CHWY Chewy Inc

Chewy, Inc. (NYSE: CHWY) (“Chewy”), a trusted destination for pet parents and partners everywhere, has released its financial results for the third quarter of fiscal year 2024 ended October 27, 2024.

Fiscal Q3 2024 Highlights:

• Net sales of $2.88 billion increased 4.8 percent year over year
• Gross margin of 29.3 percent increased 80 basis points year over year
• Net income of $3.9 million, including share-based compensation expense and related taxes of $80.4 million
• Net margin of 0.1 percent increased 140 basis points year over year
• Basic and diluted earnings per share of $0.01, an increase of $0.09 year over year
• Adjusted EBITDA(1) of $138.2 million, an increase of $55.7 million year over year
• Adjusted EBITDA margin(1) of 4.8 percent increased 180 basis points year over year
• Adjusted net income(1) of $84.9 million, an increase of $21.5 million year over year
• Adjusted basic and diluted earnings per share(1) of $0.20, an increase of $0.05 year over year

“Our third quarter results continued to build on the positive momentum we observed in Q2,” said Sumit Singh, Chief Executive Officer of Chewy. “We delivered topline growth exceeding the high-end of our net sales guidance range, a sequential increase in active customers, continued adjusted EBITDA margin expansion, and robust free cash flow generation. These results underscore the durability of our business model, and our team’s relentless focus on high-quality execution and operational discipline.”

Management will host a conference call and webcast to discuss Chewy's financial results today at 8:00 am ET.

Chewy Fiscal Third Quarter 2024 Financial Results Conference Call When: Wednesday, December 4, 2024 Time: 8:00 am ET Live webcast and replay: https://investor.chewy.com Conference call registration: https://www.netroadshow.com/events/login?show=4d7c8222&confId=72627

(1)

Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted basic and diluted earnings per share are non-GAAP financial measures. See “Non-GAAP Financial Measures” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

About Chewy

Our mission is to be the most trusted and convenient destination for pet parents and partners everywhere. We believe that we are the preeminent online source for pet products, supplies, and prescriptions as a result of our broad selection of high-quality products and services, which we offer at competitive prices and deliver with an exceptional level of care and a personal touch to build brand loyalty and drive repeat purchasing. We seek to continually develop innovative ways for our customers to engage with us, as our websites and mobile applications allow our pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to conveniently shop for our products. We partner with approximately 3,500 of the best and most trusted brands in the pet industry, and we create and offer our own private brands. Through our websites and mobile applications, we offer our customers approximately 115,000 products and services offerings, to bring what we believe is a high-bar, customer-centric experience to our customers.

Forward-Looking Statements

This communication 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 communication, including statements regarding our share repurchase program, 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. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could cause actual results to differ materially from those in such forward-looking statements, including but not limited to, 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 jurisdictions and offerings; successfully respond to business disruptions; 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 the 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; estimating our market share; 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 websites, mobile applications, and network infrastructure; maintain adequate cybersecurity with respect to our systems and retain third-party service providers that 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; utilize net operating loss and tax credit carryforwards, and other tax attributes; 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; 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 new offerings; manage challenges presented by international markets; successfully compete in the pet products and services health and retail industry, especially in the e-commerce sector; comply with the terms of our credit facility; raise capital as needed; and maintain effective internal control over financial reporting.

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 communication 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 Quarterly Report on Form 10-Q for the quarterly period ended April 28, 2024, in our other filings with the Securities and Exchange Commission, and elsewhere in this communication. 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 communication. 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 communication. 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 communication 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 communication to reflect events or circumstances after the date of this communication 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.

