Chewy Inc. Reports Strong Q1 Growth Amid Challenges

Chewy Inc ((CHWY)) has held its Q1 earnings call. Read on for the main highlights of the call.

Chewy Inc. recently held its first-quarter earnings call, revealing a generally positive sentiment with strong sales growth, increased customer engagement, and operational efficiency. The company highlighted successes in its AutoShip program, sponsored ads, and Chewy Vet Care expansion. However, there were some concerns regarding the impacts of one-time items on prior year results, anticipated declines in adjusted EBITDA margin, and potential tariff impacts, which tempered the overall outlook.

Record First Quarter Net Sales

Chewy reported record net sales for the first quarter, exceeding the high end of its guidance with an impressive 8% growth to $3.12 billion. This achievement was driven by strong participation from both new and existing customers, showcasing the company’s ability to attract and retain its customer base.

Significant Growth in AutoShip Program

The AutoShip program saw remarkable growth, with first-quarter sales reaching $2.56 billion, accounting for approximately 82% of total net sales. This represents a 14.8% increase from the previous year, highlighting the program’s importance in driving consistent revenue for Chewy.

Increase in Active Customers

Chewy ended the first quarter with 20.8 million active customers, marking a 3.8% year-over-year growth and an increase of about 240,000 customers sequentially. This growth underscores the company’s success in expanding its customer base and enhancing customer engagement.

Adjusted EBITDA Growth

The company reported $192.7 million in adjusted EBITDA, reflecting a 6.2% margin and a year-over-year increase of approximately 50 basis points. This growth in adjusted EBITDA indicates improved operational efficiency and profitability.

Chewy Vet Care Expansion

Chewy continued to expand its Chewy Vet Care practices, opening three new locations and bringing the total to 11 across four states. The company plans to open 8 to 10 new clinics in fiscal year 2025, aiming to enhance its service offerings and customer loyalty.

Successful Sponsored Ads Business

The sponsored ads business experienced sequential growth, benefiting from the transition to a first-party platform and the expansion of off-site ads. This growth reflects Chewy’s strategic efforts to diversify its revenue streams.

Impact of One-Time Items on Prior Year Comparison

The previous year’s results were positively impacted by approximately 70 basis points of one-time items, affecting year-over-year comparisons. This factor should be considered when evaluating the company’s performance.

Expected Sequential Declines in Adjusted EBITDA Margin

Despite strong first-quarter results, Chewy anticipates modest sequential declines in adjusted EBITDA margin throughout the year due to typical seasonality and the timing of investments. This outlook suggests a cautious approach to future profitability.

Tariff Concerns

Chewy noted potential impacts from tariffs on hard goods and discretionary categories, though minimal expected impact is embedded in the 2025 guidance. The company remains vigilant in monitoring these external factors.

Forward-Looking Guidance

Looking ahead, Chewy maintained its full-year 2025 net sales outlook of $12.3 billion to $12.45 billion, projecting 6% to 7% growth after adjusting for the 53rd week in fiscal 2024. The adjusted EBITDA margin for the full year is anticipated to be between 5.4% and 5.7%, with significant margin expansion driven by improvements in gross margin. Chewy also expects 80% of adjusted EBITDA to convert into free cash flow, translating to approximately $550 million. Strategic initiatives like the Chewy Vet Care expansion and the Chewy Plus membership program are expected to drive long-term growth and customer loyalty.

In summary, Chewy’s first-quarter earnings call highlighted strong sales growth and customer engagement, with notable successes in the AutoShip program and Chewy Vet Care expansion. While the outlook is tempered by concerns over one-time items and potential tariff impacts, the company’s strategic initiatives and forward-looking guidance suggest a promising path for sustained growth and profitability.