. Hi, Nathan. So on marketing, I think you have to go back two years and build from there. And I'm sorry to take you back two years, but really, this is the compounding effect of the journey that I have been very transparent in articulating over the last two years. If you recall, we started with connecting the funnel all the way from lower, middle, and upper funnel. And that takes time to sort of build and mature because you have to essentially rev up your creative engine. You have to rev up your concepting and go to market. And so that takes a little bit of time.

Sumit Singh: Sure. Hi, Nathan. So on marketing, I think you have to go back two years and build from there. And I'm sorry to take you back two years, but really, this is the compounding effect of the journey that I have been very transparent in articulating over the last two years. If you recall, we started with connecting the funnel all the way from lower, middle, and upper funnel. And that takes time to sort of build and mature because you have to essentially rev up your creative engine. You have to rev up your concepting and go to market. And so that takes a little bit of time.

Speaker #4: Hi, Nathan. Concepting and go-to-market. And so that takes a little bit of time. Underneath that, we were pushing for— I came to this call two years ago, and I said, "We're going to be mobile first, and mobile is going to be a priority." And so we have continued to see the mobile app become stronger in terms of the percentage of traffic going through it, the percentage of orders going through it, and overall metrics of retention of the customer file that we essentially extract through our mobile ecosystem.

Speaker #4: the marketing I think you have to go back two years and build from there. And I'm sorry to take you back two years, but really, this is the compounding effect of the journey that I Sure.

Speaker #4: articulating over the last two years. If you recall, we started with connecting the funnel all the way from lower, middle, and upper funnel. And that takes time to sort of build and mature because you have to essentially rev up your creative engine.

Speaker 5: Underneath of that, we were pushing for. I came to this call two years ago, and I said, "We're going to be mobile first, and mobile is going to be a priority." And so we have continued to see the mobile app become stronger in terms of the percentage of traffic going through it, percentage of orders going through it, and overall metrics of retention of the customer file that we essentially extract through our mobile ecosystem. Number three, last year, you heard me come to the call and talk about rebuilding our CRM engines, rebuilding bidding protocols, improving models, and connecting these together. And so essentially, if you step back from the details, two things have happened, right?

Underneath of that, we were pushing for. I came to this call two years ago, and I said, "We're going to be mobile first, and mobile is going to be a priority." And so we have continued to see the mobile app become stronger in terms of the percentage of traffic going through it, percentage of orders going through it, and overall metrics of retention of the customer file that we essentially extract through our mobile ecosystem. Number three, last year, you heard me come to the call and talk about rebuilding our CRM engines, rebuilding bidding protocols, improving models, and connecting these together. And so essentially, if you step back from the details, two things have happened, right?

Speaker #4: Number three: last year, you heard me come to the call and talk about rebuilding our CRM engines, rebuilding bidding protocols, improving models, and connecting these together.

Speaker #4: And so essentially, if you step back from the details, two things have happened, right? The output of these efforts have been A, there's increased traffic that we are pulling, which is a result of net new assortment programs like ownership strengthening, much more offerings to plus program.

Speaker 5: The output of these efforts have been A, there's increased traffic that we are pulling, which is a result of net new assortment programs like ownership strengthening, much more offerings, Chewy Plus program. So we've continued to innovate and bring new offerings to customers. We've continued to improve the way that we go to market. These two result we've continued to improve. These two result in higher traffic. Then we've underneath of it, there's the power of SEO, the power of app that actually converts a bunch of the third-party into repeat traffic. Then when the traffic hits the website, you're working on improvement in experiences, and our app fundamentally looks different from how it looked 18 months ago. Next year, it is going to look even better than what it looks right now. So we expect continued improved conversion.

The output of these efforts have been A, there's increased traffic that we are pulling, which is a result of net new assortment programs like ownership strengthening, much more offerings, Chewy Plus program. So we've continued to innovate and bring new offerings to customers. We've continued to improve the way that we go to market. These two result we've continued to improve. These two result in higher traffic. Then we've underneath of it, there's the power of SEO, the power of app that actually converts a bunch of the third-party into repeat traffic. Then when the traffic hits the website, you're working on improvement in experiences, and our app fundamentally looks different from how it looked 18 months ago. Next year, it is going to look even better than what it looks right now. So we expect continued improved conversion.

Speaker #4: new offerings to customers. So we've continued to innovate and bring We've continued to improve the way that we go to market. These two results, we've continued to improve these two results in higher traffic.

Speaker #4: There's the power of SEO, the power of an app that actually converts a bunch of third-party traffic into one piece of traffic. Then, when traffic hits the website, you're working on improvement and experiences. Our app fundamentally looks different from how it looked 18 months ago.

Speaker #4: Next year, it is going to look even better than what it looks right now. So we expect continued improved conversion. And so it's basically a calls-and-clicks and conversion-driven sort of phenomenon activity.

Speaker 5: And so it's basically a calls, clicks, and conversion-driven sort of phenomenon. Underneath of it is a lot of activity, built around a lot of innovation that we are bringing to the market and leading as a single category captain. And then so yes, so as we do this, marketing's getting more efficient. We've talked about it now for a couple of quarters. This one, this quarter was more definitive than the previous one. Signals are more clear to us. We expect to take these signals into 2026 and come talk to you more in greater detail in March. Was there a follow-up? Margin, what's the next step?