 

CHEWY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

As of

 

October 27, 2024

 

January 28, 2024

Assets

(Unaudited)

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

506,634

 

 

$

602,232

 

Marketable securities

 

885

 

 

 

531,785

 

Accounts receivable

 

193,210

 

 

 

154,043

 

Inventories

 

858,551

 

 

 

719,273

 

Prepaid expenses and other current assets

 

56,445

 

 

 

97,015

 

Total current assets

 

1,615,725

 

 

 

2,104,348

 

Property and equipment, net

 

527,738

 

 

 

521,298

 

Operating lease right-of-use assets

 

458,037

 

 

 

474,617

 

Goodwill

 

39,442

 

 

 

39,442

 

Deferred tax assets

 

275,669

 

 

 

—

 

Other non-current assets

 

41,286

 

 

 

47,146

 

Total assets

$

2,957,897

 

 

$

3,186,851

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Trade accounts payable

$

1,229,132

 

 

$

1,104,940

 

Accrued expenses and other current liabilities

 

950,093

 

 

 

1,005,937

 

Total current liabilities

 

2,179,225

 

 

 

2,110,877

 

Operating lease liabilities

 

510,612

 

 

 

527,795

 

Other long-term liabilities

 

44,638

 

 

 

37,935

 

Total liabilities

 

2,734,475

 

 

 

2,676,607

 

Stockholders’ equity:

 

 

 

Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding as of October 27, 2024 and January 28, 2024

 

—

 

 

 

—

 

Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 161,522,237 and 132,913,046 shares issued and outstanding as of October 27, 2024 and January 28, 2024, respectively

 

1,615

 

 

 

1,329

 

Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 246,525,803 and 298,863,356 shares issued and outstanding as of October 27, 2024 and January 28, 2024, respectively

 

2,465

 

 

 

2,989

 

Additional paid-in capital

 

1,824,384

 

 

 

2,481,984

 

Accumulated deficit

 

(1,605,706

)

 

 

(1,975,652

)

Accumulated other comprehensive income (loss)

 

664

 

 

 

(406

)

Total stockholders’ equity

 

223,422

 

 

 

510,244

 

Total liabilities and stockholders’ equity

$

2,957,897

 

 

$

3,186,851

 

 

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

(Unaudited)

 

 

13 Weeks Ended

 

39 Weeks Ended

 

October 27, 2024

 

October 29, 2023

 

October 27, 2024

 

October 29, 2023

Net sales

$

2,877,635

 

 

$

2,745,875

 

 

$

8,613,949

 

 

$

8,321,816

 

Cost of goods sold

 

2,033,762

 

 

 

1,964,019

 

 

 

6,072,248

 

 

 

5,958,383

 

Gross profit

 

843,873

 

 

 

781,856

 

 

 

2,541,701

 

 

 

2,363,433

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

626,471

 

 

 

612,375

 

 

 

1,850,299

 

 

 

1,816,653

 

Advertising and marketing

 

191,770

 

 

 

179,200

 

 

 

569,103

 

 

 

548,424

 

Total operating expenses

 

818,241

 

 

 

791,575

 

 

 

2,419,402

 

 

 

2,365,077

 

Income (loss) from operations

 

25,632

 

 

 

(9,719

)

 

 

122,299

 

 

 

(1,644

)

Interest income, net

 

3,901

 

 

 

10,173

 

 

 

31,345

 

 

 

27,117

 

Other (expense) income, net

 

(36

)

 

 

(34,122

)

 

 

746

 

 

 

(13,768

)

Income (loss) before income tax provision (benefit)

 

29,497

 

 

 

(33,668

)

 

 

154,390

 

 

 

11,705

 

Income tax provision (benefit)

 

25,565

 

 

 

1,704

 

 

 

(215,556

)

 

 

4,011

 

Net income (loss)

$

3,932

 

 

$

(35,372

)

 

$

369,946

 

 

$

7,694

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

Net income (loss)

$

3,932

 

 

$

(35,372

)

 

$

369,946

 

 

$

7,694

 

Foreign currency translation adjustments

 

317

 

 

 

—

 

 

 

1,070

 

 

 

—

 

Comprehensive income (loss)

$

4,249

 

 

$

(35,372

)

 

$

371,016

 

 

$

7,694

 

 

 

 

 

 

 

 

 

Earnings (loss) per share attributable to common Class A and Class B stockholders:

 

 

 

 

 

 

 

Basic

$

0.01

 

 

$

(0.08

)

 

$

0.87

 

 

$

0.02

 

Diluted

$

0.01

 

 

$

(0.08

)

 

$

0.85

 

 

$

0.02

 

Weighted-average common shares used in computing earnings (loss) per share:

 

 

 

 

