Chewy, Inc. CFO David Reeder Discusses Company Growth, Strategic Initiatives, and Future Outlook at JPMorgan Global Technology, Media and Communications Conference

Key Takeaways

TL;DR: Chewy (CHWY) reaffirms low SD active customer growth and +80bps adj. EBITDA margin expansion (to 5.5%) in FY25, driven by healthcare verticals (+1,000bps GM), vet clinic expansion (8–10 new clinics), automation (30%↑ fulfillment productivity), and a path to 10% LT EBITDA margins. $950M FY24 buybacks highlight robust FCF conversion (80% of EBITDA). Key focus: healthcare (30% of sales), Chewy+ membership (early traction), and tariff impacts ($10M EPS headwind).

1. Profitability & Margins

• Adj. EBITDA margins guided to 5.5% (+80bps YoY), with ~60% driven by:
  • Healthcare vertical (30% of sales): ~1,000bps GM lift vs. retail.
  • Sponsored ads (1% of sales → LT 2–3% target): New 1P ad stack supports off-site/dynamic content.
  • Fulfillment automation: 2G centers yield +30% output/sq. ft. Network ~75% utilized.
• OpEx leverage via AI/automation in customer targeting, SKU mgmt., and supplier onboarding.

2. Growth Drivers

• Active customers: +low SD in FY25 (vs. flat pet households). Driven by:
  • Vet clinics: 50%+ of clinic customers (inc. ~50% new) order online within 30 days.
  • Personalized targeting: AI-driven reactivation/churn reduction (rebuilt 1P tech stack).
• NSPAC (~$578 in ’24): +mid-SD via cross-sell (20% adoption in pharmacy vs. 85% in consumables).

3. Healthcare & Vet Ecosystem

• Pharmacy: >$1B biz growing “significantly faster” than core (compounding, DC-linked fulfillment).
• Vet clinics (8 today → 8–10 new in ’25): Aim to exceed industry avg. unit economics ($2M rev./clinic, 20% EBITDA margin).

4. Capital Allocation

• $525M FCF guided for FY25 (80% EBITDA conversion).
• $950M shares repurchased in FY24 (BC Partners sell-down). Continued buybacks prioritized.

5. Macro & Risks

• Recession resilience: 85% rev. from non-discretionary (food, health).
• Tariffs: $10M EPS drag (hard goods/private brands; mitigated by inventory mgmt).