And so it's basically a calls, clicks, and conversion-driven sort of phenomenon. Underneath of it is a lot of activity, built around a lot of innovation that we are bringing to the market and leading as a single category captain. And then so yes, so as we do this, marketing's getting more efficient. We've talked about it now for a couple of quarters. This one, this quarter was more definitive than the previous one. Signals are more clear to us. We expect to take these signals into 2026 and come talk to you more in greater detail in March. Was there a follow-up? Margin, what's the next step?

Speaker #4: And built underneath it is a lot of around a lot of innovation that we are bringing to the market in leading as a single category captain.

Speaker #4: And then, yes, as we do this, marketing is getting more efficient. We've talked about it now for a couple of quarters. This quarter was more definitive than the previous one.

Speaker #4: Signals are clearer to us into 2026, and we expect to discuss these signals with you in greater detail in March.

Speaker #4: Was there a follow-up? Martin?

Speaker #3: Yeah. And then, that's very helpful.

Speaker 4: Yeah. And then that's very helpful. Yeah.

Nathan Feather: Yeah. And then that's very helpful. Yeah.

Speaker #3: Yeah. Yeah.

Speaker 5: Yeah. So on margin, it's not atypical for us to view Q4 as an investment quarter, right? Multiple things are going on. A, promo levels are higher. Pricing is generally not your friend in Q4. On top of that, structurally, you're essentially pushing a lot more units through your fulfillment center. So leverage that you expect in other quarters, you don't get the same type of leverage in Q4. And then marketing intensity and media rates are elevated in Q4. So it's kind of hard to evaluate Q4 on a sequential basis. We feel very good about the momentum that we have right now and the quality of execution that the team's delivering through. On a year-over-year basis, we're delivering at midpoint 90 basis points. And that equates to roughly 25% profit increase year over year on growth that is roughly at 8% levels.

Sumit Singh: Yeah. So on margin, it's not atypical for us to view Q4 as an investment quarter, right? Multiple things are going on. A, promo levels are higher. Pricing is generally not your friend in Q4. On top of that, structurally, you're essentially pushing a lot more units through your fulfillment center. So leverage that you expect in other quarters, you don't get the same type of leverage in Q4. And then marketing intensity and media rates are elevated in Q4. So it's kind of hard to evaluate Q4 on a sequential basis. We feel very good about the momentum that we have right now and the quality of execution that the team's delivering through. On a year-over-year basis, we're delivering at midpoint 90 basis points. And that equates to roughly 25% profit increase year over year on growth that is roughly at 8% levels.

Speaker #4: So on margin, it's not atypical for us to invest in Q4, right? Multiple things are to view Q4 as an area higher. Pricing is generally not a helpful—not your friend in Q4.

Speaker #4: On top of that, structurally, you're essentially pushing a lot more units through your fulfillment center. So leverage that you expect in other quarters, you don't get the same type of leverage in Q4.

Speaker #4: Intensity and media rates are elevated in Q4. It’s kind of hard to evaluate Q4 on a sequential basis. We feel very good about the momentum that we have right now and the quality of execution that the team is delivering through.

Speaker #4: On a year-over-year basis, we're delivering at midpoint 90 basis points. That equates to roughly a 25% profit increase year-over-year on growth that is roughly at 8% levels.

Speaker #4: So three times incremental profit than growth on a rate basis. We're quite pleased with that.

Speaker 5: Three times incremental profit than growth on a rate basis. We're quite pleased with that.

Three times incremental profit than growth on a rate basis. We're quite pleased with that.

Speaker #3: Very helpful. Thank you.

Speaker 7: Very helpful. Thank you.

Nathan Feather: Very helpful. Thank you.

Speaker #4: Sure. Thank

Speaker 5: Sure.

Sumit Singh: Sure.

Speaker #2: you. Our next question comes from Sweater Gajura with Wolf Research. Please go

Speaker 1: Thank you. Our next question comes from Shweta Khajuria with Wolfe Research. Please go ahead.

Operator: Thank you. Our next question comes from Shweta Khajuria with Wolfe Research. Please go ahead.

Speaker #2: Thank you for taking my questions.

Speaker 8: Thank you for taking my questions. Can I please try to first comment on gross margins? Can you please talk about the trends in gross margins and how we should be thinking about it going forward, especially as we think of 2026 and just the puts and takes, how much of 2025 will actually apply to 2026 when we think about gross margin trends? And second is when we think about the customer adds for 2026 and the durability of customer adds, how should we be thinking about how much of retention is a driver versus gross adds? Where do you feel more confident, and which of the two factors do you think will be a bigger contributor? Thank you.

Shweta Khajuria: Thank you for taking my questions. Can I please try to first comment on gross margins? Can you please talk about the trends in gross margins and how we should be thinking about it going forward, especially as we think of 2026 and just the puts and takes, how much of 2025 will actually apply to 2026 when we think about gross margin trends? And second is when we think about the customer adds for 2026 and the durability of customer adds, how should we be thinking about how much of retention is a driver versus gross adds? Where do you feel more confident, and which of the two factors do you think will be a bigger contributor? Thank you.

Speaker #6: Can I please try two? First, Sumit On. Gross margins, can you please talk about the trends in gross margins and how we should be thinking about it going forward, especially as we think of 2026 and just the puts and takes how much of 2025 will actually apply to 2026 when we think about gross margin trends?

Speaker #6: And second, when you think about the customer ads for '26 and the durability of customer ads, how should we be thinking about how much of retention is a driver versus gross ads?