 

 

 

Basic

 

414,361

 

 

 

430,758

 

 

 

426,203

 

 

 

428,743

 

Diluted

 

426,572

 

 

 

430,758

 

 

 

433,625

 

 

 

431,406

 

 

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

39 Weeks Ended

 

October 27, 2024

 

October 29, 2023

Cash flows from operating activities

 

 

 

Net income

$

369,946

 

 

$

7,694

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

85,436

 

 

 

82,252

 

Share-based compensation expense

 

224,710

 

 

 

178,897

 

Non-cash lease expense

 

24,529

 

 

 

29,399

 

Change in fair value of equity warrants and investments

 

875

 

 

 

13,589

 

Deferred income tax benefit

 

(275,669

)

 

 

—

 

Unrealized foreign currency losses, net

 

1,218

 

 

 

—

 

Other

 

(141

)

 

 

3,810

 

Net change in operating assets and liabilities:

 

 

 

Accounts receivable

 

(39,208

)

 

 

(34,436

)

Inventories

 

(139,454

)

 

 

(36,846

)

Prepaid expenses and other current assets

 

(9,892

)

 

 

(27,346

)

Other non-current assets

 

2,803

 

 

 

(1,337

)

Trade accounts payable

 

124,238

 

 

 

48,755

 

Accrued expenses and other current liabilities

 

40,440

 

 

 

140,374

 

Operating lease liabilities

 

(23,088

)

 

 

(19,805

)

Other long-term liabilities

 

2,066

 

 

 

1,664

 

Net cash provided by operating activities

 

388,809

 

 

 

386,664

 

Cash flows from investing activities

 

 

 

Capital expenditures

 

(92,920

)

 

 

(110,902

)

Proceeds from sales and maturities of marketable securities

 

538,402

 

 

 

750,000

 

Purchases of marketable securities

 

—

 

 

 

(876,189

)

Cash paid for acquisition of business, net of cash acquired

 

—

 

 

 

(367

)

Net cash provided by (used in) investing activities

 

445,482

 

 

 

(237,458

)

Cash flows from financing activities

 

 

 

Repurchases of common stock

 

(875,197

)

 

 

—

 

Income taxes paid for, net of proceeds from, parent reorganization transaction

 

(53,743

)

 

 

—

 

Principal repayments of finance lease obligations

 

(730

)

 

 

(479

)

Payments of secondary offering costs

 

(58

)

 

 

—

 

Payments for tax withholdings related to vesting of share-based compensation awards

 

(13

)

 

 

(5

)

Payments for tax sharing agreement with related parties

 

—

 

 

 

(10,279

)

Payment of debt modification costs

 

—

 

 

 

(175

)

Net cash used in financing activities

 

(929,741

)

 

 

(10,938

)

Effect of exchange rate changes on cash and cash equivalents

 

(148

)

 

 

—

 

Net (decrease) increase in cash and cash equivalents

 

(95,598

)

 

 

138,268

 

Cash and cash equivalents, as of beginning of period

 

602,232

 

 

 

331,641

 

Cash and cash equivalents, as of end of period

$

506,634

 

 

$

469,909

 

Key Financial and Operating Data

We measure our business using both financial and operating data and use the following metrics and measures to assess the near-term and long-term performance of our overall business, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies, and monitoring our business.

 

13 Weeks Ended

 

 

 

39 Weeks Ended

 

 

(in thousands, except net sales per active customer, per share data, and percentages)

October 27, 2024

 

October 29, 2023

 

% Change

 

October 27, 2024

 

October 29, 2023

 

% Change

Financial and Operating Data

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

2,877,635

 

 

$

2,745,875

 

 

4.8

%

 

$

8,613,949

 

 

$

8,321,816

 

 

3.5

%

Net income (loss) (1)

$

3,932

 

 

$

(35,372

)

 

111.1

%

 

$

369,946

 

 

$

7,694

 

 

n/m

Net margin

 

0.1

%

 

 

(1.3

)%

 

 

 

 

4.3

%

 

 

0.1

%

 

 

Adjusted EBITDA (2)

$

138,245

 

 

$

82,581

 

 

67.4

%

 

