Q4 2025 Chewy Inc Earnings Call

March 25, 2026

Operator: Hello, everyone. Thank you for joining us, and welcome to the Chewy Q4 2025 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. I will now hand the call over to Natalie Nowak, Head of Investor Relations. Natalie, please go ahead.

Operator: Hello, everyone. Thank you for joining us, and welcome to the Chewy Q4 2025 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. I will now hand the call over to Natalie Nowak, Head of Investor Relations. Natalie, please go ahead.

Speaker #2: Hello everyone. Thank you for joining us, and welcome to the Chewy Fourth Quarter 2025 Earnings Call. After today's prepared remarks, we will host a question-and-answer session.

Speaker #2: If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. I will now hand the call over to Natalie Nowak, Head of Investor Relations.

Speaker #2: Natalie, please go ahead.

Natalie Nowak: Thank you for joining us on the call today to discuss our Q4 and full year results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit Singh, and CFO, Chris Deppe. 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. These statements involve certain risks, uncertainties, and other factors that could cause actual results to differ materially from our forward-looking statements.

Speaker #3: Thank you for joining us on the call today to discuss our fourth quarter and full-year results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit Singh, and CFO, Chris Deppy.

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, uncertainties, and other factors that could cause actual results to differ materially from our forward-looking statements.

Natalie Nowak: We encourage you to review our SEC filings, including the section titled Risk Factors in our Form 10-K, filed earlier today, 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. Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2024.

Speaker #3: We encourage you to review our SEC filings, including the section titled 'Risk Factors' in our Form 10-K filed earlier today, 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 information available to us as of today's date.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: These non-GAAP measures are not intended as a substitute for GAAP results. Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2024.

Natalie Nowak: 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.

Sumit Singh: Thank you, Natalie, and good morning, everyone. I am thrilled to be joined today by our newly appointed CFO, Chris Deppe. Chris has been with Chewy since 2022 and brings valuable continuity and deep institutional knowledge, enabling a particularly seamless transition. He has a strong understanding of our business and the opportunities ahead for Chewy. I look forward to having many of you engage with Chris as he steps into his new role as CFO. I want to start by thanking our Chewy team members for executing a strong finish to the year. Once again, we delivered strong net sales growth, significant margin expansion, and record free cash flow in 2025.

Speaker #4: Thank you, Natalie. And good morning, everyone. I am thrilled to be joined today by our newly appointed CFO, Chris Deppy. Chris has been with Chewy since 2022 and brings valuable continuity and deep institutional knowledge, enabling a particularly seamless transition.

Speaker #4: He has a strong understanding of our business and the opportunities ahead for Chewy. I look forward to having many of you engage with Chris as he steps into his new role as CFO.

Speaker #4: I want to start by thanking our Chewy team members for executing a strong finish to the year. Once again, we delivered strong net sales growth, significant margin expansion, and record free cash flow in 2025.

Sumit Singh: As we enter 2026, we are focused on repeating this formula for success, disciplined execution, profitable growth, continued margin expansion, and strong free cash flow generation, all in support of sustained long-term shareholder value. Instead of taking the traditional approach of diving straight into our results, I'd like to share my perspective on what we are seeing in the pet industry and Chewy's place in it in 2026 and beyond. Let's begin. Pet is a uniquely attractive industry fueled by increasing pet humanization, premium product adoption, and expanding lifetime value per household. Spending in this category is driven by an emotional attachment and recurring nondiscretionary needs, which translates into resilient demand across economic cycles.

Speaker #4: As we enter 2026, we are focused on repeating this formula for success: disciplined execution, profitable growth, continued margin expansion, and strong free cash flow generation, all in support of sustained long-term shareholder value.

Speaker #4: Instead of taking the traditional approach of diving straight into our results, I'd like to share my perspective on what we are seeing in the pet industry and Chewy's place in it in 2026 and beyond.

Speaker #4: Pet is a uniquely attractive industry fueled by increasing pet humanization, premium product adoption, and expanding lifetime value per household. Spending in this category is driven by an emotional attachment and recurring, non-discretionary needs, which translates into resilient demand across economic cycles.

Sumit Singh: We expect 2026 pet industry dynamics to largely mirror 2025, steady and resilient to macro trends, but without cyclical acceleration. Pet household formation appears stable with no evidence of deterioration. However, we are not underwriting a meaningful rebound in that variable. Current estimates suggest low single-digit industry growth, with dog at the lower end of that range and cat at the higher end. Further, we expect industry growth to be predominantly volume-driven with little or no contribution from pricing. Importantly, we expect the secular shift towards e-commerce penetration to continue as consumers increasingly prioritize convenience, transparency, and auto-replenishment. Structural advantages that persist across economic environments and benefit scaled digital platforms like Chewy. Against this backdrop, we once again expect to deliver share gaining growth.

Speaker #4: We expect 2026 pet industry dynamics to largely mirror 2025—steady and resilient to macro trends, but without cyclical acceleration. Pet household formation appears stable, with no evidence of deterioration; however, we are not underwriting a meaningful rebound in that variable.

Speaker #4: Current estimates suggest low single-digit industry growth, with dog at the lower end of that range and cat at the higher end. Further, we expect industry growth to be predominantly volume-driven, with little or no contribution from pricing.

Speaker #4: Importantly, we expect the secular shift towards e-commerce penetration to continue as consumers increasingly prioritize convenience, transparency, and auto-replenishment. Structural advantages persist across economic environments and benefit scaled, digital platforms like Chewy.

Speaker #4: Against this backdrop, we, once again, expect to deliver share-gaining growth. We believe that Chewy is unique, with a differentiated, flywheel-like operating model powered by a leading sales engine, with over 80% of net sales on Autoship, supported by a world-class fulfillment network delivering best-in-class consumer satisfaction.

Sumit Singh: We believe that Chewy is unique with a differentiated flywheel-like operating model, powered by a leading sales engine with over 80% of net sales on Autoship, supported by a world-class fulfillment network delivering best-in-class consumer satisfaction. The algorithm supporting our underlying growth remains balanced and durable, driven both by active customer growth and net pack expansion. We reached an inflection point in net adds in 2024 and built on that progress throughout 2025, adding approximately 150,000 to 250,000 net adds per quarter. In the current environment, we believe we can continue to deliver quarterly sequential net adds within that range. At the same time, we see a long runway to grow net pack through premium and health mix shift, private brand expansion, and deeper engagement. Now shifting to margins.

Speaker #4: The algorithm supporting our underlying growth remains balanced and durable, driven both by active customer growth and NASPAC expansion. We reached an inflection point in net ads in 2024 and built on that progress throughout 2025, adding approximately 150,000 to 250,000 net ads per quarter.

Speaker #4: In the current environment, we believe we can continue to deliver quarterly sequential net ads within that range. At the same time, we see a long runway to grow NASPAC through premium and health mix shift, private brands expansion, and deeper engagement.

Speaker #4: Now, shifting to margins. On margin expansion, including its trajectory and durability, we remain equally bullish. As I noted during our last earnings call, our long-term margin framework is unchanged, and the underlying drivers of margin expansion are strengthening.

Sumit Singh: On margin expansion, including its trajectory and durability, we remain equally bullish. As I noted during our last earnings call, our long-term margin framework is unchanged, and the underlying drivers of margin expansion are strengthening. In 2026, we expect to further expand profitability with the rate of expansion expected to build relative to 2025. SG&A leverage will further strengthen as we move through the year, supported by the continued ramp of our next-generation Houston fulfillment center and efficiencies from the use of AI that help structurally lower our cost to serve. I will talk about these shortly. Finally, we believe Chewy remains well-positioned to compound growth, expand share, and drive sustained margin and free cash flow expansion in 2026 and beyond, independent of a macro re-acceleration.

Speaker #4: In 2026, we expect to further expand profitability, with the rate of expansion expected to build relative to 2025. SG&A leverage will further strengthen as we move through the year, supported by the continued ramp of our next-generation Houston fulfillment center and efficiencies from the use of AI that help structurally lower our cost to serve.

Speaker #4: I will talk about these shortly. And finally, we believe Chewy remains well-positioned to compound growth, expand share, and drive sustained margin and free cash flow expansion in 2026 and beyond, independent of a macro reacceleration.

Sumit Singh: Said simply, as we look to 2026, our model does not depend on a minimum net sales growth threshold to expand profitability. Now, an update on some of our strategic priorities, and then Chris will take you through our financial results and 2026 guidance. Starting with Chewy Vet Care, we opened 10 new practices in 2025, reaching the high end of our target range, bringing our CVC footprint to 18 locations across five states. Performance continues to exceed expectations, supported by strong utilization and consistently high customer and veterinarian satisfaction scores. CVC is also driving compelling ecosystem-wide value, serving as both a customer acquisition engine and an engagement flywheel that deepens relationships with high-value health customers. The results are compelling. CVC is the fastest NSPAC compounder in the business.

Speaker #4: Said simply, as we look to 2026, our model does not depend on a minimum net sales growth threshold to expand profitability. Now, an update on some of our strategic priorities, and then Chris will take you through our financial results and 2026 guidance.

Speaker #4: Starting with Chewy Vetcare, we opened 10 new practices in 2025, reaching the high end of our target range, bringing our CVC footprint to 18 locations across five states.

Speaker #4: Performance continues to exceed utilization, and we are seeing consistently high customer and veterinarian satisfaction scores. CVC is also driving compelling ecosystem-wide value, serving as both a customer acquisition engine and an engagement flywheel that deepens relationships with high-value health customers.

Speaker #4: And the results are compelling. CVC is the fastest NASPAC compounder in the business. We believe veterinary care is a powerful growth vector and a key pillar of value creation for Chewy.

Sumit Singh: We believe veterinary care is a powerful growth vector and a key pillar of value creation for Chewy. We are confident in the path ahead as we continue to execute and scale this platform. Turning to AI. For those of you familiar with Chewy, it will come as no surprise that our ability to adopt technology and drive rapid innovation is a core strength. We operate on a modern, nimble, and scalable tech stack supported by a world-class team of designers, product managers, marketers, and technologists who excel at building applications that enhance the customer experience while lowering costs. The arrival of AI only amplifies this advantage, enabling us to innovate faster, operate more efficiently, and unlock entirely new capabilities. That is exactly what we focused on. Over the past several quarters, we have focused on building the foundation required to deploy AI at scale across Chewy.

Speaker #4: We are confident in the path ahead as we continue to execute and scale this platform. Turning to AI, for those of you familiar with Chewy, it will come as no surprise that our ability to adopt technology and drive rapid innovation is a core strength.

Speaker #4: We operate on a modern, nimble, and scalable tech stack supported by a world-class team of designers, product managers, marketers, and technologists who excel at building applications that enhance the customer experience while lowering costs.

Speaker #4: The arrival of AI only amplifies this advantage, enabling us to innovate faster, operate more efficiently, and unlock entirely new capabilities. And that is exactly what we focused on.