Speaker #6: Where do you feel more confident, and which of the two factors do you think will be a bigger contributor? Thank

Speaker #6: you. Hi,

Speaker #4: Sweater. So on the first one, gross margin. So again, I'll stay away from specifics on '26, but let's look at the view of the forest rather than the trees on this particular call, and we'll come talk to you on the trees in 2026.

Speaker 5: Hi, Shweta. So on the first one, gross margin. So again, I'll stay away from specifics on 2026, but let's look at the view of the forest rather than the trees on this particular call, and we'll come talk to you on the trees in 2026. So the view of the forest is the following, right? So at exit of this year, we have less than 450 basis points to go to hit the 10% long-term EBITDA margin. We expect roughly half of that will come from gross margin. The other half will come from OpEx. And so what that tells you is, first of all, there are expansion opportunities, growth opportunities in gross margin that we will continue to bank upon. Now, what are they? Now, there are several gross margin expanding levers, and these expand gross margin on a structural basis.

Sumit Singh: Hi, Shweta. So on the first one, gross margin. So again, I'll stay away from specifics on 2026, but let's look at the view of the forest rather than the trees on this particular call, and we'll come talk to you on the trees in 2026. So the view of the forest is the following, right? So at exit of this year, we have less than 450 basis points to go to hit the 10% long-term EBITDA margin. We expect roughly half of that will come from gross margin. The other half will come from OpEx. And so what that tells you is, first of all, there are expansion opportunities, growth opportunities in gross margin that we will continue to bank upon. Now, what are they? Now, there are several gross margin expanding levers, and these expand gross margin on a structural basis.

Speaker #4: So the view of the forest is the following, right? We, at the exit of this year, have less than 10% long-term EBITDA than 450 basis points to margin.

Speaker #4: So the view of the forest is the following, right? We at exit of this year, we have less 10% long-term EBITDA than 450 basis points to go, to hit the We expect roughly half of that will come from gross margin.

Speaker #4: The other half will come from OPEX. And so, what that tells you is, first of all, there are expansion opportunities and growth opportunities in gross margin that we will continue to bank upon.

Speaker #4: Now, what are they? Now, there are several gross margin expanding levers. And these expand gross margin on a structural basis. There is ads that is continuing to grow steadily.

Speaker 5: There is ads that is continuing to grow steadily. There are premium category mixes that we are very well known for and continue to capitalize and consolidate share in. Private label is strengthening with the launch of Fresh. We will have more exciting news on private label to share with you on our March-April call. The health ecosystem is continuing to strengthen Chewy Plus. There were concerns coming into last quarter about margin headwinds. We've kind of clearly articulated our position on it. So there's not a drag from that point of view moving forward. We expect incrementality, perhaps. Yeah. And so when we look at our scale, continued growth of ownership, there are so many different vectors that are on different arcs. Now, there will be few years where these vectors will compound, and you will see amplified gross margins for that particular year.

There is ads that is continuing to grow steadily. There are premium category mixes that we are very well known for and continue to capitalize and consolidate share in. Private label is strengthening with the launch of Fresh. We will have more exciting news on private label to share with you on our March-April call. The health ecosystem is continuing to strengthen Chewy Plus. There were concerns coming into last quarter about margin headwinds. We've kind of clearly articulated our position on it. So there's not a drag from that point of view moving forward. We expect incrementality, perhaps. Yeah. And so when we look at our scale, continued growth of ownership, there are so many different vectors that are on different arcs. Now, there will be few years where these vectors will compound, and you will see amplified gross margins for that particular year.

Speaker #4: There are premium category mixes that we are very well known for and continue to capitalize and consolidate share in private label is strengthening with the launch of Fresh.

Speaker #4: We will have more exciting news on private label to share with you on our March-April call. The health ecosystem is continuing to strengthen Chewy Plus.

Speaker #4: There were concerns coming into last quarter about margin headwinds. We've kind of clearly articulated our position on it. So there's not a drag from that point of view moving forward.

Speaker #4: We expect incrementality perhaps. Yeah. And so when we look at our scale continued growth of ownership, there are so many different vectors that are on different arcs.

Speaker #4: Now, there will be a few years where these vectors will compound, and you will see amplified gross margins for that particular year. On other years, we might essentially choose to—on other years, you'll see more singularly focused returns coming from a handful of these vectors versus the cumulative effect.

Speaker 5: On other years, we might essentially choose to, on other years, you'll see more singularly focused returns coming from a handful of these vectors versus the cumulative effect. But when you take the long view, when you take a multi-year view, these are compounding vectors that give us confidence on the trajectory of gross margin as we've continued to educate and earn trust relative to the fact when we came to market in 2018, 2019, when gross margins were at 20% levels. So that's how I would characterize gross margin. In terms of customer adds, as I mentioned, we expect customer adds to be durable on the backdrop of a market that is going to look very much like 2025. We're in the middle of forecasting 2026.

On other years, we might essentially choose to, on other years, you'll see more singularly focused returns coming from a handful of these vectors versus the cumulative effect. But when you take the long view, when you take a multi-year view, these are compounding vectors that give us confidence on the trajectory of gross margin as we've continued to educate and earn trust relative to the fact when we came to market in 2018, 2019, when gross margins were at 20% levels. So that's how I would characterize gross margin. In terms of customer adds, as I mentioned, we expect customer adds to be durable on the backdrop of a market that is going to look very much like 2025. We're in the middle of forecasting 2026.

Speaker #4: But when you take the long view, when you take a multi-year view, these are compounding vectors that give us confidence on the trajectory of gross margin as we continue to educate and earn trust. Relative to the fact that when we came to market in 2018 and 2019, gross margins were at 20% levels.

