chwy-20231029

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-38936

CHEWY, INC.

(Exact name of registrant as specified in its charter)


Delaware						90-1020167
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
7700 West Sunrise Boulevard, Plantation, Florida						33322
(Address of principal executive offices)						(Zip Code)

(786) 320-7111

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share	CHWY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


Class						Outstanding as of November 29, 2023
Class A Common Stock, $0.01 par value per share						120,217,588
Class B Common Stock, $0.01 par value per share						311,188,356

CHEWY, INC.

FORM 10-Q

For the Quarterly Period Ended October 29, 2023

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of October 29 , 2023 and January 29, 2023	3
	Condensed Consolidated Statements of Operations for the Thirteen and T hirty -Nine Weeks Ended October 29 , 2023 and October 3 0 , 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen and T hirty -Nine Weeks Ended October 29 , 2023 and October 3 0 , 2022	5
	Condensed Consolidated Statements of Cash Flows for the T hirty -Nine Weeks Ended October 29 , 2023 and October 30 , 2022	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31

Item 5.	Other Information	31
Item 6.	Exhibits	32
	SIGNATURES	33

PART I. FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, 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,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “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:

•sustain our recent growth rates and successfully manage challenges to our future growth, including introducing new products or services, improving existing products and services, and expanding into new offerings;

•successfully manage risks related to the macroeconomic environment, including any adverse impacts on our business operations, financial performance, supply chain, workforce, facilities, customer services and operations;

•acquire and retain new customers in a cost-effective manner and increase our net sales, improve margins and maintain profitability;

•manage our growth effectively;

•maintain positive perceptions of our company and preserve, grow and leverage the value of our reputation and our brand;

•limit operating losses as we continue to expand our business;

•forecast net sales and appropriately plan our expenses in the future;

•estimate the size of our addressable market;

•strengthen our current supplier relationships, retain key suppliers and source additional suppliers;

•negotiate acceptable pricing and other terms with third-party service providers, suppliers and outsourcing partners and maintain our relationships with such parties;

•mitigate changes in, or disruptions to, our shipping arrangements and operations;

•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;

•limit our losses related to online payment methods;

•maintain and scale our technology, including the reliability of our website, mobile applications, and network infrastructure;

•maintain adequate cybersecurity with respect to our systems and ensure that our third-party service providers do the same with respect to their systems;

•maintain consumer confidence in the safety, quality and health of our products;

•limit risks associated with our suppliers and our outsourcing partners;

•comply with existing or future laws and regulations in a cost-efficient manner;

•compete with other retailers and service providers;

•utilize tax attributes, net operating loss and tax credit carryforwards, and limit fluctuations in our tax obligations and effective tax rate;

•adequately protect our intellectual property rights;

•successfully defend ourselves against any allegations or claims that we may be subject to;

•attract, develop, motivate and retain highly-qualified and skilled employees;

•predict and respond to economic conditions, industry trends, and market conditions, and their impact on the pet products market;

•reduce merchandise returns or refunds;

•respond to severe weather and limit disruption to normal business operations;

•manage new acquisitions, investments or alliances, and integrate them into our existing business;

•successfully compete in the pet insurance market;

•manage challenges presented by international markets;

•successfully compete in the pet products and services health and retail industry, especially in the e-commerce sector;

•raise capital as needed; and

•maintain effective internal control over financial reporting and disclosure controls and procedures.

You should not rely on forward-looking statements as predictions of future events, and you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of factors. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current assumptions, 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 the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023, our subsequent quarterly reports, and elsewhere in this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, this 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q 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.

Investors and others should note that we may announce material information to our investors using our investor relations website (https://investor.chewy.com/), filings with the Securities and Exchange Commission (the “SEC”), press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on these channels could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.

Item 1. Financial Statements (Unaudited)

CHEWY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	As of
	October 29, 2023		January 29, 2023
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	469,409	$	330,441
Marketable securities	487,772		346,944
Accounts receivable	160,980		126,349
Inventories	712,053		675,520
Prepaid expenses and other current assets	52,713		41,067
Total current assets	1,882,927		1,520,321
Property and equipment, net	514,701		478,738
Operating lease right-of-use assets	473,529		423,423
Goodwill	39,442		39,442
Other non-current assets	25,883		53,152
Total assets	$	2,936,482	$	2,515,076
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	1,078,429	$	1,030,882
Accrued expenses and other current liabilities	886,259		738,467
Total current liabilities	1,964,688		1,769,349
Operating lease liabilities	526,994		471,765
Other long-term liabilities	51,633		60,005
Total liabilities	2,543,315		2,301,119
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding as of October 29, 2023 and January 29, 2023	—		—
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 119,950,022 and 114,160,531 shares issued and outstanding as of October 29, 2023 and January 29, 2023, respectively	1,199		1,141
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 shares issued and outstanding as of October 29, 2023 and January 29, 2023	3,112		3,112
Additional paid-in capital	2,345,082		2,171,247
Accumulated deficit	(1,956,226)		(1,961,543)