Speaker #4: Over the past several quarters, we have focused on building the foundation required to deploy AI at scale across Chewy. Today, with our unified enterprise data platform and central AI tooling in place, we are embedding AI across key layers of the business—specifically, the purchase experience, our service and operations layer, and our supply chain and fulfillment network.

Sumit Singh: Today, with our unified enterprise data platform and central AI tooling in place, we are embedding AI across key layers of the business, specifically the purchase experience, our service and operations layer, and our supply chain and fulfillment network. Let me elaborate. Within the purchase experience, we are progressing quickly to apply AI across our platforms to improve search relevance, product discoverability, and personalization. Externally, we are closely following the emergence of agentic commerce models and view it as a future incremental demand and distribution channel for Chewy. Pet remains a deeply emotional category where trust, relationships, and empathy matter, and these are enduring strengths of the Chewy brand. Combined with our leadership in price, selection, and recurring convenience, both purchase and delivery, we believe our competitive position remains strong. Across the broader organization, we are already deploying AI to drive greater structural efficiency.

Speaker #4: Let me elaborate. Within the purchase experience, we are progressing quickly to apply AI across our platforms to improve search relevance, product discoverability, and personalization.

Speaker #4: Externally, we are closely following the emergence of agentic commerce models and view it as a future incremental demand and distribution channel for Chewy. Pet remains a deeply emotional category where trust, relationships, and empathy matter.

Speaker #4: And these are enduring strengths of the Chewy brand. Combined with our leadership in price, selection, and recurring convenience—both purchase and delivery—we believe our competitive position remains strong.

Speaker #4: Across the broader organization, we are already deploying AI to drive greater structural efficiency. Functions such as customer service, fulfillment, pharmacy, and marketing operations are leveraging internally developed AI tools to streamline workflows and improve productivity.

Sumit Singh: Functions such as customer service, fulfillment, pharmacy, and marketing operations are leveraging internally developed AI tools to streamline workflows and improve productivity. As we move through 2026, these efforts will translate into measurable financial impact. Based on our current roadmap, we expect AI-driven efficiencies to contribute a low tens of millions of dollars benefit in 2026, with a meaningful step-up in 2027, where we see a path to approximately $50 million or more in annualized savings as these capabilities scale. Moving on from AI, let me briefly talk about Chewy private brands. After the launch of our fresh brand Get Real in Q2 last year, we are entering an exciting new chapter for Chewy private brands with the launch of Chewy Made.

Speaker #4: As we move through 2026, these efforts will translate into measurable financial impact. Based on our current roadmap, we expect AI-driven efficiencies to contribute a low tens of millions of dollars benefit in 2026, with a meaningful step up in 2027 where we see a path to approximately $50 million or more in annualized savings as these capabilities scale.

Speaker #4: Moving on from AI, let me briefly talk about Chewy Private Brands. After the launch of our fresh brand, Get Real, in Q2 last year, we are entering an exciting new chapter for Chewy Private Brands with the launch of Chewy Made.

Sumit Singh: Chewy Made is our unified owned brand platform designed to deliver trusted, high-quality products while driving durable, profitable growth for Chewy. Starting in April and throughout 2026, we will expand our presence across both dog and cat consumables. This includes a balanced offering of dog food positioned at more accessible price points to broaden our reach into everyday nutrition, a broader assortment in everyday and gourmet cat nutrition, as well as entry into high-demand formats where we currently have low penetration. In addition to the expanded assortment, we are consolidating some existing brands under this platform, creating a more cohesive and streamlined experience for customers. We look forward to keeping you updated on the progress of Chewy Made. In closing, we continue to execute from a position of strength. We are delivering share gains, expanding margins through structural efficiencies, and generating growing free cash flow.

Speaker #4: Chewy Made is our designed to deliver trusted, high-quality products while driving durable, profitable growth for Chewy. Starting in April and throughout 2026, we will expand our presence across both dog and cat consumables.

Speaker #4: This includes a balanced offering of dog food, positioned at more accessible price points to broaden our reach into everyday nutrition; a broader assortment in everyday and gourmet cat nutrition; as well as entry into high-demand formats where we currently have low penetration.

Speaker #4: In addition to the expanded assortment, we are consolidating some existing brands under this platform, creating a more cohesive and streamlined experience for customers. We look forward to keeping you updated on the progress of Chewy Made.

Speaker #4: In closing, we continue to execute from a position of strength. We are delivering share gains, expanding margins through structural efficiencies, and generating growing free cash flow.

Sumit Singh: Looking ahead to 2026, we are well-positioned to further build on this momentum and drive sustained earnings growth. With that, I will turn it over to Chris.

Speaker #4: Looking ahead to 2026, we are well-positioned to further build on this momentum and drive sustained earnings growth. With that, I will turn it over to Chris.

Chris Deppe: Thank you, Sumit, and thank you all for joining us today. Having been part of Chewy's journey for nearly four years, I'm excited to step into the CFO role and continue building on the strong foundation our team has established. I look forward to engaging with many of you in the quarters ahead. Let's start with a review of our financial results. As we get into the details, a reminder, fiscal year 2024 included a 53rd week, and comparisons for Q4 and full year 2025 are discussed on a comparable 52-week basis where applicable.

Speaker #2: Thank you, Sumit. And thank you all for joining us today. Having been part of Chewy's journey for nearly four years, I'm excited to step into the CFO role and continue building on the strong foundation our team has established.

Speaker #2: I look forward to engaging with many of you in the quarters ahead. Let's start with a review of our financial results. As we get into the details, a reminder.

Speaker #2: Fiscal year 2024 included a 53rd week, and comparisons for Q4 and full year 2025 are discussed on a comparable 52-week basis where applicable. Fourth quarter net sales reached over $3.26 billion, bringing our total fiscal year 2025 net sales to over $12.6 billion.

Chris Deppe: Q4 net sales reached over $3.26 billion, bringing our total fiscal year 2025 net sales to over $12.6 billion, delivering year-over-year net sales growth of 8.1% in Q4 and 8.3% for the full year 2025, reflecting strong execution, continued share gains in a stable category environment, and consistent performance across both customer growth and spend per customer. We continue to grow active customers ending the year with 21.3 million, increasing by approximately 4% year over year and net additions up by more than 810,000 year over year in fiscal 2025. We once again saw year-over-year improvement across all elements of the active customer equation. We also continue to grow with a high-quality revenue base.

Speaker #2: Delivering year-over-year net sales growth of 8.1% in Q4 and 8.3% for the full year 2025, reflecting strong execution, continued share gains in a stable category environment, and consistent performance across both customer growth and spend per customer.

Speaker #2: We continue to grow active customers, ending the year with 21.3 million, increasing by approximately 4% year-over-year, and net additions up by more than 810,000 year-over-year in fiscal 2025.

Speaker #2: We once again saw year-over-year improvement across all elements of the active customer equation. We also continue to grow with a high-quality revenue base. Autoship customer sales reached over $2.7 billion in Q4 and $10.5 billion for the year, representing 84% of total net sales in Q4 and 83.3% for the full year 2025.

Chris Deppe: Autoship customer sales reached over $2.7 billion in Q4 and $10.5 billion for the year, representing 84% of total net sales in Q4 and 83.3% for the full year 2025. Growth in Autoship customer sales outpaced overall top-line growth, increasing by nearly 13% in Q4 and 14% for the full year 2025 on a comparable basis, reinforcing the strength of our recurring revenue model. NSPAC reached $591 in Q4 2025, increasing by approximately 4% year over year on a comparable basis. Moving to profitability, we reported Q4 gross margin of 29.4% and full year 2025 gross margin of 29.8%, representing approximately 90 basis points of year-on-year margin expansion in Q4 and 60 basis points of expansion for the full year.

Speaker #2: Growth in Autoship customer sales outpaced overall top-line growth, increasing by nearly 13% in the fourth quarter and 14% for the full year 2025 on a comparable basis.

Speaker #2: Reinforcing the strength of our recurring revenue model, Nestpak reached $591 million in Q4 2025, increasing by approximately 4% year over year on a comparable basis. Moving to profitability, we reported fourth quarter gross margin of 29.4% and full-year 2025 gross margin of 29.8%, representing approximately 90 basis points of year-on-year margin expansion in Q4 and 60 basis points of expansion for the full year.

Chris Deppe: Strong growth margin performance was driven by Sponsored Ads growth, premium mix into high-margin categories, including health and wellness verticals, and a rational promotional environment. Shifting to operating expenses, please note that my discussion of SG&A excludes share-based compensation expense and related taxes. Q4 SG&A was $607 million or 18.6% of net sales, and full year 2025 came in at $2.4 billion or 18.8% of net sales. Q4 in 2025 SG&A include approximately $10 million of one-time transaction costs, primarily related to the SmartEquine acquisition. Excluding SBC and these one-time costs, we delivered SG&A leverage of approximately 20 basis points in Q4, and full year SG&A as a percentage of net sales came in flat year-over-year.

Speaker #2: Strong gross margin performance was driven by sponsored ads growth, premium mix into high-margin categories, including health and wellness verticals, and a rational promotional environment.

Speaker #2: Shifting to operating expenses, please note that my discussion of SG&A excludes share-based compensation expense and related taxes. Fourth quarter SG&A was $607 million, or 18.6% of net sales, and full year 2025 came in at $2.4 billion, or 18.8% of net sales.

Speaker #2: Q4 in 2025, SG&A included approximately $10 million of one-time transaction costs, primarily related to the Smart Equine acquisition. Excluding SPC in these one-time costs, we delivered SG&A leverage of approximately 20 basis points in Q4, and full-year SG&A as a percentage of net sales came in flat year over year.

Chris Deppe: Q4 advertising and marketing expense was $233 million, bringing full year 2025 A&M expense to $825 million or 6.5% of 2025 net sales, reflecting approximately 30 basis points of leverage year-over-year. Q4 adjusted net income was $115 million, and full year 2025 came in at $541 million, which translated into $0.27 adjusted earnings per share in Q4, and $1.27 in full year 2025. Q4 adjusted EBITDA came in at $162 million, representing a 5.0% adjusted EBITDA margin, up 120 basis points year-over-year, and adjusted EBITDA flow through of approximately 19%.

Speaker #2: Fourth quarter advertising and marketing expense was $233 million, bringing full year 2025 A&M expense to $825 million, or 6.5% of 2025 net sales, reflecting approximately 30 basis points of leverage year-over-year.

Speaker #2: Fourth quarter adjusted net income was $115 million, and full year 2025 came in at $541 million, which translated into $0.27 adjusted earnings per share in Q4 and $1.27 in full year 2025.

Speaker #2: Fourth quarter adjusted EBITDA came in at $162 million, representing a 5.0% adjusted EBITDA margin, up 120 basis points year-over-year, and adjusted EBITDA flow-through of approximately 19%.