$

446,004

 

 

$

281,601

 

 

58.4

%

Adjusted EBITDA margin (2)

 

4.8

%

 

 

3.0

%

 

 

 

 

5.2

%

 

 

3.4

%

 

 

Adjusted net income (2)

$

84,922

 

 

$

63,449

 

 

33.8

%

 

$

326,776

 

 

$

215,953

 

 

51.3

%

Earnings (loss) per share, basic (1)

$

0.01

 

 

$

(0.08

)

 

112.5

%

 

$

0.87

 

 

$

0.02

 

 

n/m

Earnings (loss) per share, diluted (1)

$

0.01

 

 

$

(0.08

)

 

112.5

%

 

$

0.85

 

 

$

0.02

 

 

n/m

Adjusted earnings per share, basic (2)

$

0.20

 

 

$

0.15

 

 

33.3

%

 

$

0.77

 

 

$

0.50

 

 

54.0

%

Adjusted earnings per share, diluted (2)

$

0.20

 

 

$

0.15

 

 

33.3

%

 

$

0.75

 

 

$

0.50

 

 

50.0

%

Net cash provided by operating activities

$

183,462

 

 

$

79,377

 

 

131.1

%

 

$

388,809

 

 

$

386,664

 

 

0.6

%

Free cash flow (2)

$

151,767

 

 

$

47,692

 

 

218.2

%

 

$

295,889

 

 

$

275,762

 

 

7.3

%

Active customers

 

20,160

 

 

 

20,266

 

 

(0.5

)%

 

 

20,160

 

 

 

20,266

 

 

(0.5

)%

Net sales per active customer

$

567

 

 

$

544

 

 

4.2

%

 

$

567

 

 

$

544

 

 

4.2

%

Autoship customer sales

$

2,300,928

 

 

$

2,116,458

 

 

8.7

%

 

$

6,775,983

 

 

$

6,334,240

 

 

7.0

%

Autoship customer sales as a percentage of net sales

 

80.0

%

 

 

77.1

%

 

 

 

 

78.7

%

 

 

76.1

%

 

 

n/m - not meaningful

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes share-based compensation expense and related taxes of $80.4 million and $232.4 million for the thirteen and thirty-nine weeks ended October 27, 2024, compared to $65.8 million and $187.9 million for the thirteen and thirty-nine weeks ended October 29, 2023.

(2)

Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP financial measures.

We define net margin as net income divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

To provide investors with additional information regarding our financial results, we have disclosed in this earnings release adjusted EBITDA, a non-GAAP financial measure that we calculate as net income excluding depreciation and amortization; share-based compensation expense and related taxes; income tax provision (benefit); interest income (expense), net; transaction related costs; changes in the fair value of equity warrants; severance and exit costs; and litigation matters and other items that we do not consider representative of our underlying operations. We have provided a reconciliation below of adjusted EBITDA to net income, the most directly comparable GAAP financial measure.

We have included adjusted EBITDA and adjusted EBITDA margin in this earnings release because each is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted EBITDA and adjusted EBITDA margin facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and certain variable charges. Accordingly, we believe that adjusted EBITDA and adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

We believe it is useful to exclude non-cash charges, such as depreciation and amortization and share-based compensation expense from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision (benefit); interest income (expense), net; transaction related costs; changes in the fair value of equity warrants; and litigation matters and other items which are not components of our core business operations. We believe it is useful to exclude severance and exit costs because these expenses represent temporary initiatives to realign resources and enhance operational efficiency, which are not components of our core business operations. Adjusted EBITDA has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures;
• adjusted EBITDA does not reflect share-based compensation and related taxes. Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy;
• adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital;
• adjusted EBITDA does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction or initiative and include changes in the fair value of equity warrants, severance and exit costs, litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and
• other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, including various cash flow metrics, net income, net margin, and our other GAAP results.