Total stockholders’ equity	393,167		213,957
Total liabilities and stockholders’ equity	$	2,936,482	$	2,515,076

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)


	13 Weeks Ended				39 Weeks Ended
	October 29, 2023		October 30, 2022		October 29, 2023		October 30, 2022
Net sales	$	2,738,611	$	2,532,122	$	8,301,055	$	7,391,460
Cost of goods sold	1,957,850		1,811,945		5,942,066		5,320,666
Gross profit	780,761		720,177		2,358,989		2,070,794
Operating expenses:
Selling, general and administrative	611,718		543,532		1,814,586		1,564,798
Advertising and marketing	179,200		177,079		548,424		465,959
Total operating expenses	790,918		720,611		2,363,010		2,030,757
(Loss) income from operations	(10,157)		(434)		(4,021)		40,037
Interest income, net	10,173		2,745		27,117		3,091
Other expense, net	(34,122)		—		(13,768)		—
(Loss) income before income tax provision	(34,106)		2,311		9,328		43,128
Income tax provision	1,704		—		4,011		—
Net (loss) income	$	(35,810)	$	2,311	$	5,317	$	43,128

(Loss) earnings per share attributable to common Class A and Class B stockholders:
Basic	$	(0.08)	$	0.01	$	0.01	$	0.10
Diluted	$	(0.08)	$	0.01	$	0.01	$	0.10
Weighted-average common shares used in computing (loss) earnings per share:
Basic	430,758		422,898		428,743		421,665
Diluted	430,758		428,125		431,406		427,223

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	13 Weeks Ended October 29, 2023
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of July 30, 2023	429,718	$	4,297	$	2,280,748	$	(1,920,416)	$	364,629

Share-based compensation expense	—	—		64,348		—		64,348
Vesting of share-based compensation awards	1,420	14		(14)		—		—


Net loss	—	—		—		(35,810)		(35,810)

Balance as of October 29, 2023	431,138	$	4,311	$	2,345,082	$	(1,956,226)	$	393,167


	13 Weeks Ended October 30, 2022
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of July 31, 2022	422,647	$	4,226	$	2,083,123	$	(1,969,958)	$	117,391

Share-based compensation expense	—	—		45,530		—		45,530
Vesting of share-based compensation awards	448	5		(5)		—		—

Tax withholdings for share-based compensation awards	—	—		(3)		—		(3)
Tax sharing agreement with related parties	—	—		(1,274)		—		(1,274)
Net income	—	—		—		2,311		2,311
Balance as of October 30, 2022	423,095	$	4,231	$	2,127,371	$	(1,967,647)	$	163,955

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	39 Weeks Ended October 29, 2023
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 29, 2023	425,349	$	4,253	$	2,171,247	$	(1,961,543)	$	213,957

Share-based compensation expense	—	—		178,897		—		178,897
Vesting of share-based compensation awards	5,696	57		(57)		—		—
Distribution to parent	93	1		(1)		—		—
Tax withholdings for share-based compensation awards	—	—		(5)		—		(5)
Tax sharing agreement with related parties	—	—		(4,999)		—		(4,999)
Net income	—	—		—		5,317		5,317

Balance as of October 29, 2023	431,138	$	4,311	$	2,345,082	$	(1,956,226)	$	393,167


	39 Weeks Ended October 30, 2022
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 30, 2022	420,106	$	4,201	$	2,021,310	$	(2,010,775)	$	14,736

Share-based compensation expense	—	—		109,701		—		109,701
Vesting of share-based compensation awards	2,949	30		(30)		—		—
Distribution to parent	93	1		(1)		—		—
Tax withholdings for share-based compensation awards	(53)	(1)		(2,474)		—		(2,475)
Tax sharing agreement with related parties	—	—		(1,135)		—		(1,135)

Net income	—	—		—		43,128		43,128
Balance as of October 30, 2022	423,095	$	4,231	$	2,127,371	$	(1,967,647)	$	163,955