Speaker #4: So that's how I would characterize gross margin. In terms of customer ads, as I mentioned, we expect customer ads to be durable. On the backdrop of a market that is going to look very much like 2025, we're in the middle of forecasting 2026.

Speaker 5: I'll stay away from guidance, but we do expect the performance that we've shown this year alongside some of the improvements that I've talked about, the marketing, the engine, and the innovation to be durable as we move into 2026. In terms of gross adds versus retention, look, this is actually, it's not which one's more important. The purpose of a business is to both acquire and to retain customers. So it's an and. It's not an or in our opinion, but it's a mathematical equation. If you look at the overall market, there's 90 million US households on a normal year when normalization's kicked in. You're seeing 10 to 15 million new pets incrementally in each sort of household.

Speaker #4: So, I'll stay away from guidance, but we do expect the performance that we've shown this year, alongside some of the improvements that I've talked about in marketing, the engine, and the innovation, to be durable as we move into '26.

I'll stay away from guidance, but we do expect the performance that we've shown this year alongside some of the improvements that I've talked about, the marketing, the engine, and the innovation to be durable as we move into 2026. In terms of gross adds versus retention, look, this is actually, it's not which one's more important. The purpose of a business is to both acquire and to retain customers. So it's an and. It's not an or in our opinion, but it's a mathematical equation. If you look at the overall market, there's 90 million US households on a normal year when normalization's kicked in. You're seeing 10 to 15 million new pets incrementally in each sort of household.

Speaker #4: In terms of gross ads versus retention, look, this is actually—it's not which one's more important. The purpose of a business is to both acquire and to retain customers.

Speaker #4: So it's an "and." It's not an "or," in our opinion. But it's a mathematical equation. If you look at the overall market, there are 90 million U.S. households in a normal year. When normalizations kicked in, you're seeing 10 to 15 million new pets incrementally in each sort of household.

Speaker #4: On top of that, we believe we have roughly 50 million more people that we should be touching out there. Of which, 15 million of these are highly propensed to online, and the last 5, 7, or 10 million are perhaps not.

Speaker 5: On top of that, we believe we have roughly 50 more million people that we should be touching out there, of which 15 million of these are highly prone to online. And the last 5, 7, 10 million are perhaps not the right type of Chewy customer. So the point is that we have a very large set of households that we can still touch. The refresh rate is not a static refresh rate. So when normalization kicks in, you should only expect tailwind on top of the results that we're delivering. And then our internal engines like Chewy Plus, like Autoship, like app, CVC, the health ecosystem, etc., just helps us continue to improve retention. So it's an and equation to us, and we are squarely focused on both, not just one.

On top of that, we believe we have roughly 50 more million people that we should be touching out there, of which 15 million of these are highly prone to online. And the last 5, 7, 10 million are perhaps not the right type of Chewy customer. So the point is that we have a very large set of households that we can still touch. The refresh rate is not a static refresh rate. So when normalization kicks in, you should only expect tailwind on top of the results that we're delivering. And then our internal engines like Chewy Plus, like Autoship, like app, CVC, the health ecosystem, etc., just helps us continue to improve retention. So it's an and equation to us, and we are squarely focused on both, not just one.

Speaker #4: The right type of Chewy customer. So the point is that we have a very large set of households that we can still touch. The refresh rate is not a static refresh rate.

Speaker #4: So when normalization kicks in, you should only expect tailwind on top of the results that we're delivering. And then our internal engines, like Chewy Plus, like Ownership, like App, CVC, the Health Ecosystem, etc., just help us continue to improve retention.

Speaker #4: So it's an and equation to us, and we are squarely focused on both, not just

Speaker #4: So it's an and equation to us, and we are squarely focused on both, not just one. Okay.

Speaker 8: Okay. That's very helpful. Thanks, Sumit.

Shweta Khajuria: Okay. That's very helpful. Thanks, Sumit.

Speaker #6: That's very helpful. Thanks, Sumit.

Speaker #4: Sure. Thank

Speaker 5: Sure.

Sumit Singh: Sure.

Speaker #7: You. Our next question comes from Anna Andreeva with Piper Sandler. Please go ahead.

Speaker 1: Thank you. Our next question comes from Anna Andreeva with Piper Sandler. Please go ahead.

Operator: Thank you. Our next question comes from Anna Andreeva with Piper Sandler. Please go ahead.

Speaker #6: Great. Thanks so much. And let me

Speaker 8: Great. Thanks so much. Let me add my congrats. Nice quarter. Curious, on Chewy Plus, can you talk about if you've seen any changes in retention when you raised the fee to $79 from $49 previously? Great to hear about expectations that the program is no longer dilutive. How should we think about that penetration into next year? Then we had a follow-up.

Anna Andreeva: Great. Thanks so much. Let me add my congrats. Nice quarter. Curious, on Chewy Plus, can you talk about if you've seen any changes in retention when you raised the fee to $79 from $49 previously? Great to hear about expectations that the program is no longer dilutive. How should we think about that penetration into next year? Then we had a follow-up.

Speaker #6: add my congrats. Nice quarter. Curious, on Chewy Plus, can you talk about if you've seen any changes in retention when you raise the fee to 79 from $49?

Speaker #6: to hear about expectations that the program is no longer dilutive. How should we think about that penetration into next year? And then we had a ahead.

