Chewy Inc ((CHWY)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Chewy Inc. was marked by a predominantly positive sentiment, highlighting significant revenue growth, improved profitability, and the strong performance of strategic initiatives such as Chewy+ and health services. Despite these successes, the company acknowledged challenges with SG&A costs and anticipated margin pressures in the upcoming quarter.
Strong Revenue Growth
Chewy Inc. reported impressive revenue growth in Q3, with net sales increasing by over 8% year-over-year to $3.12 billion, surpassing the high end of their guidance. The Autoship customer sales also saw a notable rise, increasing by 13.6% to $2.61 billion, underscoring the company’s robust sales momentum.
Improved Profitability
The company achieved a significant improvement in profitability, with adjusted EBITDA reaching $181 million, marking a 30% increase from the previous year. The adjusted EBITDA margin expanded by 100 basis points to 5.8%, reflecting Chewy’s effective cost management and operational efficiency.
Free Cash Flow Surge
Chewy generated approximately $176 million in free cash flow during the quarter, representing a substantial increase of nearly $70 million sequentially. This surge in free cash flow highlights the company’s strong financial health and ability to generate cash from operations.
Chewy+ Membership Program Success
The Chewy+ membership program continues to exceed expectations, driving higher order frequency and increased category engagement. The company successfully raised the annual fee from $49 to $79, with strong conversion retention, indicating customer satisfaction and loyalty.
Expansion of Health Services
Chewy’s expansion into health services is progressing well, with Chewy Vet Care (CVC) surpassing expectations. The company opened two additional practices, bringing the total to 14 locations, demonstrating its commitment to growing its health offerings.
SG&A Challenges
Despite the positive financial performance, Chewy faced challenges with SG&A costs. Excluding share-based compensation and related taxes, SG&A expenses were $588.6 million or 18.9% of net sales, including $2.7 million of one-time transaction costs, indicating areas for potential cost optimization.
Q4 Margins Forecasted to Decline
Looking ahead, Chewy anticipates a decline in Q4 EBITDA margins due to higher promotional levels and increased media rates. This forecast suggests that the company may face some profitability pressures in the short term.
Forward-Looking Guidance
Chewy’s forward-looking guidance remains optimistic, with the company narrowing its full-year 2025 net sales outlook to between $12.58 billion and $12.6 billion, reflecting an 8% year-over-year growth. The adjusted EBITDA margin outlook is set at 5.6% to 5.7%. The company continues to focus on expanding its health offerings, with the acquisition of Smart Equine expected to enhance its premium health segment.
In summary, Chewy Inc.’s earnings call conveyed a largely positive outlook, with strong revenue growth and improved profitability leading the highlights. While challenges with SG&A costs and anticipated margin pressures in Q4 were noted, the company’s strategic initiatives, particularly in health services and the Chewy+ program, continue to drive success. Investors and stakeholders can remain optimistic about Chewy’s future prospects as it navigates these challenges and opportunities.