Chris Deppe: Full year 2025 Adjusted EBITDA came in at $719 million or 5.7% Adjusted EBITDA margin, growing approximately 26% year-over-year, reflecting 90 basis points of year-over-year margin expansion and flow through of over 16%. This level of profitability expansion at our scale reflects the structural strength of our model and continued operating discipline across the business. We are consistently expanding earnings at a rate meaningfully above net sales growth, demonstrating the operating leverage embedded in the model. The results we are delivering today are a clear reflection of the underlying strength of the business and where it is going.

Speaker #2: Full year 2025 adjusted EBITDA came in at $719 million, or a 5.7% adjusted EBITDA margin, growing approximately 26% year-over-year. This reflects 90 basis points of year-over-year margin expansion and flow-through of over 16%.

Speaker #2: This level of profitability expansion at our scale reflects the structural strength of our model and continued operating discipline across the business. We are consistently expanding earnings at a rate meaningfully above net sales growth, demonstrating the operating leverage embedded in the model.

Speaker #2: The results we are delivering today are a clear reflection of the underlying strength of the business and where it is going. In the fourth quarter, we reported free cash flow of $232 million, and in fiscal year 2025 we generated $562.4 million of free cash flow, both record highs for the company, highlighting the continued improvement in earnings quality and capital efficiency.

Chris Deppe: In Q4, we reported free cash flow of $232 million, and in fiscal year 2025, we generated $562.4 million of free cash flow, both record highs for the company, highlighting the continued improvement in earnings quality and capital efficiency. The consistency, scale, and continued growth of our free cash flow underscore the quality and resilience of our model. Our full year 2025 free cash flow reflects $691.6 million of net cash provided by operating activities at $129.2 million of capital expenditures. We ended the year with approximately $879 million in cash equivalents, and marketable securities, and we remain debt-free with an overall liquidity position of approximately $1.7 billion.

Speaker #2: The consistency, scale, and continued growth of our free cash flow underscore the quality and resilience of our model. Our full-year 2025 free cash flow reflects $691.6 million of net cash provided by operating activities and $129.2 million of capital expenditures.

Speaker #2: We ended the year with approximately $879 million in cash, cash equivalents, and marketable securities, and we remain debt-free with an overall liquidity position of approximately $1.7 billion.

Chris Deppe: Over the course of the year, we repurchased and retired approximately 6.8 million shares, spending approximately $257 million on share repurchases in 2025. Overall, our capital allocation priorities are unchanged. Advance the strategic priorities of the business where returns are attractive, maintain a strong balance sheet, and return excess cash to shareholders. Share repurchases will remain a key part of our capital allocation strategy, and we expect our level of activity to increase relative to 2025, reflecting both the strength of our cash generation and our view of the current valuation. Now turning to forward-looking guidance. As we enter fiscal 2026, I want to clearly frame how we expect the year to progress, both from a full year standpoint and in terms of quarterly cadence.

Speaker #2: Over the course of the year, we repurchased and retired approximately 6.8 million shares, spending approximately $257 million on share repurchases in 2025. Overall, our capital allocation priorities are unchanged.

Speaker #2: Advance the strategic priorities of the business where returns are attractive, maintain a strong balance sheet, and return excess cash to shareholders. Share repurchases will remain a key part of our capital allocation strategy, and we expect our level of activity to increase relative to 2025, reflecting both the strength of our cash generation and our view of the current valuation.

Speaker #2: Now, turning to forward-looking guidance. As we enter fiscal 2026, I want to clearly frame how we expect the year to progress, both from a full-year standpoint and in terms of quarterly cadence.

Chris Deppe: In addition to our guidance ranges, I will provide perspective on pacing so that our expectations for growth and profitability are well understood and appropriately reflected in how you model the year. Our 2026 outlook is built around three consistent priorities. First, continued share gains supported by stable demand and balanced growth across active customers and NSPAC. Second, ongoing margin expansion driven by a combination of mix improvement and increasing operating leverage. Third, improved incremental flow through relative to 2025, reflecting strengthening cost discipline and the scaling benefits embedded in our model. Let me now walk through the specifics of our 2026 outlook.

Speaker #2: In addition to our guidance ranges, I will provide perspective on pacing so that our expectations for growth and profitability are well understood and appropriately reflected in how you model the year.

Speaker #2: Our 2026 outlook is built around three consistent priorities. First, continued share gains supported by stable demand and balanced growth across active customers and Nestpak.

Speaker #2: Second, ongoing margin expansion driven by a combination of mix improvement and increasing operating leverage, and third, improved incremental flow-through relative to 2025, reflecting strengthening cost discipline and the scaling benefits embedded in our model.

Speaker #2: Let me now walk through the specifics of our 2026 outlook. For the full year 2026, we expect net sales of between $13.6 and $13.75 billion, or approximately 8 to 9 percent year-over-year growth, with the recently closed Smart Equine acquisition expected to contribute approximately $80 million of net sales to the total company in 2026.

Chris Deppe: For the full year 2026, we expect net sales of between $13.6 and 13.75 billion or approximately 8% to 9% year-over-year growth, with the recently closed SmartEquine acquisition expected to contribute approximately $80 million of net sales to the total company in 2026. Overall net sales growth will continue to be driven by a combination of active customer growth and NSPAC expansion. Our forecast assumes no price inflation in 2026, and we remain confident in delivering low single digit active customer growth with net additions broadly consistent throughout the year. As you think about the quarterly progression of net sales, Q1 is expected to represent the low point of the year from a growth perspective, largely reflecting timing and lapping dynamics. We expect net sales growth to build in Q2 and continue to strengthen through Q3.

Speaker #2: Overall net sales growth will continue to be driven by a combination of active customer growth and Nestpak expansion. Our forecast assumes no price inflation in 2026, and we remain confident in delivering low single-digit active customer growth, with net additions broadly consistent throughout the year.

Speaker #2: As you think about the quarterly progression of net sales, Q1 is expected to represent the low point of the year from a growth perspective, largely reflecting timing and lapping dynamics.

Speaker #2: We expect net sales growth to build in Q2 and continue to strengthen through Q3. From a profitability standpoint, we expect to deliver another year of meaningful expansion in 2026.

Chris Deppe: From a profitability standpoint, we expect to deliver another year of meaningful expansion in 2026. We anticipate full year 2026 Adjusted EBITDA margin in the range of 6.6% to 6.8% or approximately 100 basis points of year-over-year expansion at the midpoint. Based on our guidance ranges, we expect to deliver Adjusted EBITDA of approximately $900 to over $930 million, with growth to once again outpace net sales growth by approximately 3 times in 2026. Let me provide some perspective on how margins are expected to progress through the year. The composition of Adjusted EBITDA margin expansion in fiscal year 2026 is expected to shift relative to 2025.

Speaker #2: We anticipate full-year 2026 adjusted EBITDA margin in the range of 6.6 to 6.8 percent, or approximately 100 basis points of year-over-year expansion at the midpoint.

Speaker #2: Based on our guidance ranges, we expect to deliver adjusted EBITDA of approximately $900 million to over $930 million, with growth once again expected to outpace net sales growth by approximately three times in 2026.

Speaker #2: Let me provide some perspective on how margins are expected to progress through the year. The composition of adjusted EBITDA margin expansion in fiscal year 2026 is expected to shift relative to 2025.

Chris Deppe: We expect a larger share of our EBITDA margin expansion to come from operating leverage, reflecting structural improvements within SG&A and modest leverage in A&M, with gross margin continuing to expand year-over-year, though at a more moderate pace than in 2025. Turning to gross margin, as a reminder, in 2025, gross margin peaked in Q2 due to the timing of certain initiatives in the business. In 2026, we expect quarter-over-quarter gross margin pacing to be more in line with our historical performance as observed in prior years. Turning to SG&A and advertising and marketing, we expect to deliver SG&A leverage in 2026, with SG&A as a percentage of net sales broadly consistent throughout the year. We also expect advertising and marketing expense to follow a similar sequential quarterly progression as what you observed in 2025.

Speaker #2: We expect a larger share of our EBITDA margin expansion to come from operating leverage, reflecting structural improvements within SG&A and modest leverage in A&M, with gross margin continuing to expand year-over-year, though at a more moderate pace than in 2025.

Speaker #2: Turning to gross margin, as a reminder, in 2025 gross margin peaked in the second quarter due to the timing of certain initiatives in the business.

Speaker #2: In 2026, we expect quarter-over-quarter gross margin pacing to be more in line with our historical performance as observed in prior years. Turning to SG&A and advertising and marketing, we expect to deliver SG&A leverage in 2026, with SG&A as a percentage of net sales broadly consistent throughout the year.

Speaker #2: We also expect advertising and marketing spends to follow a similar sequential quarterly progression as what you observed in 2025. And finally, we anticipate a sequential moderation in Q4 margins, consistent with typical seasonality and the timing of promotional activity, as observed in prior years.

Chris Deppe: Finally, we anticipate a sequential moderation in Q4 margins consistent with typical seasonality, and the timing of promotional activity as observed in prior years. Now, turning to Q1. We expect Q1 2026 net sales of between $3.33 and $3.36 billion, or approximately 7% to 8% year-over-year growth, which, as previously mentioned, we expect to represent the low point of the year. Additionally, quarterly net sales contribution from SmartEquine is expected to be broadly consistent throughout the year. We also expect Q1 adjusted diluted earnings per share in the range of $0.40 to $0.45. Finally, to provide additional color on other line items. For the full year 2026, we expect share-based compensation expense, including related taxes, to be broadly flat compared to 2025.

Speaker #2: Now, turning to the first quarter, we expect Q1 2026 net sales of between $3.33 and $3.36 billion, or approximately 7 to 8 percent year-over-year growth, which, as previously mentioned, we expect to represent the low point of the year.

Speaker #2: Additionally, quarterly net sales contribution from Smart Equine is expected to be broadly consistent throughout the year. We also expect first quarter adjusted diluted earnings per share in the range of $0.40 to $0.45.

Speaker #2: And finally, to provide additional color on other line items, for the full year 2026, we expect share-based compensation expense, including related taxes, to be broadly flat compared to 2025.

Chris Deppe: Weighted average diluted shares outstanding of approximately 425 million. We also expect 2026 net interest income of approximately $10 to 15 million and our effective tax rate to be in the range of 20% to 22%. In closing, I'd like to thank all of our Chewy team members for their disciplined execution in 2025. As we look ahead, we remain confident in our strategy and in our ability to deliver continued share gaining growth, expanding margins, and strong cash generation. We believe the momentum in the business positions us well to deliver another successful year of profitable growth in 2026. We look forward to updating you on our progress in the quarters ahead. With that, I will turn the call over to the operator for questions.

Speaker #2: Weighted average diluted shares outstanding of approximately 425 million. We also expect 2026 net interest income of approximately $10 to $15 million, and our effective tax rate to be in the range of 20 to 22 percent.