Speaker 5: Okay. So Anna, in terms of the elasticity, the conversion that we saw once we raised price, conversion has remained quite strong and has exceeded our internal expectation from an elasticity point of view. So the percentage of price increase and the loss of demand conversion is essentially the ratio that I'm talking about. That is better than what we forecasted. So we like that. Number two, yeah, on the margins, look, I mentioned that our paid Chewy Plus members are already delivering gross margins that are in line with the enterprise, and the higher pricing only strengthens the profile. So from an economic standpoint, we feel good about where the program is today and how it scales. It is early. Another data point that I'll give you is, at this point, 80% of our member mix is now paid, right?

Sumit Singh: Okay. So Anna, in terms of the elasticity, the conversion that we saw once we raised price, conversion has remained quite strong and has exceeded our internal expectation from an elasticity point of view. So the percentage of price increase and the loss of demand conversion is essentially the ratio that I'm talking about. That is better than what we forecasted. So we like that. Number two, yeah, on the margins, look, I mentioned that our paid Chewy Plus members are already delivering gross margins that are in line with the enterprise, and the higher pricing only strengthens the profile. So from an economic standpoint, we feel good about where the program is today and how it scales. It is early. Another data point that I'll give you is, at this point, 80% of our member mix is now paid, right?

Speaker #4: of the elasticity, the

Speaker #4: Conversion that we saw once previously, and great, we raised prices; conversion has remained quite strong and has exceeded our internal expectations from an elasticity point of view.

Speaker #4: So the percentage of price increase and the loss of demand conversion is essentially the ratio that I'm talking about. That is better than what we forecasted.

Speaker #4: So we like that. Number two, yeah, on the margins, look, I mentioned that our paid Chewy Plus members are already delivering gross margins that are in line with the enterprise.

Speaker #4: And the higher pricing only strengthens the profile. So from an economic standpoint, we feel good about where the program is today and how it scales.

Speaker #4: It is early. Another data point that I'll give you is that, at this point, 80% of our member mix is now paid. Right? So you can kind of see that as the program scales, it will continue to become more efficient.

Speaker 5: So you can kind of see that as the program scales, right? It'll continue to become more efficient, right? So the initial investments get recouped very quickly, even quicker with the increased pricing, and then the conversion is holding better than expected. Obviously, it's slightly lower than what it was at 49, but nothing that we're too concerned about at this point. Let me see. How should we think about penetration next year? So I'll stay away from comments on next year. In terms of what we've said about last quarter, our expectations for the program haven't changed since we've spoken last quarter. Another data point that I shared on this call today was we're seeing strong member penetration in categories like hard goods, and specialty that aid basket building and drive SmartPak consolidation. So we kind of like all the signals that we're getting.

So you can kind of see that as the program scales, right? It'll continue to become more efficient, right? So the initial investments get recouped very quickly, even quicker with the increased pricing, and then the conversion is holding better than expected. Obviously, it's slightly lower than what it was at 49, but nothing that we're too concerned about at this point. Let me see. How should we think about penetration next year? So I'll stay away from comments on next year. In terms of what we've said about last quarter, our expectations for the program haven't changed since we've spoken last quarter. Another data point that I shared on this call today was we're seeing strong member penetration in categories like hard goods, and specialty that aid basket building and drive SmartPak consolidation. So we kind of like all the signals that we're getting.

Speaker #4: Right? So the initial investments get recouped very quickly. Even quicker with the increased pricing. And then the conversion is holding better than expected. Obviously, it's slightly lower than what it was at $49, but nothing that we're too concerned about at this point.

Speaker #4: Let me see. How should we think about penetration next year? So I'll stay away from comments on next year. In terms of what we've said about last quarter, our expectations for the program haven't changed since we've spoken last quarter.

Speaker #4: Another data point that I shared on this call today was that we're seeing strong member penetration in categories like hard goods and specialty that aid basket building and drive NASPAC consolidation.

Speaker #4: So, we kind of like all the signals that we're getting. It's acting as a complementary program driving discovery across platforms, especially across some of these discretionary discovery.

Speaker 5: It's acting as a complementary program driving discovery across platform, especially across some of the discretionary categories.

It's acting as a complementary program driving discovery across platform, especially across some of the discretionary categories.

Speaker #4: categories. That's

Speaker #6: really great. Thank you so much for that. And just as a follow-up, on the forecue guide, you mentioned NetEd's running ahead of plan. Just anything else you can share?

Speaker 8: That's really great. Thank you so much for that. Just as a follow-up, on the Q4 guide, you mentioned net adds running ahead of plan. Just anything else you can share? What are you seeing in the business quarter-to-date? Just any learnings from the Black Friday and Cyber Week? I think you had mentioned previously that Q4 might lean into promotions in the fourth quarter. So far, I don't think we've seen that. So any update on that? Thank you.

Anna Andreeva: That's really great. Thank you so much for that. Just as a follow-up, on the Q4 guide, you mentioned net adds running ahead of plan. Just anything else you can share? What are you seeing in the business quarter-to-date? Just any learnings from the Black Friday and Cyber Week? I think you had mentioned previously that Q4 might lean into promotions in the fourth quarter. So far, I don't think we've seen that. So any update on that? Thank you.

Speaker #6: What are you seeing in the business quarter to date? Just any learnings from Black Friday and Cyber Week? I think you had mentioned previously that Chewy might lean into promotions in the fourth quarter.

Speaker #6: So far, I don't think we've seen that. So any update on that? Thank you.

