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Chewy Announces Fourth Quarter and Full Year 2019 Financial Results

CHWY | April 2, 2020

DANIA BEACH, Fla.

Chewy, Inc. (NYSE: CHWY) (“Chewy”), a trusted online destination for pet parents, has released its financial results for the fourth quarter and full year 2019 ended February 2, 2020, and posted a letter to its shareholders on its investor relations website at https://investor.chewy.com.

Fiscal Q4 2019 Highlights:

Net sales of $1.35 billion grew 35 percent year-over-year on a 13-week to 13-week basis(1)
Gross margin of 24.1 percent expanded 320 basis points year-over-year
Net loss of $60.9 million, including share-based compensation expense of $45.9 million
Adjusted EBITDA(2) loss of $5.8 million improved 89 percent year-over-year
Adjusted EBITDA margin(2) of (0.4) percent improved 470 basis points year-over-year

Fiscal 2019 Highlights:

Net sales of $4.85 billion grew 40 percent year-over-year on a 52-week to 52-week basis(3)
Gross margin of 23.6 percent expanded 340 basis points year-over-year
Net loss of $252.4 million, including share-based compensation expense of $136.2 million
Adjusted EBITDA(2) loss of $81.0 million improved 65 percent year-over-year
Adjusted EBITDA margin(2) of (1.7) percent improved 480 basis points year-over-year

“We completed 2019 with strong fourth quarter results, delivering net sales growth of 35 percent and expanding our gross margins by 320 basis points,” said Sumit Singh, Chief Executive Officer of Chewy. “While 2019 closed on a high note, and 2020 got off to a strong start, the world changed dramatically with the coronavirus outbreak. In times like these, we know how special and comforting the bond is between humans and pets, and we devote ourselves every day to supporting those special relationships. We are here, 24/7, caring for the safety and well-being of our team members and meeting the increased shop-at-home needs of our customers, staying true to our mission of being the most trusted and convenient online destination for pet parents everywhere.”

Management will host a conference call and webcast to discuss Chewy's financial results today at 5:00 pm ET.

Chewy Fourth Quarter and Full Year 2019 Financial Results Conference Call
When: Thursday, April 2, 2020
Time: 5:00 pm ET
Conference ID: 5456308
Live Call: (866) 393-4306 (US/Canada Toll-Free) or (734) 385-2616 (International)
Replay: (855) 859-2056 (US/Canada Toll-Free) or (404) 537-3406 (International)
(The replay will be available approximately two hours after the completion of the live call until 11:59 pm ET on April 9, 2020.)
Webcast:https://investor.chewy.com


(1)	On an “as reported” basis, which includes the impact of the 14th week in Q4 2018, net sales growth was 24.5 percent.
(2)	Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.
(3)	On an “as reported” basis, which includes the impact of the 53rd week in fiscal 2018, net sales growth was 37.2 percent.

About Chewy

Our mission is to be the most trusted and convenient online destination for pet parents everywhere. We believe that we are the preeminent online source for pet products, supplies and prescriptions as a result of our broad selection of high-quality products, which we offer at competitive prices and deliver with an exceptional level of care and a personal touch. We continually develop innovative ways for our customers to engage with us, and partner with more than 2,000 of the best and most trusted brands in the pet industry to bring a high-bar, customer-centric experience to our customers.

Forward-Looking Statements

This communication contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this communication, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning our ability to: successfully manage the risks relating to the spread of Coronavirus, sustain our recent growth rates and manage our growth effectively; acquire new customers in a cost-effective manner and increase our net sales per active customer; accurately predict economic conditions and their impact on consumer spending patterns, particularly in the pet products market, and accurately forecast net sales and appropriately plan our expenses in the future; introduce new products or offerings and improve existing products; successfully compete in the pet products and services retail industry, especially in the e-commerce sector; source additional, or strengthen our existing relationships with, suppliers; negotiate acceptable pricing and other terms with third-party service providers, suppliers and outsourcing partners and maintain our relationships with such entities; optimize, operate and manage the expansion of the capacity of our fulfillment centers; provide our customers with a cost-effective platform that is able to respond and adapt to rapid changes in technology; maintain adequate cybersecurity with respect to our systems and ensure that our third-party service providers do the same with respect to their systems; successfully manufacture and sell our own private brand products; maintain consumer confidence in the safety and quality of our vendor-supplied and private brand food products and hardgood products; comply with existing or future laws and regulations in a cost-efficient manner; attract, develop, motivate and retain well-qualified employees; and adequately protect our intellectual property rights and successfully defend ourselves against any intellectual property infringement claims or other allegations that we may be subject to.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this communication primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in our filings with the Securities and Exchange Commission and elsewhere in this communication. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this communication. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this communication. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. The forward-looking statements made in this communication relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this communication to reflect events or circumstances after the date of this communication or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this earnings release adjusted EBITDA, a non-GAAP financial measure that we calculate as net loss excluding depreciation and amortization; share-based compensation expense and related taxes; income tax provision; interest income (expense), net; management fee expense; transaction and other costs. We have provided a reconciliation below of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

We have included adjusted EBITDA in this earnings release because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and certain variable charges. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

We believe it is useful to exclude non-cash charges, such as depreciation and amortization, share-based compensation expense and management fee expense from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision; interest income (expense), net; and transaction and other costs as these items are not components of our core business operations. Adjusted EBITDA has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures;
adjusted EBITDA does not reflect share-based compensation and related taxes. Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy;
adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital;
adjusted EBITDA does not reflect transaction and other costs which are generally incremental costs that result from an actual or planned transaction and include transaction costs (i.e. IPO costs), integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results.

The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated.


($ in thousands, except percentages)	13 Weeks Ended			14 Weeks Ended			52 Weeks Ended			53 Weeks Ended
Reconciliation of Net Loss to Adjusted EBITDA	February 2, 2020			February 3, 2019			February 2, 2020			February 3, 2019
Net loss	$	(60,940	)	$	(66,344	)	$	(252,370	)	$	(267,890	)
Add (deduct):
Depreciation and amortization		7,929			6,825			30,645			23,210
Share-based compensation expense and related taxes		45,876			3,804			136,237			14,351
Interest expense (income), net		343			34			(356	)		124
Management fee expense(1)		325			325			1,300			1,300
Transaction related costs		—			—			1,396			—
Other		619			—			2,123			—
Adjusted EBITDA	$	(5,848	)	$	(55,356	)	$	(81,025	)	$	(228,905	)
Net sales	$	1,354,525		$	1,088,158		$	4,846,743		$	3,532,837
Adjusted EBITDA margin		(0.4	)%		(5.1	)%		(1.7	)%		(6.5	)%

(1)Management fee expense allocated to us by PetSmart for organizational oversight and certain limited corporate functions provided by its sponsors. Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our consolidated financial statements.