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	39 Weeks Ended
	October 29, 2023		October 30, 2022
Cash flows from operating activities
Net income	$	5,317	$	43,128
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	82,195		60,696
Share-based compensation expense	178,897		109,701
Non-cash lease expense	29,371		29,286
Change in fair value of equity warrants and investments	13,589		—
Other	3,810		840
Net change in operating assets and liabilities:
Accounts receivable	(34,631)		(3,453)
Inventories	(36,533)		(118,719)
Prepaid expenses and other current assets	(27,363)		(6,237)
Other non-current assets	(1,337)		(44,220)
Trade accounts payable	47,547		108,635
Accrued expenses and other current liabilities	144,599		42,306
Operating lease liabilities	(19,774)		(15,790)
Other long-term liabilities	1,669		42,847
Net cash provided by operating activities	387,356		249,020
Cash flows from investing activities
Capital expenditures	(110,898)		(171,841)

Cash paid for acquisition of business, net of cash acquired	(367)		—
Purchases of marketable securities	(876,189)		(296,624)
Proceeds from maturities of marketable securities	750,000		—
Other	—		(1,400)
Net cash used in investing activities	(237,454)		(469,865)
Cash flows from financing activities


Payments for tax sharing agreement with related parties	(10,279)		(1,040)
Principal repayments of finance lease obligations	(475)		(492)
Payment of debt modification costs	(175)		—

Payments for tax withholdings related to vesting of share-based compensation awards	(5)		(2,475)
Net cash used in financing activities	(10,934)		(4,007)

Net increase (decrease) in cash and cash equivalents	138,968		(224,852)
Cash and cash equivalents, as of beginning of period	330,441		603,079
Cash and cash equivalents, as of end of period	$	469,409	$	378,227

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Description of Business

Chewy, Inc. and its wholly-owned subsidiaries (collectively “Chewy” or the “Company”) is a pure play e-commerce business geared toward pet products and services for dogs, cats, fish, birds, small pets, horses, and reptiles. Chewy serves its customers through its retail website, www.chewy.com, and its mobile applications, and focuses on delivering exceptional customer service, competitive prices, outstanding convenience (including Chewy’s Autoship subscription program, fast shipping, and hassle-free returns), and a large selection of high-quality pet food, treats and supplies, and pet healthcare products.

The Company is controlled by a consortium including private investment funds advised by BC Partners Advisors LP (“BC Partners”) and its affiliates, La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP, and funds advised by Longview Asset Management, LLC (collectively, the “Sponsors”). The Company was controlled by PetSmart LLC (“PetSmart”), a wholly-owned subsidiary of the Sponsors through February 11, 2021.

On October 30, 2023 (the “Closing Date”), the Company entered into certain transactions (the “Transactions”) with affiliates of BC Partners pursuant to an Agreement and Plan of Merger (the “Merger Agreement”). The Transactions resulted in such affiliates restructuring their ownership interests in the Company and Chewy Pharmacy KY, LLC (“Chewy Pharmacy KY”) becoming an indirect wholly-owned subsidiary of the Company.

Contemporaneously with the execution and delivery of the Merger Agreement, the Company and the BC Partners-affiliated stockholders named therein (the “BCP Stockholder Parties”) entered into an Amended and Restated Investor Rights Agreement (the “A&R Investor Rights Agreement”), which amended and restated in its entirety that certain Investor Rights Agreement, dated as of June 13, 2019, by and among the Company and the stockholders identified therein. The A&R Investor Rights Agreement contains changes to the governing arrangements between the BCP Stockholder Parties and the Company, including (i) the gradual elimination of the Company’s dual class share structure through the conversion of the Company’s Class B common stock (ten votes per share) into Class A common stock (one vote per share), (ii) certain revisions to the BCP Stockholder Parties director nomination rights which will accelerate the step down of their nomination rights as the economic ownership of the BCP Stockholder Parties decreases following the date that such stockholders no longer hold an aggregate of over 50% of the outstanding Class A and Class B common stock of the Company, (iii) the approval of a disinterested and independent committee of the Company’s board of directors for certain change of control transactions, (iv) certain standstill commitments, and (v) additional transfer restrictions.

On the Closing Date, affiliates of BC Partners transferred $1.9 billion to the Company to be used to fund: (i) tax obligations of its affiliates that were inherited by the Company as a result of the Transactions and (ii) expenses incurred by the Company in connection with the Transactions. The Company is evaluating the related tax obligations and an estimate is currently unavailable. The Merger Agreement requires affiliates of BC Partners to indemnify the Company for certain tax liabilities and includes customary indemnifications related to the Transactions.

2. Basis of Presentation and Significant Accounting Policies

SEC Form 10-Q filed by Chewy Inc.