Speaker #4: Yeah, so we were pleased with the performance during this important peak period, the Black Friday-Cyber Monday week. The week came in very much in line with our expectations.

Speaker 5: Yeah. So we were pleased with the performance during this important peak period, the Black Friday, Cyber Monday week. The week came in very much in line with our expectations. The team performed really well. Execution was strong. Supply chain backlogs were healthy. In-stock levels were maintained at really healthy levels. So overall, we were very pleased with it. The discipline around promotional spend and marketing efficiency we talked about in the call continued through this important holiday event. So your observation is spot on. Net sales and engaged sessions were up year over year while total event spend and customer acquisition costs were down year over year, right? Overall, we've built this. As I answered Doug's question, we are running ahead of plan currently. Yeah. So don't want to get into revised guidance given that we just gave guidance.

Sumit Singh: Yeah. So we were pleased with the performance during this important peak period, the Black Friday, Cyber Monday week. The week came in very much in line with our expectations. The team performed really well. Execution was strong. Supply chain backlogs were healthy. In-stock levels were maintained at really healthy levels. So overall, we were very pleased with it. The discipline around promotional spend and marketing efficiency we talked about in the call continued through this important holiday event. So your observation is spot on. Net sales and engaged sessions were up year over year while total event spend and customer acquisition costs were down year over year, right? Overall, we've built this. As I answered Doug's question, we are running ahead of plan currently. Yeah. So don't want to get into revised guidance given that we just gave guidance.

Speaker #4: The team performed really well; execution was strong, supply chain backlogs were healthy, and in-stock levels were maintained at really healthy levels. So overall, we were very pleased with it.

Speaker #4: The discipline around promotional spend and marketing efficiency we talked about in the call continued. Through this important holiday event. So your observation is spot on.

Speaker #4: Net sales and engaged sessions were up year over year, while total event spend and customer acquisition costs were down year over year. Right? Overall, we've built this as I answered Doug's question; we are running ahead of plan currently.

Speaker #4: Yeah. So, I don't want to get into revised guidance given that we just gave guidance. But yes, quarter-to-date, we like the momentum that we've headed into December with.

Speaker 5: But yes, quarter to date, we like the momentum that we've headed into December with. Still sort of a lot of the quarter left to go. So we'll come talk to you about this in April. And all of our scenarios are built into the guidance that we've just provided a few minutes ago.

But yes, quarter to date, we like the momentum that we've headed into December with. Still sort of a lot of the quarter left to go. So we'll come talk to you about this in April. And all of our scenarios are built into the guidance that we've just provided a few minutes ago.

Speaker #4: Still sort of a lot of the quarter left to go, so we'll come talk to you about this in April. All of our scenarios are built into the guidance that we've just provided for a few minutes.

Speaker #4: ago. Thank you

Speaker 8: Thank you so much. Makes a lot of sense. And happy holidays.

Anna Andreeva: Thank you so much. Makes a lot of sense. And happy holidays.

Speaker #6: so much. Makes a lot of sense. And happy

Speaker #6: holidays. Thank

Speaker #4: you. You too.

Speaker 5: Thank you. You too.

Sumit Singh: Thank you. You too.

Speaker #3: Thank

Speaker #3: you.

Speaker 9: Thank you.

Thank you.

Speaker #7: Thank you. We have time for questions.

Speaker 1: Thank you. We have time for one final question. Our last question today comes from Dylan Carden with William Blair. Dylan, please go ahead.

Operator: Thank you. We have time for one final question. Our last question today comes from Dylan Carden with William Blair. Dylan, please go ahead.

Speaker #7: one final question. And our last question today comes from Dylan Carden with William Blair. Dylan, please go

Speaker #7: ahead. I really appreciate that.

Speaker 10: Really appreciate that. Thank you. I'm curious the interaction between Plus and AutoShip. Is the idea that the number of AutoShip customers could equate to the number of Plus customers, and it's just expanding the basket, reaching into more discretionary categories? And to the extent the scalability of that, can you provide numbers on box productivity, which given your current scale, doesn't move the needle much? But can you provide? You kind of mentioned some of the broader ecosystem implications. Kind of where are you seeing the benefits and maybe some of the markets where you have those open? Thanks.

Dylan Carden: Really appreciate that. Thank you. I'm curious the interaction between Plus and AutoShip. Is the idea that the number of AutoShip customers could equate to the number of Plus customers, and it's just expanding the basket, reaching into more discretionary categories? And to the extent the scalability of that, can you provide numbers on box productivity, which given your current scale, doesn't move the needle much? But can you provide? You kind of mentioned some of the broader ecosystem implications. Kind of where are you seeing the benefits and maybe some of the markets where you have those open? Thanks.

Speaker #3: Thank you. I'm curious about the interaction between Plus and Auto Ship. Is the idea that the number of Auto Ship customers could equate to the number of Plus customers, and it's just expanding the basket, reaching into more discretionary categories?

Speaker #3: And to the extent of the scalability of that, and you've provided numbers on box productivity, which, given your current scale, doesn't move the needle much.

Speaker #3: But can you provide— you kind of mentioned some of the broader ecosystem implications. Kind of where are you seeing the benefits and maybe some of the markets where you have those open?

Speaker #3: Thanks.

Speaker #4: Hey, Dylan. So the interaction of Chewy Plus and Auto Ship. I was trying to articulate this at the beginning of the call with Eric's question.