Speaker #2: In closing, I'd like to thank all of our Chewy team members for their disciplined execution in 2025. As we look ahead, we remain confident in our strategy and in our ability to deliver continued share-gaining growth, expanding margins, and strong cash generation.

Speaker #2: We believe the momentum in the business positions us well to deliver another successful year of profitable growth in 2026. We look forward to updating you on our progress in the quarters ahead.

Speaker #2: With that, I will turn the call over to the operator for questions.

Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Mark Mahaney with Evercore ISI. Your line is open. Please go ahead.

Speaker #1: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad.

Speaker #1: To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device.

Speaker #1: Please stand by now while we compile the Q&A roster. Your first question comes from the line of Mark Mahaney with Evercore ISI. Your line is open.

Speaker #1: Please go ahead.

Mark Mahaney: Okay, thanks. Two questions, please. One on this A&M leverage going forwards. Just talk about where you think that can go. The biggest drivers of that going forwards as you're such a heavily subscription, you know, Autoship type model. You think that, you know, you're showing leverage. You should be able to continue to show leverage, I would imagine, for the next couple of years. Any thoughts on when we could break below 6%? Then, Sumit, could you talk a little bit about the Chewy Made strategy a little bit more, the impetus behind that, and what do you think the financial so what of that will be? Do you think that is that more of a kind of a with lower. You mentioned some lower price points.

Speaker #2: Okay, thanks. Two questions, please. One on this A&M leverage going forward—just talk about where you think that can go, the biggest drivers of that going forward, as you're such a heavily subscription, autoship-type model.

Speaker #2: You think that you're showing leverage. You should be able to continue to show leverage. I would imagine for the next couple of years. Any thoughts on when we could break below 6%?

Speaker #2: And then, Sumit, could you talk a little bit about the Chewy Made strategy a little bit more? The impetus behind that, and what do you think the financial so-what of that will be?

Speaker #2: Do you think that is more of a kind of, with lower—you mentioned some lower price points—is that kind of more of a TAM expander, or is it something that could just expand NESPAC per customer?

Mark Mahaney: Is that kind of a more of a TAM expander, or is it something that could just expand a NSPAC per customer? Thank you very much.

Speaker #2: Thank you very much.

Chris Deppe: Hi, Mark. Good morning. I'll take them one by one. On the first one, yes, we expect to show A&M leverage going forward. I will, you know, refrain from commenting as to what the extent will be on an annual basis. I'll take you back to our long-range plan that we communicated or the targets that we communicated in December 2023. If you recall, you know, from that point, we're essentially running ahead of our profit targets at this point. We've got roughly 350 basis points to go to hit the 10%, and then we start the journey of, you know, moving beyond the 10% EBITDA.

Speaker #3: Hi, Mark. Good morning. I'll take them one by one. So on the first one—yes, we expect to show A&M leverage going forward. I will refrain from commenting as to what the extent will be on an annual basis.

Speaker #3: I'll take you back to our long-range plan that we communicated, or the targets that we communicated, in December 2023. If you recall, from that point, we're essentially running ahead of our profit targets at this point.

Speaker #3: So, we've got roughly 350 basis points to go to hit the 10%, and then we start the journey of moving beyond the 10% EBITDA.

Chris Deppe: If you look at the remaining left to go, we believe roughly, you know, half or a little bit less than half will come from gross margin, and the rest will come from, you know, SG&A and marketing. You know, we believe at our levels, you know, spending somewhere in the 6 to 6.5% is reasonable in the near term. You know, as our brand continues to build even further with, you know, the CVCs that we're putting in ground or, you know, the upper funnel connections that we're making that is giving us really good leverage, plus the way that the app, the mobile app strategy is essentially progressing.

Speaker #3: If you look at the remaining left to go, we believe roughly half, or a little bit less than half, will come from gross margin, and the rest will come from SG&A and marketing.

Speaker #3: And so we believe at our levels, spending somewhere in the 6 to 6.5 percent range is reasonable in the near term. And then, as our brand continues to build even further with the CVCs that we're putting in the ground, or the upper-funnel connections that we're making that are giving us really good leverage, plus the way that the app—the mobile app strategy—is essentially progressing, we do believe we're shifting the mix from third-party mixes to direct mixes quite effectively.

Chris Deppe: You know, we do believe we're shifting the mix from third-party mixes to direct mixes quite effectively, and that strategy should essentially continue to fuel the leverage that we're talking about. Now the second question, Chewy Made strategy. If you again, I'll take you back to the high level view of the forest first. We believe private brands should be, you know, mid-teens level, low to mid-teens level penetration of net sales for Chewy. At that scale, we expect private brands to be, you know, roughly 500 basis points higher gross margin than the base business. This essentially is, you know, a step in that direction, 'cause today we're sitting at

Speaker #3: And that strategy should essentially continue to fuel the leverage that we're talking about. Now, the second question—Chewy-made strategy. So, if you—again, I'll take you back to the high-level view of the forest first.

Speaker #3: So, we believe private brands should be at a mid-teens level, low to mid-teens level penetration of net sales for Chewy. At that scale, we expect private brands to be roughly 500 basis points higher gross margin than the base business.

Speaker #3: And so this essentially is a step in that direction, because today we're sitting at, I would say, low- to mid-single digits of penetration of net sales.

Sumit Singh: You know, I would say low- to mid-single digits of penetration of net sales. Especially when you look at our penetration, we are penetrated quite reasonably well on the hard goods side. On supplies, we're mid-teens to high teens level penetration, and therefore the opportunity, you know, staring us in the face is on the consumables side. Now, it also happens that consumables is the largest TAM. Of the $90 billion food and supplies TAM, consumables is about $50 to 60 billion of that. For us, the way that we are bringing forward assortment, it allows us to fill in, you know, gaps in assortment at the high end. You saw that with the launch of fresh food, that is a very high NSPAC compounder.

Speaker #3: And especially when you look at our penetration, we are penetrated quite reasonably well on the hard goods side. So on supplies, we're mid-teens to high-teens level penetration.

Speaker #3: And therefore, the opportunity staring us in the face is on the consumable side. Now, it also happens that consumables is the largest TAM of the $90 billion food and supplies TAM.

Speaker #3: Consumables is about $50 to $60 billion of that. So for us, the way that we are bringing forward assortment, it allows us to fill in gaps in assortment at the high end.

Speaker #3: So you saw that with the launch of fresh food, that is a very high NESPAC compounder. We're also looking at value offering across the surface and going, "Okay, where can we strategically utilize the power of a scaled e-com network to be able to lower our cost to serve and deliver those price points effectively without really sacrificing margins along the way?" And so in that way, it becomes a margin boost for us.

Sumit Singh: We're also looking at, you know, value offerings across the surface and going, "Okay, where can we inject strategically, you know, utilize the power of a scaled e-com network to be able to lower our cost to serve and deliver those price points effectively without really sacrificing margins along the way?" In that way, it becomes, you know, a margin boost for us. For us, you know, this will ebb and flow relative to the assortment that we bring to life. We're filling in assortment, you know, both in dog. In cat, we've been, you know, I would say anemic in the past, and so you've seen me talk about two new assortment categories in cat this time around. We'll continue to keep you updated, but we're excited about where we go from here.

Speaker #3: So for us, this will ebb and flow relative to the assortment that we bring to life. But we're filling in assortment both in dog, in cat.

Speaker #3: We've been, I would say, anemic in the past. And so you've seen me talk about two new assortment categories in cat this time around.

Speaker #3: We'll continue to keep you updated, but we're excited about where we go from here.

Mark Mahaney: Thank you, Sumit.

Speaker #2: Thank you, Sumit.

Sumit Singh: Sure.

Speaker #3: Sure.

Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead.

Eric Sheridan: Thanks so much for taking the question. Maybe building on Mark's question and some of your earlier comments on the call on AI, can you identify some of the key areas in the cost structure of the business where you believe the application of AI can earn outsized returns in terms of efficiency gains? And then the second part of the question would be, philosophically, how do you think about letting some of those efficiency gains continue to drop to the bottom line and accelerate your pathway to a higher margin framework? Or the philosophical balance would be reinvesting some of those back into the business to incent growth and producing a more sort of linear or managed margin progression for the business? Thanks so much.

Speaker #2: Thanks so much for taking the question. Maybe building on Mark's question and some of your earlier comments in the call on AI, can you identify some of the key areas in the cost structure of the business where you believe the application of AI can earn outsized returns in terms of efficiency gains?

Speaker #2: And then the second part of the question would be, philosophically, how do you think about letting some of those efficiency gains continue to drop to the bottom line and accelerate your pathway to a higher margin framework? Or, the philosophical balance would be reinvesting some of those back into the business to incent growth and producing a more, sort of, linear or managed margin progression for the business?

Speaker #2: Thanks so much.

Sumit Singh: Hey, Eric. There's a lot in that second question. Let's start from the first one, which is a really good one. As mentioned in the prepared remarks, we're applying AI across a number of areas in the business, right? I'll stay away from the future applications that we're developing that will increase, you know, search relevance and discoverability, so you will talk about that as 2026 moves forward. What we are already deploying in the business is applications and agents that we are starting to use across customer service, across fulfillment, across pharmacy, marketing operations, and general marketing areas, you know, for campaign optimization, creative optimization, so forth and so on.

Speaker #3: Hey, Eric. There's a lot in that second question. Let's start from the first one, which is a really

Speaker #1: A good one. So, as mentioned in the prepared remarks, we're applying AI across a number of areas in the business, right? And so I'll stay away from the future applications that we're developing that will increase search relevance and discoverability.

Speaker #1: So we'll talk about that as 2026 moves forward . What we are already deploying in the in the business is applications and agents that we are starting to use across customer service , across fulfillment , across pharmacy marketing , operations and general marketing areas .

Speaker #1: You know , for campaign optimization , creative optimization and so forth and so on . So if you start from customer care , I'll stay away from specific roadmaps and specific projects for , for sake of kind of competitive , you know , outlays , but you should think about these applications that allows us to essentially reduce handle times , improve on the ability for us to self-serve customers .

Sumit Singh: If you start from customer care, I'll stay away from specific roadmaps and specific projects for, you know, for sake of kind of competitive, you know, outlays. You should think about these applications that allows us to essentially reduce handle times, improve on the ability for us to self-serve customers that then drives reduced contact rates, which then directly leads to lowering of costs. An example would be earlier, you know, roughly 8 weeks ago, we've essentially launched refunds and returns in a self-service manner, and the engagement and the success rate that we are viewing in that particular launch is quite impressive. That becomes very encouraging for us.

Speaker #1: That then drives reduced contact rates , which then directly leads to lowering of costs . So an example would be earlier , you know , roughly eight weeks ago , we essentially launched refunds and and returns in a self-service manner .

