Chewy, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 1, 2022, compared with the 13 weeks ended May 2, 2021. Although the request metadata labels this “2021 Q1,” the filing itself reports first-quarter fiscal 2022 results.
Business and financial results
Chewy is an e-commerce retailer of pet products and services, including consumables, hardgoods, healthcare and its Autoship subscription program.
| Metric | 13 weeks ended May 1, 2022 | 13 weeks ended May 2, 2021 | Change |
|---|---|---|---|
| Net sales | $2.428 billion | $2.135 billion | +13.7% |
| Gross profit / margin | $667.8 million / 27.5% | $589.8 million / 27.6% | Profit +13.2% |
| Operating income / margin | $18.8 million / 0.8% | $39.1 million / 1.8% | -51.9% |
| Net income / margin | $18.5 million / 0.8% | $38.7 million / 1.8% | -52.3% |
| Adjusted EBITDA / margin | $60.5 million / 2.5% | $77.4 million / 3.6% | -21.8% |
| Operating cash flow | $82.4 million | $98.4 million | -16.2% |
| Capital expenditures | $76.0 million | $38.9 million | Higher investment |
| Free cash flow | $6.4 million | $59.5 million | -89.2% |
Cash and cash equivalents were $604.8 million at May 1, 2022. The company had no borrowings under its ABL revolving credit facility and reported $450.3 million of available borrowing capacity. Current liabilities were $1.698 billion versus current assets of $1.389 billion. Total liabilities were $2.131 billion, including $436.0 million of operating lease liabilities; the filing reports no outstanding ABL debt.
Changes and operating trends
- Sales growth reflected higher spending per customer and a 4.2% increase in active customers to 20.6 million. Net sales per active customer rose 14.9% to $446.
- Autoship customer sales increased 18.5% to $1.754 billion and represented 72.2% of net sales, up from 69.3%.
- Consumables sales rose 16.7% and other sales rose 23.1%; hardgoods sales fell 8.0%.
- Gross margin was nearly flat: price increases in part of the catalog helped offset higher product and transportation costs. SG&A rose 24.1%, faster than sales, including higher fulfillment, labor, facilities, technology and growth-related costs.
- Capital spending increased, primarily for new fulfillment centers and IT investments. Inventory increased $37.8 million during the quarter, while higher payables supported operating cash flow.
Outlook, risks and contingencies
The company provided no specific numeric earnings or sales guidance in this filing. Management said cash, cash equivalents and revolving-credit availability should be sufficient for working capital, capital expenditures and contractual obligations for at least the next 12 months.
Management cited challenging fulfillment labor markets, supply-chain shortages and disruptions, and inflation as factors affecting costs, sales and margins. The company continued to monitor COVID-19 effects but said the duration and ultimate business impact remained difficult to predict. Other stated risks include competition, customer acquisition and retention, supplier and shipping disruptions, fulfillment capacity, cybersecurity and technology reliability.
In an IBM patent dispute, the court ruled for Chewy on April 11, 2022, finding no infringement of three patents and invalidating a fourth. IBM appealed on April 29; Chewy said it would continue to defend itself. The company stated that it had accrued for probable and reasonably estimable legal losses and did not expect pending matters to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
Important facts for investors to verify
- Whether sales growth and Autoship momentum persist as active-customer growth remains more modest than spending-per-customer growth.
- Whether higher fulfillment, labor, freight and other operating costs continue to pressure margins.
- Whether capital expenditures and working-capital needs constrain free cash flow.
- Progress and outcome of IBM’s appeal, and any material developments in other legal matters.
- That adjusted EBITDA and free cash flow are non-GAAP measures; review their reconciliations and limitations alongside GAAP results.