Speaker 5: Hey, Dylan. So the interaction of Chewy Plus and AutoShip. So I was trying to articulate this at the beginning of the call with Eric's question. Let me take a crack at it again. So these two are complementary programs. AutoShip to us is a merchandise product-level membership program. It's free in nature, and it delivers. It works like a quasi-subscription, very much predictable and highly reliable. It's sort of a rinse and repeat, fill it, shut it, forget it kind of a model. What we like about AutoShip is it's not a dormant program. So we see continued activity from customers that participate in four seasonal events and attach rates. At the same time, Chewy Plus, right, the purpose of launching Chewy Plus is multifold. A, it is a discoverability driver given that Chewy has so much more to offer than just consumables and health.

Sumit Singh: Hey, Dylan. So the interaction of Chewy Plus and AutoShip. So I was trying to articulate this at the beginning of the call with Eric's question. Let me take a crack at it again. So these two are complementary programs. AutoShip to us is a merchandise product-level membership program. It's free in nature, and it delivers. It works like a quasi-subscription, very much predictable and highly reliable. It's sort of a rinse and repeat, fill it, shut it, forget it kind of a model. What we like about AutoShip is it's not a dormant program. So we see continued activity from customers that participate in four seasonal events and attach rates. At the same time, Chewy Plus, right, the purpose of launching Chewy Plus is multifold. A, it is a discoverability driver given that Chewy has so much more to offer than just consumables and health.

Speaker #4: Let me take a crack at it again. So these two are complementary programs. Auto Ship to us is a merchandise product-level membership program. It's free in nature and it delivers; it works like a quasi-subscription.

Speaker #4: Very much predictable and highly reliable. It's sort of a rinse and repeat, fill it, shut it, forget it kind of a model. What we like about Auto Ship is it's not a dormant program.

Speaker #4: So we see continued activity on customers, from customers that participate in core seasonal events and attach rates. At the same time, Chewy Plus, right, the purpose of launching Chewy Plus was multi-fold.

Speaker #4: A, it is a discoverability driver given that Chewy has so much more to offer than just consumables and health. So it is a discoverability offering.

Speaker 5: So it is a discoverability offering. Number two, it accelerates nest pack consolidation. And number three, we're early, so the data is still sort of building for us. But hopefully, next year, we're going to come and talk to you about this when the cohorts are large enough. It should aid in a very healthy way in improving our retention from already strong levels that we are seeing currently. So those are the three sort of net purposes. As you can see, the purposes kind of align back and forth between Chewy Plus and Autoship. The differences lie where Chewy Plus is targeted and positioned to members that are spending $300 to $600, $700 dollars with us so that there's incrementality of spend. Number two, it's driving consolidation of baskets. So faster discoverability of hard goods, the toy that you have to add.

So it is a discoverability offering. Number two, it accelerates nest pack consolidation. And number three, we're early, so the data is still sort of building for us. But hopefully, next year, we're going to come and talk to you about this when the cohorts are large enough. It should aid in a very healthy way in improving our retention from already strong levels that we are seeing currently. So those are the three sort of net purposes. As you can see, the purposes kind of align back and forth between Chewy Plus and Autoship. The differences lie where Chewy Plus is targeted and positioned to members that are spending $300 to $600, $700 dollars with us so that there's incrementality of spend. Number two, it's driving consolidation of baskets. So faster discoverability of hard goods, the toy that you have to add.

Speaker #4: Number two, it accelerates NASPAC consolidation and number three, it we're early. So the data is still sort of building for us, but hopefully next year we're going to come and talk to you about this when the cohorts are large enough.

Speaker #4: It should aid in a very healthy way in improving our retention from already strong levels that we are seeing currently. So those are the three sort of net purposes.

Speaker #4: As you can see, the purposes kind of align back and forth between Chewy Plus and Autoship. The differences lie where Chewy Plus is targeted and propensed to members that are spending $300 to $600 or $700 with us.

Speaker #4: So that there's incrementality of spend. Number two, it's driving consolidation of baskets, so faster discoverability of hard goods—the toy that you have to add. You don't have to think about kind of reaching shipping thresholds.

Speaker 5: You don't have to think about kind of reaching shipping thresholds. So it's improving order frequency. The repeat sort of traffic that we've seen on the website is multifold increase from customers, etc., etc. So those are the two they layer on because if you combine the two, the value and convenience essentially increases multifold. And so underneath of it, we'll make sure that the program retains economic sensibility. But from a customer endpoint of view, these are very good programs to go to market with. On CVC, you said box productivity, not overly material. Can you expand on the ecosystem benefits? So I mean, recall, again, at the end of the year, we will come forward with a detailed review/memo on how CVC is performing and our expectations for the future. So we are going to open up a look under the hood in the next few months.

You don't have to think about kind of reaching shipping thresholds. So it's improving order frequency. The repeat sort of traffic that we've seen on the website is multifold increase from customers, etc., etc. So those are the two they layer on because if you combine the two, the value and convenience essentially increases multifold. And so underneath of it, we'll make sure that the program retains economic sensibility. But from a customer endpoint of view, these are very good programs to go to market with. On CVC, you said box productivity, not overly material. Can you expand on the ecosystem benefits? So I mean, recall, again, at the end of the year, we will come forward with a detailed review/memo on how CVC is performing and our expectations for the future. So we are going to open up a look under the hood in the next few months.

Speaker #4: So it's improving order frequency, the repeat sort of traffic that we've seen on the website is multi-fold increase from customers etc., etc. So those are the two they layer on because if you combine the two, the value and convenience essentially increases multi-fold.

