PLANTATION, FLA. — Chewy, Inc. is padding its full-year net sales expectations for fiscal 2023 to account for a challenging macroeconomic environment for consumers. Despite this trend, the company continues to convert new customers to subscription-based customers and entice increased autoship spending, particularly in nondiscretionary categories such as pet food and healthcare.

For the third quarter ended Oct. 29, the retailer reported a net loss of $35.8 million, attributed to share-based compensation and $65.8 million in related taxes, the company shared. Net sales were $2.74 billion, up 8.2% year-over-year, and gross margin improved 10 basis points to 28.5%. Adjusted EBITDA for the third quarter was $82.1 million, up 16.7% year-over-year.

“Chewy continues to gain market share, with third quarter net sales increasing 8% against industry growth in the low single digits,” said Sumit Singh, chief executive officer of Chewy. “Our team also continues to execute admirably, as reflected by another strong quarter of 28.5% gross margin and 3.0% adjusted EBITDA margin profitability.”

Active customers were down slightly (-1.3%) to 20.3 million in the third quarter, but net sales per active customer continues to rise. This figure reached $543 per customer in the third quarter, representing a year-over-year growth of 13.8% and marking an all-time high for the metric. Additionally, Chewy’s autoship program continues to be a major tailwind for the company, accounting for 76.4% of total net sales in the third quarter.

“The loyalty and spending resiliency of our autoship customers remains unabated with no changes to their ordering behavior,” Singh said in the company’s third-quarter earnings call on Dec. 6. “Additionally, our conversion of new customers into autoship continues at a healthy rate.”

The company’s Consumables — including pet food, treats and supplements — and Healthcare categories made up 85% of net sales over the quarter.

Chewy’s expansion into the Canadian market in September is already reaping promising results, according to the company.

“Initial customer demand has been strong,” Singh said. “Autoship signup rates are healthy, our delivery experience is compelling and customer satisfaction is high. While it is early, we are pleased with our progress in market thus far with key indicators of success pointing towards a bullish future.”

With Black Friday and Cyber Monday in the books, Chewy shared its November holiday sales performance in addition to its third-quarter performance. The company saw higher-than-average new customer acquisition during the holiday sales period following Thanksgiving, as well as sales and traffic that exceeded its expectations, Singh shared.

Continued strategic planning has led the company to downsize its workforce in certain areas.

“This decision was carefully considered as part of our ongoing focus on becoming an ever more agile and disciplined company, and aligns our efforts into priorities, which we believe will gain us the most significant customer wins and generate the highest business return,” Singh said. “…As we head into 2024, we expect these actions to create room for us to continue investing behind our growth initiatives.”

Singh noted the company will continue to invest strategically to support continued growth of the business.

“Capital expenditures continue to be comprised primarily of automated fulfillment center investments and ongoing technology projects,” said Stacy Bowman, interim chief financial officer.

Chewy also announced the appointment of David Reeder to CFO. Reeder offers a range of operational and financial experience from previous roles with GlobalFoundries, Lexmark, Cisco and Broadcom, to name a few.

“I look forward to working with Dave as we continue to execute against the many compelling growth and margin opportunities across our ecosystem,” Singh said. “I would also like to thank Stacy for all that she has done to support me and the Chewy team in her role as interim CFO.”

Bowman has been serving as interim CFO since July 28 following the retirement of former CFO Mario Marte. When Reeder officially assumes the CFO role in early 2024, Bowman will return to her previous role as chief accounting officer.

In light of its third-quarter performance, Chewy has updated its fourth-quarter and full-year guidance for fiscal 2023.

“While we remain confident in the overall resilience of the pet category as well as Chewy’s ability to deliver growth above industry average, in light of the near-term macro environment, we are updating our topline guidance as we head into year-end,” Bowman said.

Fourth quarter net sales are expected between $2.78 billion and $2.8 billion, which would represent year-over-year growth of roughly 3%. The company has softened its full-year 2023 net sales guidance, now projecting sales between $11.08 billion and $11.1 billion, which would represent 10% growth over 2022. This is compared to previous net sales expectations between $11.15 billion and $11.25 billion.

The company will host its inaugural Investor Day on Dec. 14 in New York City. The event will be in-person with a livestream available on the company’s investor-facing website.

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