CHEWY INC (NSE:CHWY) Q2 2019 Earnings Conference Call - Final Transcript

Sep 17, 2019 • 05:00 pm ET

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CHEWY INC (NSE:CHWY) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Sumit Singh

customers. Net sales per active customer increased approximately 10% to $352, up from $320 in Q2 2018.

Autoship customer sales as a percent of net sales reached 69.3%. Gross margin for Q2 was 23.6%, up 300 basis points year-over-year as a result of continuing execution on the growth and margin vectors that we have shared with you previously. Finally, our adjusted EBITDA margin of negative 2.5%, improved 410 basis points versus Q2 2018, as a result of gross margin expansion and scaling of operating expenses.

The inputs of our business remained strong, and we continued to drive top line growth at scale and optimize the business for margin expansion through disciplined data-driven decisions. Time and again, we hear from pet parents that their experience shopping with Chewy is one of the things that sets us apart in the industry. From our knowledgeable award-winning customer service teams to our broad assortment of brands, to our fast one to two-day delivery, to the convenience of e-commerce, high-touch personalized experiences drive customer engagement, which fuels brand loyalty and repeat purchasing.

Keeping the customer at the center of everything we do is core to our mission of becoming the most trusted and convenient online destination for pet parents, and the team continues to execute well against our strategy of long-term sustainable growth.

Now I'd like to share a few business highlights from our Q2. Given the rapid and consistent payback levels from our customers, we strategically invest free cash flow in new customer acquisition marketing. We are disciplined in how we deploy this capital, closely monitoring key metrics like acquisition cost and lifetime value. To that end, in the second quarter, we launched a new Data Management Platform, or DMP, to more effectively manage our investments across current and future marketing channels.

Moreover, we consider our relatively low levels of aided and unaided brand awareness as an opportunity to invest in studying the market and customer inputs more thoroughly so that this research can form the foundation of a broader brand strategy in the future. We expect that increased brand visibility and awareness will benefit all marketing channels, including search, and our team is excited about this next phase in our marketing strategy.

In Q2, another area where we made significant progress was on the data and customer segmentation front. We consolidated all customer pet and veterinarian data into a single master dataset to create a proprietary customer data platform allowing for clean, reliable and consistently formatted data. Our marketing and merchandising teams will utilize this data for enhanced customer targeting and segmentation across all our platforms on site and mobile app.

Our team is constantly identifying new ways to improve the shopping experience for pet parents. To that end, we made further headway into launching new features on our mobile app platforms in the second quarter. A sample set of these include voice search to enable customers to conveniently find their products of choice using voice commands to search and browse, and navigation