Speaker #4: And so, underneath it, we'll make sure that the program retains economic sensibility. But from a customer endpoint of view, these are very good programs to go to market with.

Speaker #4: On the CVC web, you said box productivity is not overly material. Can you expand on the ecosystem benefits? So, I mean, recall again, at the end of the year, we will come forward with a detailed review/memo on how CVC is performing and our expectations for the future.

Speaker #4: So, we are going to open up a look under the hood in the next few months. For now, I'll stick to the commentaries that we've provided.

Speaker 5: For now, I'll stick to the commentaries that we've provided. We're seeing customer incrementality. Four out of 10 customers that are walking into CVC are net new to Chewy. In a very short time, we see 50% of customers in CVC reach out and expand their connection to Chewy.com by adding many more categories. Our retention rates are running high. Our CSAT has continued to run at 4.8, and these are not internal metrics. These are Google ratings that I'm quoting. So overall, the product is resonating really well. Vet recruiting and retention has remained really well for us, and we continue to expand. At the end of this year, we expect to be in the 16 to 18 range that we have originally forecasted.

For now, I'll stick to the commentaries that we've provided. We're seeing customer incrementality. Four out of 10 customers that are walking into CVC are net new to Chewy. In a very short time, we see 50% of customers in CVC reach out and expand their connection to Chewy.com by adding many more categories. Our retention rates are running high. Our CSAT has continued to run at 4.8, and these are not internal metrics. These are Google ratings that I'm quoting. So overall, the product is resonating really well. Vet recruiting and retention has remained really well for us, and we continue to expand. At the end of this year, we expect to be in the 16 to 18 range that we have originally forecasted.

Speaker #4: We're seeing customer incrementality; 4 out of 10 customers that are walking into CVC are net new to Chewy. In a very short time, we see 50% of customers in CVC reach out and expand their connection to chewy.com by adding many more categories.

Speaker #4: Our retention rates are running high. Our CSAT has continued to run at 4.8, and these are not internal metrics. These are Google ratings that I'm quoting.

Speaker #4: So overall, the product is resonating really well. Wet recruiting and retention has remained really well for us, and we continue to expand. At the end of this year, we expect to be in the 16 to 18 range, that we have originally

Speaker #4: forecasted. Great.

Speaker #3: I'll wait for that. I guess the question on Auto Ship versus Plus, I mean, is it simple math to think that all Auto Ship customers are available to become Plus members and therefore expand?

Speaker 9: Great. I'll wait for that. I guess the question on Autoship versus Plus, I mean, is it simple math to think that all Autoship customers are available to become Plus members and therefore expanding? You mentioned sort of SmartPak consolidation.

Dylan Carden: Great. I'll wait for that. I guess the question on Autoship versus Plus, I mean, is it simple math to think that all Autoship customers are available to become Plus members and therefore expanding? You mentioned sort of SmartPak consolidation.

Speaker #3: You mentioned sort of NASPAC

Speaker #3: consolidation. Yeah, yeah, yeah, yes.

Speaker 5: Yes, yes. But remember, the comments that I'm making are Chewy Plus affords us the ability to be targeted and segmented. And that's the power of running programs on digital platforms. We can consume unified data signals in a much more accurate and precise way and target and segment the program to customers who we believe will benefit from the programs or who will find the program attractive, but also Chewy Plus will benefit equally well from those type of signups. So while AutoShip is applicable to 100% of customers, Chewy Plus may or may not be. And the overlap, you have to sort of combine my two statements in terms of NSPAC thresholds and penetration in X categories, X being non-consumable and health categories, to be able to find the intersection layers.

Sumit Singh: Yes, yes. But remember, the comments that I'm making are Chewy Plus affords us the ability to be targeted and segmented. And that's the power of running programs on digital platforms. We can consume unified data signals in a much more accurate and precise way and target and segment the program to customers who we believe will benefit from the programs or who will find the program attractive, but also Chewy Plus will benefit equally well from those type of signups. So while AutoShip is applicable to 100% of customers, Chewy Plus may or may not be. And the overlap, you have to sort of combine my two statements in terms of NSPAC thresholds and penetration in X categories, X being non-consumable and health categories, to be able to find the intersection layers.

Speaker #4: Yes, but remember that the comments I'm making are: Chewy Plus affords us the ability to be targeted and segmented. And that's the power of running programs on digital platforms.

Speaker #4: We can consume unified data signals in a much more accurate and precise way. This allows us to target and segment the program to customers who we believe will benefit from the programs, or who will find the program attractive. Chewy will also benefit equally well from these types of sign-ups.

Speaker #4: So, while Auto Ship is applicable to 100% of customers, Chewy Plus may or may not be. And the overlap—you have to sort of combine my two statements in terms of NASPAC thresholds and penetration in X categories, X being non-consumable and health categories—to be able to find the intersection.

Speaker #4: layers. Yeah.

Speaker 9: Yes. Okay. Thank you very much.

Sumit Singh: Yes. Okay. Thank you very much.

Speaker #3: Okay. Thank you very much.

Speaker 5: Sure.

Sumit Singh: Sure.

Speaker #1: Thank Sure. you. So through the questions we have time for today, and so this concludes our call. Thank you all for your participation. You may now disconnect your lines.

Speaker 1: Thank you. Those are all the questions we have time for today. And so this concludes our call. Thank you all for your participation. You may now disconnect your lines.

Operator: Thank you. Those are all the questions we have time for today. And so this concludes our call. Thank you all for your participation. You may now disconnect your lines.