Speaker #1: And the engagement and the, the, the success rate that we are viewing in that particular launch is quite impressive. And so that becomes very encouraging for us.

Sumit Singh: We also recognize that there's a cohort of customers out there that will continue to grow, that are much more prone towards self-service, and digitized use of platforms in the way that they, you know, demand service from platforms. We will extend, you know, ourselves in the use cases that we go offer to them. Internally, you know, we're developing applications for agents that allows them to extract information and deliver coherent, consistent level of service with, you know, a reduced amount of effort, but also then improves the agent experience. It improves our retention and quality that the agents essentially provide to customers, but it also concurrently reduces our cost structure, given that input metrics like average handle times and contact rates essentially decrease as a combination of those two, right?

Speaker #1: We also recognize that there's a cohort of customers out there that will continue to grow , that are much more propensity towards self-service and digitize used off platforms Applications for agents that allows them to extract information and deliver coherent , consistent level of service with , you know , a reduced amount of effort , but also then improves the agent experience so it improves our retention and quality that the agents essentially provide to customers .

Speaker #1: But it also concurrently reduces our cost structure. Given that input metrics like average handle times and contact rates essentially decrease as a combination of those two, right?

Speaker #1: On the health spectrum , we're using a lot of computer vision . You know , in our in our FCS We're using AI to be able to , you know , codify our , you know , the way the scripts are being read , the scripts are being processed .

Sumit Singh: On the health spectrum, we're using a lot of computer vision, you know, in our FCs. We're using, you know, AI to be able to, you know, codify our, you know, the way the scripts are being read, the scripts are being processed, et cetera, et cetera. Happy to go into details, you know, when we do a one-on-one. Essentially we're quite bullish in the way that we're going to use these applications in the near to medium term. Now, over the long term, you know, we believe we're a pretty good case for, you know, when humanoids essentially come to life, right? Today we're not gonna talk about that. If you look at the fulfillment space in the world, 60% of your variable cost essentially is spent in picking and packing.

Speaker #1: Etc. , et . Happy to go into details . You know , when we do a one on one . But essentially we're quite bullish .

Speaker #1: In the way that we're going to use these applications in the near to medium term . Now , over the long term , you know , we believe we're a pretty good case for , you know , when humanoids essentially come to life , right ?

Speaker #1: So today we're not going to talk about that . But if you look at the fulfillment space in the world , 60% of your variable cost essentially is spent in picking and packing .

Speaker #1: And so if you can, if you can build relatively relevant solutions in the future to bring to life in these fulfillment areas, you can drive dramatic productivity.

Sumit Singh: If you can build relevant solutions in the future to bring to life in these fulfillment areas, you can drive dramatic productivity, you know, alongside kind of the human element without losing the human element that we're so good at delivering to the market. That's sort of our near-medium- and long-term thinking. Now, your second question is, how do we manage this? I will take you back to our broad aspirations of how we manage growth, profitability, and free cash flow. We wanna grow revenue to be between high-single-digit and low-double-digit percentage points. The composition of that revenue, you know, will remain with net adds growing and net SAC growing. We want to, you know, also deliver, you know, 100 basis points of margin expansion on average.

Speaker #1: You know , alongside kind of the human without losing the human element that we're so good at delivering to the market . So that's sort of our medium near medium and long term thinking .

Speaker #1: Now, your second question is, how do we manage this? I will take you back to our broad aspirations of how we manage growth, profitability, and free cash flow.

Speaker #1: We want to grow revenue to be between high single digit and low double digit percentage points The composition of that revenue will remain with net adds growing and nespak growing We want to , you also deliver 100 basis points of margin expansion on an average And so you can see that this print sets us up for a high quality , durable performance , not just in 26 , but also 27 , right at midpoint , we're delivering 100 and we're set up to perhaps exceed that relative to how the performance comes in for the rest of the year .

Sumit Singh: You can see that this print sets us up for a high quality, durable performance, not just in 2026, but also 2027, right? At midpoint, we're delivering $100, and we're set up to perhaps exceed that relative to how the performance comes in for the rest of the year. Now, we also wanna convert at least 80% of that profitability into free cash flow. We're not just going for one or the other. I think we wanna deliver a trifecta of growth, increased profitability that builds durably on top of previous years' performance, and then accumulating or compounding free cash flow that we can deploy to reinvest in high ROI opportunities, but also to return cash to shareholders.

Speaker #1: Now, we also want to convert at least 80% of that profitability into free cash flow. And so we're not just going for one or the other.

Speaker #1: I think we want to deliver a trifecta of growth, increased profitability that builds durably on top of the previous year's performance, and then accumulating or compounding free cash flow that we can deploy to reinvest in high ROI opportunities, but also to return cash to shareholders.

Speaker #2: Great . Thank you

Eric Sheridan: Great. Thank you.

Sumit Singh: Owen. Sure.

Speaker #1: Sure .

Speaker #3: Your next question comes from the line of Doug Anmuth with JP Morgan. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Doug Anmuth with JP Morgan. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Your line is open. Please go ahead.

Speaker #4: Thanks for taking the questions. One for Schmidt, and one for Chris Schmidt. You talked about Agentic as incremental demand and a distribution channel.

Doug Anmuth: Thanks for taking the questions. One for Sumit, one for Chris. Sumit, you talked about agentic as incremental demand and distribution channel. I just wanna get your latest views here and how you'll implement agentic on your own platform for customers. I think you're more insulated just given the 84% of the revenue coming from Autoship customers. Chris, can you just talk about fuel costs, some of the impact that you may be seeing in real time and how we should think about that in context of the 2026 outlook? Thanks.

Speaker #4: I just wanted to get your latest views here and how you'll implement Agentic on your own platform for customers. And I think you're more insulated just given the 84% of the revenue coming from Autoship customers.

Speaker #4: And then , Chris , can you just talk about fuel costs ? Some of the impact that you may be seeing in real time and how we should think about that in context of the 26 outlook ?

Speaker #4: Thanks .

Speaker #5: Hey, Doug. So, I...

Sumit Singh: Hey, Doug. I agree with your thoughts. You know, if you're selling a commodity, I think the disintermediation issue is likely one that needs paying attention. From that point of view, we believe Chewy is quite well insulated, given our value proposition is not primarily search aggregation, and because our customer relationship is not primarily built around one-time discovery. You know, we have continued to view ourselves and are more and more seen as a trusted, recurring, service-rich pet care platform. In categories like food, pharmacy, and broader healthcare, the customer is often not asking where to buy. They're asking for a seamless, dependable experience that consistently meets their needs, and that essentially plays to our strengths.

Speaker #1: Agree with your thoughts. You know, if you're selling a commodity, I think the disintermediation issue is likely one that needs paying attention.

Speaker #1: But from that point of view, we believe Chewy is quite well insulated, given our value proposition is not primarily search aggregation. And because our customer relationship is not primarily built around one-time discovery.

Speaker #1: So we have continued to view ourselves and our more and more seen as a trusted recurring service , rich pet care platform . So in categories like food , pharmacy , broader healthcare , the customer is often not asking where to buy .

Speaker #1: They're asking for a seamless , dependable experience that consistently meets their needs . And that essentially plays to our strengths . So now , you know , in terms of how we think about genetic developments , we essentially believe that these developments may , over time , perhaps shape the interface of where the consumer is interacting .

Sumit Singh: Now, you know, in terms of how we think about agentic developments, we essentially, you know, believe that these developments may over time perhaps shape the interface of where the consumer is interacting, but it doesn't necessarily change who wins the order. That's where, you know, our focus is, right? In making sure that Chewy remains the most trusted and convenient platform behind that transaction, whether it's through an owned experience or through future integrations, right? That we are also pursuing amongst others, and we are leading with many of these partners out there, right? That make our assortment, service, and capabilities easy to access. In that way, we see it as an opportunity.

Speaker #1: But it doesn't necessarily change who wins the order. And that's where our focus is, right? In making sure that Chewy remains the most trusted and convenient platform.

Speaker #1: Behind that transaction, whether it's through an owned experience or through future integrations, right? That we are also pursuing amongst others.

Speaker #1: And we are leading with many of these partners out there, right, that make our assortment, service, and capabilities easy to access.

Speaker #1: So in that way , we see it as an opportunity . So broadly , we think the right strategy is to be present wherever pet parents choose to engage , including emerging agentic commerce interfaces , because those platforms , in our opinion , can expand discovery and put chewy in front of a much larger pool of high intent users .

Sumit Singh: Broadly, we think the right strategy is to be present wherever pet parents choose to engage, including, you know, emerging agentic commerce interfaces, because those platforms, in our opinion, can expand discovery and put Chewy in front of a much larger pool of high intent users. For us, you know, success is not just showing up. It's to make sure that, you know, behind the transaction, our assortment, service, healthcare capabilities, and recurring relationships are, you know, durably integrated. We have quite high confidence in being able to do that. Now, another thing that I've heard is, you know, will that impact, you know, Sponsored Ads business? Like, that's another question that I've gotten, so I'll just kinda proactively hit that.

Speaker #1: And so for us , success is not just showing up , it's to make sure that , you know , behind the transaction , our assortment service , healthcare capabilities and recurring relationships are , you know , durably integrated .

Speaker #1: And we have quite high confidence in being able to do that. Now, another thing that I've heard is, will that impact the Sponsored Ads business?

Speaker #1: That's another question that I've gotten . So I'll just kind of proactively hit that . And there again , you know , I believe that Chewy's retail media proposition is differentiated because it is highly tied to an engaged pet audience .

Sumit Singh: there again, you know, I believe that Chewy's retail media proposition is differentiated because it is highly tied to an engaged pet audience, strong first-party data, recurring purchase behavior, and closed loop conversion. So said otherwise, right, our ad proposition is not just we have page views, it is that we have a very high-intent pet audience, strong first-party data, recurring behavior, and the closed loop attribution that I talked about, right? If you look at us, we convert a large portion of ad-attributed purchases directly to Autoship orders because that's how our ad model is built. We combine that with on-site and off-site formats, increasingly tied together through Chewy data.

Speaker #1: Strong first party data , recurring purchase behavior , and closed loop conversation . So said . Otherwise , right ? Our ad proposition is not just we have page views , it is that we have a very high .

Speaker #1: Intentful pet audience , strong first party data , recurring behavior , and the closed loop attribution that I talked about . Right ? So for if you look at us , we convert a large portion of AD attributed purchases directly to autoship orders because that's how our Ads model is built .

Speaker #1: And so then we combine that with on site and off format's increasingly tied together through chewy data . So it continues to give suppliers a very strong reason to advertise with chewy , even if Agentic interfaces grow , because we sit close to that conversion , repeat behavior , right ?

