The call begins with a welcome and an introduction to the speakers, followed by an overview of Chewie's first quarter financial results for fiscal year 2025. The presentation and earnings release are made available online. Discussion includes forward-looking statements, non-GAAP financial measures, and risks associated with the company's performance. The call concludes with an announcement about the webcast and replay availability.

Chewie reported a strong start to 2025, with Q1 net sales exceeding guidance by increasing over 8% to $3.12 billion, driven by new and existing customers across various offerings. Auto ship sales reached a record high, representing 82% of Q1 net sales and growing nearly 15%. Active customer base grew to 20.8 million, reflecting 3.8% year-over-year growth. Gross margin expanded by approximately 60 basis points year-over-year, and adjusted EBITDA margin increased by about 120 basis points. The company also generated nearly $50 million in free cash flow and deployed $23.2 million toward share repurchases. Strategic initiatives including Chewie Vet Care, sponsored ad business, and the Chewie Plus membership program showed promising progress.

In the first quarter of 2025, Chewie reported an 8.3% year-over-year net sales growth to $3.12 billion, exceeding guidance. Active customer growth increased by 3.8%, reaching 20.8 million customers. Auto ship customer sales grew by 14.8% to $2.56 billion, representing 82.2% of total net sales. Gross margin expanded by approximately 60 basis points year-over-year, and adjusted net income rose 8.6% to $148.9 million. Adjusted EBITDA margin saw a 50 basis point year-over-year expansion to 6.2%, with a free cash flow of $48.7 million.

The company reports first-quarter financials, including $23.2 million spent on share repurchases and a strong liquidity position. It forecasts second-quarter net sales between $3.06-$3.09 billion and full-year net sales between $12.3-$12.45 billion. Adjusted EBITDA margin outlook for the full year is 5.4%-5.7%, with an expectation of 75 basis points year-over-year margin expansion. The company anticipates continued investment in business growth and shareholder returns, maintaining a debt-free status. Leadership expresses confidence in the company's strategy and team, despite the bittersweet nature of an impending leadership change.

The company is experiencing low single-digit growth in customer accounts, driven by strong execution and efforts rather than market normalization. Industry growth is estimated at 3-4%, with the company aiming to grow at twice the market rate through active ad growth and increased share of wallet. Household formation remains flat, and pricing strategies are not significantly impacted by inflation, although the industry may adjust pricing in response to tariffs on discretionary categories.

The company discusses its progress and strategy regarding sponsored ads, emphasizing the successful first-party platform migration enabling support for new content formats, self-service, and both onsite and offsite advertising. The dialogue highlights increasing demand for offsite opportunities and the continuation of positive momentum into 2025, with an expectation for a strong year in sponsored advertising.

The focus in 2025 is on expanding the product suite into social and off-site categories, building on previous success in the consumables sector. Efforts are concentrated on increasing supply, enhancing utilization rates, and maintaining high ROI expectations through close alignment with partners. Additionally, a key platform is being developed to improve supplier experience and analytics capabilities, aiming to flow a greater portion to the bottom line while maintaining high margins, albeit slightly lower for off-site products.

The discussion focuses on the sustainability of active customer growth, highlighting improved retention rates and new marketing strategies. Key factors include a broader marketing funnel, product enhancements, and an increasing mix of auto-ship and repeatable category sales, leading to improved reorder rates and confidence in future revenue growth.

The dialogue discusses the successful expansion of Chewie Plus, a loyalty program offering benefits like free shipping and rewards, noting increased membership growth, active sessions, orders frequency, and cross-category penetration. Early results show strong net sales growth and incremental contribution profit, with plans to continue ramping up membership while maintaining discipline on contribution profit. Additional loyalty programs, including auto ship, also show significant engagement and growth, contributing to overall active customer growth and optimism for the year.

The company has seen a significant increase in auto ship customer sales from 66% to 82% since the IPO, attributed to improved acquisition, retention strategies, and a personalized digital experience. Additionally, hard goods growth at 12% is driven by a focus on assortment freshness, better inventory lifecycle management, enhanced discoverability, and personalized website experiences, with notable successes across all subcategories due to active customer growth and refreshed assortment.

Chewy reports strong momentum and market share gains, capturing more of the dollars moving online than in previous quarters. Gross margins within the core business are queried, with inquiries about potential changes or promotions affecting margins, alongside questions on operating expenses and the impact of automation efforts on leverage.

The company reported a successful Q1 with a gross margin that expanded over 60 basis points year over year on a normalized basis, excluding one-time benefits from the previous year. Gross margin growth was the single biggest contributor to the EBITDA increase, with sponsored ads and product mix accretion following. The company expects a sequential increase in gross margin from Q1 to Q2 and anticipates that the majority of the year-over-year EBITDA increase will be driven by gross margin improvements. Operating expenses were also managed effectively, with a focus on leveraging Opex lines and maintaining consistent advertising and marketing expenses.

Chewy is taking a measured approach to expanding its vet clinic services, with plans to add approximately 10 clinics in 2025, bringing the total to the high teens. The company is pleased with the performance of existing clinics, noting strong booking rates and higher-than-expected new customer acquisition. About half of new customers introduced to Chewy through the vet clinics make additional purchases from the website within 30 days. The expansion into vet services opens up a significant market opportunity, estimated at over $20 billion, and also boosts the pharmacy business. Chewy is excited about contributing to and benefiting from the growing pet health sector, including newer technologies like telehealth and software solutions. The vet clinic expansion is seen as a defensible mode of customer engagement, similar to auto ship and 2E plus programs, allowing customers to discover Chewy in new ways and increasing share of wallet.

Chewy discusses the lack of significant inflation in the pet industry despite tariffs, noting continued trends toward premiumization driven by pet humanization. They also highlight equal growth in both dog and cat product sales.