• Q4 Net Sales: $3.25 billion, a 14.9% year-over-year increase.
• Full Year 2024 Net Sales: $11.86 billion, representing 6.4% growth year-over-year.
• Autoship Customer Sales: $2.62 billion in Q4, a 21.2% increase; $9.39 billion for the full year, a 10.6% increase.
• Active Customers: 20.5 million, marking a year-over-year increase of approximately 2.1%.
• Adjusted EBITDA Margin: 4.8% for fiscal year 2024, reflecting a 150 basis point expansion.
• Free Cash Flow: $452.5 million for fiscal year 2024.
• Gross Margin: 28.5% in Q4 and 29.2% for the full year 2024, with an 80 basis point expansion.
• SG&A Expenses: 18.5% of net sales in Q4, showing a 150 basis point improvement year-over-year.
• Advertising and Marketing Expense: $804.1 million for the full year, 6.8% of net sales.
• Adjusted Net Income: $120 million in Q4; $446.8 million for the full year 2024.
• Share Repurchase: Approximately 32.8 million shares repurchased in 2024.
• Cash and Equivalents: $597 million at year-end, with no debt.

• Warning! GuruFocus has detected 6 Warning Signs with CHWY.

Release Date: March 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Chewy Inc (NYSE:CHWY) reported a strong conclusion to the year with Q4 net sales increasing approximately 15% year-over-year to $3.25 billion.
• The Autoship program represented 80.6% of Q4 net sales, providing predictable subscription-like recurring revenue streams.
• Active customer growth returned for the first time in eight quarters, ending fiscal year 2024 with 20.5 million active customers.
• Chewy Inc (NYSE:CHWY) achieved a record $452.5 million of free cash flow in fiscal year 2024, converting approximately 80% of adjusted EBITDA to free cash flow.
• The sponsored ads business scaled meaningfully, reaching approximately 1% of net sales for full year 2024, contributing to gross margin improvement.

Negative Points

• Despite strong sales growth, the gross margin expansion in Q4 was slightly below expectations, with only a 30 basis point increase year-over-year.
• The promotional environment remains competitive, with minimal expected impact from pricing inflation in 2025.
• Chewy Inc (NYSE:CHWY) faces challenges in maintaining the momentum of active customer growth amidst a normalizing pet industry.
• The company anticipates minimal price inflation in 2025, which could impact revenue growth if not offset by increased customer acquisition.
• Chewy Inc (NYSE:CHWY) is investing heavily in growth initiatives like Chewy Vet Care Clinics, which may take time to scale and contribute meaningfully to overall performance.

Q & A Highlights

Q: Can you explain the significant increase in active customers from Q3 to Q4? How much of this is due to a better pet spending environment versus Chewy-specific initiatives? A: Sumit Singh, CEO: The increase in active customers is primarily due to Chewy's execution and strategic initiatives rather than a significant change in the market. We saw improvements across new customers, reactivations, and reduced churn. Our marketing strategies, including enhanced targeting and optimized bidding models, contributed to this growth. We invested 15% more in marketing in Q4, yet our cost per gross add increased by less than 2%, resulting in over 400,000 new customers.

Q: Gross margins in Q4 were slightly below expectations. Can you elaborate on the factors affecting gross margins and the outlook for 2025? A: David Reeder, CFO: The Q4 gross margin was as expected, with no surprises. For 2025, we anticipate continued EBITDA margin growth, with gross margin improvements driven by sponsored ads, product mix, and operational efficiencies. We expect similar contributions from gross margin and other operating expenses as seen in 2024.

Q: Could you update us on the progress of automation and the path to achieving 70-80% automation over time? A: David Reeder, CFO: Currently, over 40% of our volume is processed through automated facilities, with plans to increase this. The Houston facility is ramping up, and overall automation, including 2G facilities, accounts for over 50% of volume. We aim to reach 70-80% automation in the near to medium term.

Q: How does the completion of the 1P platform migration impact the sponsored ads business and the path to achieving 3% of net sales? A: David Reeder, CFO: The 1P platform migration allows us to offer new media content, such as video, and enables vendors to onboard content more easily. This transition supports off-site ads and enhances our ability to reach the 3% net sales target for sponsored ads, providing multiple benefits, including cost savings from not using third-party platforms.

Q: What are the expectations for marketing expenses as a percentage of revenue in 2025, and could any quarters exceed 7%? A: David Reeder, CFO: We expect marketing expenses to remain within the 6-7% range of net sales for 2025, consistent with previous years. While specific quarters may vary slightly due to campaign timing, we anticipate staying within this range overall.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.