Sumit Singh: It continues to give suppliers a very strong reason to advertise with Chewy, even if agentic interfaces grow, because we sit close to that conversion repeat behavior, right? That's kinda my point of view externally. Internally, I've talked about Sponsored Ads and AI. You know, I talked about creating applications that will allow consumers not only to self-serve, so post-purchase support, but also in purchase discoverability and conversion, right, with the use of AI that drives personalization driven by memory recall, ingestion of pet profile data, tied to order data that then delivers, right, a highly curated and personalized in-app experience to you as the customer. That's the future that we're headed into, and in our opinion, we're not that far off.

Speaker #1: So that's kind of my point of view externally. Internally, I've talked about sponsored ads and AI. You know, I talked about creating applications that will allow consumers not only to self-serve.

Speaker #1: So post-purchase support , but also in purchase discoverability and conversion , right ? With the use of AI that drives personalization , driven by memory recall , ingestion of pet profile data tied to order data that then delivers a highly curated and personalized in-app experience to you as a customer .

Speaker #1: That's the future that we're headed into, and in our opinion, we're not that far off. Okay.

Chris Deppe: Okay. Doug, on fuel, in the near term, we're relatively well insulated, given the scale of our Autoship business and the strength of our relationships with key partners. Our guidance for both Q1 and the full year, you know, stands and is what we expect.

Speaker #6: And Doug, on fuel in the near term, we're relatively well insulated given the scale of our Autoship business and the strength of our relationships with key partners.

Speaker #6: And so our guidance for both Q1 and the full year , you know , stands and , and is , is what we expect

Speaker #4: Thank you both

Doug Anmuth: Thank you both.

Speaker #3: Your next question comes from the line of David Bellinger with Mizuho. Your line is open. Please go ahead.

Operator: Your next question comes from the line of David Bellinger with Mizuho. Your line is open. Please go ahead.

Speaker #7: Hey , everyone . Good morning . Thanks for the questions and congrats to Chris on the new seat . On the guidance . Looking at revenue growth on an organic basis .

David Bellinger: Hey, everyone. Good morning. Thanks for the questions, and congrats to Chris on the new seat. On the guidance, looking at revenue growth on an organic basis, it's implied about 8% growth at the midpoint and very consistent with 2025. You've got revenue guidance for Q1 a bit lighter than the full year. Your organic range may be a full percentage point lower. Can you give us some additional detail on why revenue growth should pick up through the balance of the years? Is there anything unique that's hitting Q1 or something else planned throughout the year that gives you added conviction in this re-acceleration?

Speaker #7: It's implied about 8% growth at the midpoint . And very consistent with 2025 . You've got revenue guidance for Q1 a bit lighter than the full year organic range , maybe a full percentage point lower .

Speaker #7: Can you give us some additional detail on why revenue growth should pick up through the balance of the year ? Is there anything unique that's hitting Q1 or something else planned throughout the year that gives you added conviction in this Re-acceleration

Speaker #6: Hey David , I appreciate that . You know , on Q1 , we're not seeing material change in our underlying demand trends . When we look across the business , across customer engagement , retention , overall spend behavior , the trends we see remain stable and consistent with what we've seen over the past several quarters .

Chris Deppe: Hey, David. Appreciate that. You know, on Q1, we're not seeing material change in our underlying demand trends. When we look across the business, across customer engagement, retention, overall spend behavior, the trends we see remain stable and consistent with what we've seen over the past several quarters. You know, from a quarterly perspective, Q1 is simply the lowest point in the growth profile for the year. We move through the year, we do expect growth to build, supported by continued share gains and consistent execution across the business. You know, we have a high level of confidence there because it's really all driven by the core components of our model, which are stable and consistent, right? We're seeing strong customer adds, steady customer adds, strong retention. You know, customers continue to engage more deeply.

Speaker #6: You know, from a quarterly perspective, Q1 is simply the lowest point in the growth profile for the year, and we move through the year.

Speaker #6: We do expect growth to build supported by continued share gains , consistent execution across the business . You know , we have a high level of confidence there because it's really all driven by the core components of our model , which are stable and consistent , right ?

Speaker #6: We're seeing strong customer adds steady customer adds strong retention . You know , customers continue to engage more deeply . And , you know , third , we continue to take share in the category , which is growing in a low single digit rate .

Chris Deppe: You know, third, we continue to take share in the category, which is growing at a low single-digit rate. When you put all those together, the stable customer growth, the consistent spend expansion, and our ongoing share gains, you get a model that builds in a predictable way. You know, we're not relying here on any one driver for the Q2 to Q3 growth. It's really broad-based execution across the business. That's what gives us the confidence in that ramp and delivering on our full-year outlook.

Speaker #6: So when you put all those together , the stable customer growth , the consistent spend expansion , and our ongoing share gains , you get a model that builds in a predictable way .

Speaker #6: And so , you know , we're not we're not relying here on any one driver for the Q2 to Q3 growth . It's really broad based execution across the business .

Speaker #6: And so that's what gives us the confidence in that ramp and delivering on our full-year outlook.

Speaker #7: Got it . And then just one follow up on the the EBITDA margin guidance . About 100 basis points of expansion . Can you help us understand that the lapping of any one time like or non-repeatable items that hit the PNL in 2025 , you had the chewy plus investments in the back half .

David Bellinger: Got it. Just one follow-up on the EBITDA margin guidance, about 100 basis points of expansion. Can you help us understand the lapping of any one-time like or non-repeatable items that hit the P&L in 2025? You had the Chewy+ investments in the H2, also the Get Real launch, some front-loaded SG&A costs ahead of the tariffs. How much of a benefit on EBITDA or EBITDA margin is assumed in 2026 as you lap these? Are there any other offsets we should consider, any flexibility around further reinvestment in the business? Thank you.

Speaker #7: Also , the get relaunch some , some front loaded S , g a costs ahead of the tariffs So how much of a benefit on EBITDA or EBITDA margin is assumed in 2026 as you lap these .

Speaker #7: And are there any other offsets we should consider? Any flexibility around further reinvestment in the business? Thank you.

Speaker #6: Yeah . It if you remember correctly , David , we talked about particularly the back half of the year last year , it was a low single digit million investment number .

Chris Deppe: Yeah. If you remember correctly, David, we talked about particularly the H2 of the year last year. It was a low single-digit $ million investment number. They're not material one-time impacts that we're lapping there that drive that 100 basis points. That 100 basis points really is driven by, you know, leveraging the model and improvements in the business. That's kind of where I would guide you there.

Speaker #6: And so, there are no material one-time impacts that we're lapping there that drive that 100 basis points. That 100 basis points really is driven by leveraging the model and improvements in the business.

Speaker #6: And so, that's kind of where I would guide you there.

Speaker #1: David , just to just to elaborate on that , if you recall the number , we've given a guidance of somewhere around 18 to $20 billion at what we had expected to spend .

Sumit Singh: David, just to elaborate on that, if you recall the number, we'd given a guidance of somewhere around $18 to 20 billion at what we had expected to spend. In Q3, on the Q3 call, we said, you know, we're on track to spending roughly half of that. That was about, you know, $10 billion or so. Ultimately, as Chris said, we spent, you know, kinda low to mid single digits in revenue because we were keeping some to see if we wanna invest in pricing, as Q4 played through, so that, you know. We gave that. We, you know, were keeping some to see if we wanted to accelerate the fresh demand if the demand didn't come in as per your expectations.

Speaker #1: And in . Q on the Q3 call , we said , you know , we're we're on track to spending roughly half of that .

Speaker #1: So that was about $10 million or so . And ultimately , as Chris said , we spend , you know , kind of mid , mid , low to mid single digits in revenue because we were keeping some to see if we want to invest in pricing as Q4 played through .

Speaker #1: So that , you know , the we gave that we , you know , were keeping some to see if we wanted to accelerate the fresh demand , if the demand didn't come in as per our expectations .

Speaker #1: And then the third one was we were sort of , you know , navigating chewy plus , but we were pleased with the level of efficiency that we saw there .

Sumit Singh: Then the third one was we were sort of, you know, navigating Chewy+. But we were pleased with the level of efficiency that we saw there. It's low- to mid-single-digit millions. Then on the SG&A, you know, the Dallas and the inventory impact was also, you know, $2 to 4 million. That's how you should size it.

Speaker #1: So it's low to mid single digit millions . And then on the G&A , you know , the Dallas and the inventory impact was also , you know , 2 to $4 million .

Speaker #1: So that's how you should size it .

Speaker #7: Appreciate it. Thank you both.

David Bellinger: Appreciate it. Thank you both.

Speaker #8: Sure

Chris Deppe: Sure.

Speaker #3: Your next question comes from the line of Steve Forbes with Guggenheim. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Steven Zaccone with Guggenheim. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Steven Forbes with Guggenheim. Your line is open. Please go ahead.

Speaker #9: Good morning . Chris Smith . Given the growth in Net ads the last couple of years and I think your initial comments in the prepared remarks about expanding lifetime value , I was wondering if you could maybe revisit and update us on spending trends by cohort , maybe some of those new , newer customer cohorts .

Steven Zaccone: Good morning, Sumit. Good morning, Sumit and Chris. Sumit, given the growth in net adds the last couple years, and I think your initial comments in the prepared remarks about expanding lifetime value, I was wondering if you could maybe revisit and update us on spending trends by cohort, maybe some of those newer customer cohorts. What type of growth are you still seeing within your most mature cohorts as we think about building conviction around NSPAC?

Steven Forbes: Good morning, Sumit. Good morning, Sumit and Chris. Sumit, given the growth in net adds the last couple years, and I think your initial comments in the prepared remarks about expanding lifetime value, I was wondering if you could maybe revisit and update us on spending trends by cohort, maybe some of those newer customer cohorts. What type of growth are you still seeing within your most mature cohorts as we think about building conviction around NSPAC?

Speaker #9: And then, what type of growth are you still seeing within your most, most mature cohorts? As we think about building conviction around end spec.

Speaker #1: So both questions , the overall , our newer cohorts 24 and 25 are stronger than 22 and 23 cohorts . They are much more in line with our legacy cohorts .

Sumit Singh: Both good questions. Overall, our newer cohorts, 2024 and 2025, are stronger than 2022 and 2023 cohorts. They are much more in line with our legacy cohorts. You know, there was this kinda three-year period where we were sort of staring at the pandemic cohorts, you know, sideways to go really try to interpret, the quality of customers there. You know, we're cleanly past that. The quality of cohorts that we've been picking up is really good. Repeatable purchase rate remains high, reorder rate remains high, and NSPAC trending, you know, trends to the higher end of the $150 to 200 dollars that we expect customers to spend in the first year. Now, in terms of the oldest cohorts, it's less older cohorts, oldest cohorts.

Speaker #1: You know , there was this kind of three year period where we were sort of staring at the pandemic cohorts , you know , sideways to go really try to interpret the quality of customers there .

Speaker #1: But , you know , we're past that . The quality of cohorts that we've been picking up is really good , repeatable purchase rate remains high , reorder rate remains high , and Nasdaq trending , you know , trends to the higher end of the 150 to $200 that we expect customers to spend in the first year .

Speaker #1: Now , in terms of the oldest cohorts , it's less older cohorts , oldest cohorts . I think we're seeing this across , you know , a bunch of cohorts that are interfacing with our value added services .

Sumit Singh: I think we're seeing this across, you know, a bunch of cohorts that are interfacing with our value-added services. Whether it's, you know, cohorts that are native to the app, cohorts that are native to health, particularly cohorts that are native to CVC, you know, these cohorts are the fastest compounders of NSPAC in the company. You know, that remains true for the fresh platform also. When we get a customer settled into our Get Real fresh platform, we see NSPAC compounding immediately. Our goal is to essentially, you know, push customers more and more into these closed loop ecosystems and, you know, accelerate their NSPAC, which we are seeing us do quite successfully. The larger the number of customers we push into this, the faster NSPAC compounds.

Speaker #1: So whether it's , you know , cohorts that are native to the app cohorts that are native to health Particularly cohorts that are native to CVC , you know , these cohorts are the fastest compounders of nespak in the company .

Speaker #1: You know , that remains true for the fresh platform . Also , when we get a customer settled into our fresh platform , we see Nespak compounding immediately .

Speaker #1: And so , you know , our goal is to essentially , you know , push customers more and more into these closed loop ecosystems .

Speaker #1: And , you know , accelerate their nespak , which we are seeing us do quite successfully . So the , the larger the number of customers we push into this , the faster nespak compounds .

Sumit Singh: The oldest cohorts have continued to progress, you know, well and sound, but I felt I would give you a bit of a broader context as to why we should be excited about the durability of this in the future.

Speaker #1: The oldest cohorts have continued to progress . You know , well and sound , but I felt I would give you a bit of a broader context as to why we should be excited about the durability of this in the future .

Speaker #9: That's helpful . And maybe just a quick follow up regarding chewy plus penetration . I think it . Commented commented on low single digit penetration by year end during year end 2025 .

Steven Zaccone: That's helpful. Maybe just a quick follow-up regarding Chewy Plus penetration. I think you commented on low single digit penetration by year-end 2025. Any sort of initial thoughts on what the guidance implies or the expectation around penetration to end 2026, again, once the build conviction, yeah.

Steven Forbes: That's helpful. Maybe just a quick follow-up regarding Chewy Plus penetration. I think you commented on low single digit penetration by year-end 2025. Any sort of initial thoughts on what the guidance implies or the expectation around penetration to end 2026, again, once the build conviction, yeah.

Speaker #9: Any sort of initial thoughts on what the guidance implies or the expectation around penetration to end 2026? Again, wants to build conviction.

Speaker #9: Yeah

Speaker #5: Yeah , yeah .

Sumit Singh: Yeah. Yep. We like Chewy Plus. We are, I would say, still in a test and learn phase. We did achieve the low single digit penetration that we talked about, specifically Chewy Plus exited at about 4% penetration for 2025. You know, the reason we're not giving you guidances for Chewy Plus is because we wanna retain the flexibility to ebb and flow the program to land the incrementality and the spend in the right order, right? We like what we are seeing so far. It is compounding NSPAC in the order that we want to. The incrementality ranges that we're observing, we'd like them to be tighter, right? We're seeing incrementality ranges in a really healthy, you know, range.

Speaker #1: So we like to plus we are , I would say still in a test and learn phase . We achieve the low single digit penetration that we talked about specifically .

Speaker #1: We exited at about 4% penetration for 2025 . And you know , the reason we're not giving you guidance is for chewy Plus is because we want to retain the flexibility to ebb and flow the program to land the incrementality and the spend in the right order , right ?

Speaker #1: So, we like what we are seeing so far. It is compounding NESPAC in the order that we want to. The incrementality ranges that we're observing.

Speaker #1: We'd like them to be tighter , right ? So we're seeing incrementality ranges in a really healthy , you know , range , but we would like to see kind of the variability around those Incrementality tighten even more around the mean .

Sumit Singh: We would like to see kind of the variability around those incrementality tighten even more around the mean. Then three, you know, there are a few metrics or KPIs that we need a little more time to accrue before we can share that with you. One is the retention nature of Chewy+ cohorts, right? Because Chewy+ cohorts have been developing over the last year or so, year in year and quarter, you know, each sample size is not yet wide enough or large enough for us to be able to study retention capability, you know, independently.

Speaker #1: And then three, you know, there are a few metrics or KPIs that we need a little more time to accrue before we come share that with you.

Speaker #1: So one is the retentive nature of chewy plus cohorts , right ? Because chewy plus cohorts have been developing over the last year or so year , either in quarter , you know , each sample size is not yet wide enough or large enough for us to be able to study retentive capability .

Speaker #1: You know , independently . So what I want to be able to come say is that , hey , if we get 10% of chewy customers into chewy , plus it should have a wide impact on our retention , which should then directly impact our nespak .

Sumit Singh: What I wanna be able to come say is that, "Hey, if we get 10% of Chewy customers into Chewy Plus, it should have a high impact on our retention, which should then directly impact our NSPAC." That particular equation, the inputs and outputs, is what we wanna study a bit longer. Number two, we're also studying the impact of Chewy Plus in terms of the efficiency it drives, both in terms of promotion, promotional intensity, as well as in terms of marketing spend or retargeting spend. You know, there's enough out there for us to continue to learn. Finally, the program value prop continues to evolve. I mean, remember, today the program has, you know, primarily product merchandise tied into it, right?

Speaker #1: And so that particular equation , the inputs and outputs is what we want to study a bit longer . Number two , we're also studying the impact of chewy .

Speaker #1: Plus, in terms of the efficiency, it drives growth in terms of promotion, promotional intensity, as well as in terms of marketing spend or retargeting spend.

Speaker #1: And so , you know , there's enough out there for us to continue to learn . And then finally , the program value prop continues to evolve .

Speaker #1: I mean , remember today , the program has , you know , primarily product merchandise tied into it , right ? And so we're sort of ebbing and flowing back and forth to go .

Sumit Singh: We're sort of ebbing and flowing back and forth to go, "Great." Like, you know, how are customers perceiving that value? Are we giving too much value? Are we extracting how much value? Et cetera, et cetera. It is natural for us, particularly given how impactful this program can be, to be optimistic yet prudent in our approach in the way that we progress. We'll continue to be transparent. At the same time, we'll stay away from providing immediate targets right away.

Speaker #1: Great . Like , you know , how our customers perceiving that value , are we giving too much value ? Are we extracting how much value , etcetera , etcetera .

Speaker #1: So it is natural for us , particularly given how , how impactful this program can be to be optimistic . Yet prudent in our approach in , in the way that we progress .

Speaker #1: So, we'll continue to be transparent. At the same time, we'll stay away from providing immediate targets, right.

Speaker #8: Away .

Speaker #9: Thank you

Steven Zaccone: Thank you.

Steven Forbes: Thank you.

Speaker #3: Your next question comes from the line of Shweta Khajuria with Wolfe Research. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Shweta Khajuria with Wolfe Research. Your line is open. Please go ahead.

Speaker #10: Hi , this is for Shweta . Thanks for taking the question . I want to double click on that customer ad . So it looks like .

[Senior Research Analyst] (Wolfe Research): Hi, this is Andrew for Shweta. Thanks for taking the question. I wanna double-click on net customer adds. Looks like they-

[Analyst] (Wolfe Research): Hi, this is Andrew for Shweta. Thanks for taking the question. I wanna double-click on net customer adds. Looks like they-

Speaker #5: They can. You can you speak up.

Sumit Singh: Sorry, can you speak up a bit? We're having a hard time hearing you.

Speaker #1: A bit? We're having a hard time hearing.

Speaker #8: You .

Speaker #10: Yeah . Sorry about that . So I want to double click on that customer ads . Looks like they came in above expectations in Q4 .

[Senior Research Analyst] (Wolfe Research): Yeah. Sorry about that. I wanna double-click on net customer adds. Looks like they came in above expectations in Q4. Basically, to what extent is this being driven by a broader refresh in the pet adoption cycle versus maybe your own efficiency in performance marketing? Then as we look into 2026 guidance and really the cadence, does that sort of embed a slight improvement in pet household formation over time? Or is it just largely based on gaining wallet share through your key initiatives?

[Analyst] (Wolfe Research): Yeah. Sorry about that. I wanna double-click on net customer adds. Looks like they came in above expectations in Q4. Basically, to what extent is this being driven by a broader refresh in the pet adoption cycle versus maybe your own efficiency in performance marketing? Then as we look into 2026 guidance and really the cadence, does that sort of embed a slight improvement in pet household formation over time? Or is it just largely based on gaining wallet share through your key initiatives?

Speaker #10: Basically, to what extent is this being driven by a broader refresh in the pet adoption cycle versus maybe your old efficiency in performance marketing? When we look into 2026 guidance and really the cadence, does that sort of embed a slight improvement in pet household formation over time, or is it just largely based on gaining wallet share through your key initiatives?

Speaker #1: So just interpreting your question , I think you had two parts . There . It's a little bit hard to hear you . So I'm going to rephrase it back to you .

Sumit Singh: Just interpreting your question, I think you had two parts there. It's a little bit hard to hear you, so I'm gonna rephrase it back to you. I think you're asking if there is any pet household formation improvement built into our forecast. The answer is no. You know, we said in our prepared remarks today we're interpreting the industry as quite stable, and we're not underwriting a rebound or an acceleration in pet household formation metric. I think that was one part of the answer. Then the second question you asked was around customer adds came in above expectations in Q4. That was primarily seasonality, you know, the go-to-market that we deploy. It was well within our forecast. Chris, anything else to comment there?

Speaker #1: So I think you're asking if there is any pet household formation improvement built into our forecast. The answer is no. You know, we said in our prepared remarks today we're interpreting the industry as quite stable, and we're not underwriting a rebound or an acceleration in the pet household formation metric.

Speaker #1: I think that was one part of the answer. And then the second question you asked was around customer adds came in above expectations in Q4.

Speaker #1: That was primarily seasonality . And primarily , you know , the go to market that we deploy . It was well within our forecast .

Speaker #1: So, Chris, anything else to comment there?

Speaker #6: No , I think that's right . If we miss some of the question , you were just a bit hard to hear . Happy to follow up and callbacks and double click

Chris Deppe: No, I think that's right. If we missed some of the question, you're just a bit hard to hear. Happy to follow up and call back and double-click.

Speaker #10: Appreciate it .

[Senior Research Analyst] (Wolfe Research): Appreciate it. Thank you.

[Analyst] (Wolfe Research): Appreciate it. Thank you.

Speaker #8: Thank you . Sure .

Sumit Singh: Sure.

Speaker #3: Your next question is from Anna Andreeva with Piper Sandler. Your line is open. Please go ahead.

Operator: Your next question is from Anna Andreeva with Piper Sandler. Your line is open. Please go ahead.

Speaker #11: Great . Thank you so much for taking our question and good morning . First to Sumeet on Equine and congrats on closing the acquisition and recognizing it's still pretty early , but how are you thinking about the growth there for this year ?

Anna Andreeva: Great. Thank you so much for taking our question, and good morning. First, to Sumit on SmartEquine, and congrats on closing the acquisition. Recognizing it's still pretty early, but how are you thinking about the growth there, for this year? Are you seeing more of a incremental consumer to Chewy? And how is that behavior on the Chewy platform? Secondly, on gross margin, to Chris, can you talk a little more about the puts and takes? Should we think sponsored ads is still the biggest driver for the year, followed by the mix shift? Should we think gross margin expansion more levered in H1? Q1, I believe, will be lapping, I think 60 basis points of one-timers from last year. Thank you so much, guys.

Speaker #11: And are you seeing more of an incremental consumer to chewy and how is that behavior on the chewy platform ? And then secondly , on gross margin to Chris , can you talk a little more about the puts and takes ?

Speaker #11: Should we think sponsored ads is still the biggest driver for the year, followed by the mix shift? And should we think gross margin expansion is more levered in the first half, Q1 I believe we will be lapping.

Speaker #11: I think 60 basis points of one-timers from last year. And thank you so much.

Speaker #8: Guys

Speaker #1: Hi , Anna . I will start with your first question , which was pertaining to the smart category . I believe the smart or the smart acquisition .

Sumit Singh: Hi, Anna. I will start with your first question, which was pertaining to the SmartEquine category, I believe, the SmartEquine acquisition. Overall, you know, this acquisition as we've sized it to about $80 million of top line in our forecast this year. You know, we like the business. It is a high-quality business of pet health nutraceuticals that essentially, you know, the category gross margins are really high. You know, we expect to run this in the +35% gross margin ranges in the near future. In 2026, what we're focused on is essentially stabilizing the business. We don't expect a material contribution from this particular line into the P&L.

Speaker #1: So overall , this acquisition , as we we've sized it to about $80 million of top line in our forecast this year . And you know , we , we like the business .

Speaker #1: It is a high quality business of pet health nutraceuticals that essentially , you know , the category gross margins are really high . You know , we expect to run this in the plus 35% gross margin ranges in the in the near future .

Speaker #1: But in 2026 , what we're focused on is essentially stabilizing the business . So and so we don't expect a material contribution from this particular line into the PNL .

Speaker #1: In fact , you know , we're we're we're going to ensure that , you know , we take the time to get the business to a high quality .

Sumit Singh: In fact, you know, we're going to ensure that, you know, we take the time to get the business to a high quality. I'll say this, we like the high-quality nature of the business and the category, but the business that we've picked up requires a little bit of fixing. You know, 2026 is that year. We don't expect it to take any investments from us, right? But we don't expect it to be materially contributive to the P&L. So our guidance that we've provided fully incorporates our excitement and the work that it will take to get this business to its future aspiration. Where do we see it in the future?

Speaker #1: I'll say this . We like the the high quality nature of the business and the category , but the business that we've picked up requires a little bit of fixing .

Speaker #1: And so , you know , 2026 is that year . We don't expect it to take any investments from us , right ? But we don't expect it to be materially contributed to the PNL .

Speaker #1: So our guidance that we've provided fully incorporates our , you know , excitement and the work that it will take to get this business , you know , to its future aspiration .

Speaker #1: Where do we see it in the future ? We feel , or we believe that we can add , you know , grow this to become a few hundred million dollar category .

Sumit Singh: We feel or we believe that we can add, you know, grow this to become a few hundred million-dollar category, you know, at, you know, 35% to 45% gross margin. We're quite excited in the way that this plays in the larger health and supplement space, very much synchronous with our overall health strategy. We like the quality of the customers that are engaging with it. We really like the team, you know, that essentially has come over with it. You know, they're passionate people and they're happy at Chewy.

Speaker #1: You know , at , you know , 35 to 45% gross margins . And so we're quite excited in the way that this plays in the larger health and supplement space Very much synchronous with our overall health strategy .

Speaker #1: We like the quality of the customers that are engaging with it. We really like the team, you know, that essentially has come over with it.

Speaker #1: You know , they're passionate people and , and they're , they're , they're happy at chewy .

Speaker #6: Yeah . On , on margin , you know , on margin expansion , we remain bullish . You know , noted in the call , you know , our long term margin framework is unchanged .

Chris Deppe: Yeah, Anna, on margin, you know, on margin expansion, we remain bullish. You know, as we noted in the call, our long-term margin framework's unchanged. In 2026, we're gonna further expand profitability with the rate of expansion higher than 2025. You know, we also shared, we do expect the composition of EBITDA margin to shift with a larger share from operating leverage. The gross margin will continue to expand year-over-year, albeit at a more moderate pace than in 2025. You know, we will continue to see improvement from premium mix and Sponsored Ads, but we do expect Sponsored Ads impact to taper a bit in 2026.

Speaker #6: And in 2026, we're going to further expand profitability, with the rate of expansion higher than 2025. You know, we also shared we do expect the composition of EBITDA margin to shift, with a larger share from leverage.

Speaker #6: But gross margin will continue to expand year over year , albeit at a more moderate pace than in 2025 . You know , we will continue to see improvement from premium mix and sponsored ads .

Speaker #6: We do expect sponsored ads impact to taper a bit in 2026, but, you know, a leverage further strengthens to deliver the total 100 basis points of year-over-year expansion at the midpoint of our adjusted EBITDA guidance.

Chris Deppe: you know, SG&A leverage further strengthens to deliver the total 100 basis points of year-over expansion at the midpoint of our adjusted EBITDA guidance.

Chris Deppe: You know, SG&A leverage further strengthens to deliver the total 100 basis points of year-over expansion at the midpoint of our adjusted EBITDA guidance.

Speaker #1: And on sponsored ads, the rate of growth of sponsored ads will continue at a really healthy pace. So this is less to do with growth moderation.

Sumit Singh: On Sponsored Ads, Anna, the rate of growth of Sponsored Ads will continue at a really healthy pace. This is less to do with growth moderation. It is to do with the natural phenomenon that we've been talking about, which is as more shifts or mixes into off-site advertisement, right, we would expect a different margin mix to essentially flow through. That is baked into our 2026 guidance.

Speaker #1: It is to do with the natural phenomena that we've been talking about , which is as more shifts or mixes into off site advertisement , right .

Speaker #1: We would expect a different margin mix to essentially flow through, and so you'll see that is baked into our 2026 guidance.

Speaker #11: , right ? Fair enough . Thank you so much .

Anna Andreeva: Right. Fair enough. Thank you so much, guys.

Speaker #8: Guys . Sure .

Chris Deppe: Sure.

Speaker #3: We have time for one more question, and this question will be coming from the line of Michael McGovern with Bank of America.

Operator: We have time for one more question, and this question will be coming from the line of Michael McGovern with Bank of America. Your line is open. Please go ahead.

Speaker #3: Your line is open . Please go ahead .

Speaker #12: Hey , thanks for taking my question . Could you just characterize kind of the industry growth backdrop in the low single digit range , relative to where you would kind of expect it on a normalized basis ?

Michael McGovern: Hey, thanks for taking my question. Could you just characterize kind of the industry growth backdrop in the low single-digit range relative to where you would kind of expect it on a normalized basis? If you saw the industry backdrop improve, do you expect that your share gains would also improve and accelerate a bit?

Speaker #12: And if you saw the industry backdrop improve, do you expect that your share gains would also improve and accelerate as well?

Speaker #8: Bit

Speaker #1: The second part of the question is very easy. The answer is yes. We are not baking in any benefit that we get from the industry.

Sumit Singh: The second part of the question is very easy. The answer is yes. We are not baking in any benefit that we get from the industry, so we're baking in a stable environment, not an accelerating environment. You know, we've continued to say when the industry normalizes, you know, we expect to also improve every metric that we are currently talking about, top-line profitability and free cash flow. On the first one, industry growth backdrop in the low single-digit range versus what is normalized. We would like to see pet household formation return to, you know, the 1% to 2% level. We would like to see pricing return to roughly 1.5% to 2%, you know, normalized in an industry.

Speaker #1: So we're baking in a stable environment , not an accelerating environment . When the industry , you know , we've continued to say when the industry normalizes , you know , we expect to also improve every metric that we are currently talking about .

Speaker #1: Top line profitability and free cash flow on the first one , industry growth backdrop in the low single digit range versus what is normalized , we would like to see pet household formation return to , you know , the 1 to 2% level .

Speaker #1: We would like to see pricing return to roughly one and a half to 2% . You know , normalized in an industry . And we'd like to see overall growth rates get into the mid single digit growth rates that essentially are in the forecast for long term growth of the Pet category .

Sumit Singh: We'd like to see overall growth rates get into the mid-single-digits growth rates that essentially are in the forecast for long-term growth of the pet category. That's what we consider normalized.

Speaker #1: That's what we consider normalized

Speaker #12: Thanks. And can you also just double-click on your Health category expectations for 2026? I think in the past you've talked about your Health category as being kind of accretive to both growth and margins, and close to about 30% of revenue.

Michael McGovern: Thanks. Could you also just double-click on your health category expectations for 2026? I think in the past, you've talked about your health category as kind of accretive to both growth and margins and close to about 30% of revenue. How is that tracking into 2026? Thank you.

Speaker #12: How is that tracking into 2026? Thank you.

Speaker #1: We continue to be bullish about our place in health . Mike and the question sort of really broad . So trying to sort of interpret what might be helpful , but we remain highly bullish .

Sumit Singh: We continue to be bullish about our place in health, Mike, and the question sort of is really broad, so I'm trying to sort of interpret what might be helpful. We remain highly bullish. We run, at this point, a really high-quality ecosystem of products, consumer services, as well as B2B services, that has now been complemented with an expanding and high-quality clinic footprint, that essentially is providing us layered ecosystem benefits both to Chewy.com and is the highest compounder of NSPAC. Broadly speaking, for health, you know, it is a high-growth, high-margin category, and we expect it to continue to contribute to Chewy for long periods of time to come.

Speaker #1: We run at this point a really high quality ecosystem of products . Consumer services as well as B2B services that has now been complemented with an expanding and high quality clinic footprint that essentially is providing us layered ecosystem benefits both to Chewy.com and is the highest compounder of Nespak .

Speaker #1: So , broadly speaking , for health , you know , it is a high growth , high margin category . And we expect it to continue to contribute to chewy for long periods of time to .

Speaker #8: Come

Speaker #3: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This event has now concluded. Access the Chewy, Inc. IR website for more information. This line will now disconnect.

Operator: This event has now concluded. Access the Chewy, Incorporated IR website for more information. This line will now disconnect.

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