The following table presents a reconciliation of net income (loss) to adjusted EBITDA, as well as the calculation of net margin and adjusted EBITDA margin, for each of the periods indicated:

(in thousands, except percentages)

13 Weeks Ended

 

39 Weeks Ended

Reconciliation of Net Income (Loss) to Adjusted EBITDA

October 27, 2024

 

October 29, 2023

 

October 27, 2024

 

October 29, 2023

Net income (loss)

$

3,932

 

 

$

(35,372

)

 

$

369,946

 

 

$

7,694

 

Add (deduct):

 

 

 

 

 

 

 

Depreciation and amortization

 

28,981

 

 

 

25,540

 

 

 

85,436

 

 

 

82,252

 

Share-based compensation expense and related taxes

 

80,426

 

 

 

65,799

 

 

 

232,377

 

 

 

187,878

 

Interest income, net

 

(3,901

)

 

 

(10,173

)

 

 

(31,345

)

 

 

(27,117

)

Change in fair value of equity warrants

 

564

 

 

 

33,800

 

 

 

122

 

 

 

13,542

 

Income tax provision (benefit)

 

25,565

 

 

 

1,704

 

 

 

(215,556

)

 

 

4,011

 

Exit costs

 

—

 

 

 

(778

)

 

 

—

 

 

 

6,839

 

Transaction related costs

 

457

 

 

 

1,041

 

 

 

928

 

 

 

3,167

 

Other

 

2,221

 

 

 

1,020

 

 

 

4,096

 

 

 

3,335

 

Adjusted EBITDA

$

138,245

 

 

$

82,581

 

 

$

446,004

 

 

$

281,601

 

Net sales

$

2,877,635

 

 

$

2,745,875

 

 

$

8,613,949

 

 

$

8,321,816

 

Net margin

 

0.1

%

 

 

(1.3

)%

 

 

4.3

%

 

 

0.1

%

Adjusted EBITDA margin

 

4.8

%

 

 

3.0

%

 

 

5.2

%

 

 

3.4

%

Adjusted Net Income and Adjusted Basic and Diluted Earnings per Share

To provide investors with additional information regarding our financial results, we have disclosed in this earnings release adjusted net income and adjusted basic and diluted earnings per share, which represent non-GAAP financial measures. We calculate adjusted net income as net income excluding share-based compensation expense and related taxes, changes in valuation allowances associated with deferred tax assets, changes in the fair value of equity warrants, and severance and exit costs. We calculate adjusted basic and diluted earnings per share by dividing adjusted net income attributable to common stockholders by the weighted-average shares outstanding during the period. We have provided a reconciliation below of adjusted net income to net income , the most directly comparable GAAP financial measure.

We have included adjusted net income and adjusted basic and diluted earnings per share in this earnings release because each is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted net income and adjusted basic and diluted earnings per share facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and certain variable gains and losses that do not represent a component of our core business operations. We believe it is useful to exclude non-cash share-based compensation expense because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude changes in valuation allowances associated with deferred tax assets as this is not a component of our core business operations. We believe it is useful to exclude changes in the fair value of equity warrants because the variability of equity warrant gains and losses is not representative of our underlying operations. We believe it is useful to exclude severance and exit costs because these expenses represent temporary initiatives to realign resources and enhance operational efficiency, which are not components of our core business operations. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted net income and adjusted basic and diluted earnings per share have limitations as financial measures and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Other companies may calculate adjusted net income and adjusted basic and diluted earnings per share differently, which reduces their usefulness as comparative measures. Because of these limitations, you should consider adjusted net income and adjusted basic and diluted earnings alongside other financial performance measures, including various cash flow metrics, net income, basic and diluted earnings per share, and our other GAAP results.

The following table presents a reconciliation of net income (loss) to adjusted net income, as well as the calculation of adjusted basic and diluted earnings (loss) per share, for each of the periods indicated:

(in thousands, except per share data)

13 Weeks Ended

 

39 Weeks Ended

Reconciliation of Net Income (Loss) to Adjusted Net Income

October 27, 2024

 

October 29, 2023

 

October 27, 2024

 

October 29, 2023

Net income (loss)

$

3,932

 

$

(35,372

)

 

$

369,946

 

 

$

7,694

Add (deduct):

 

 

 

 

 

 

 

Share-based compensation expense and related taxes

 

80,426

 

 

65,799

 

 

 

232,377

 

 

 

187,878

Change in fair value of equity warrants

 

564

 

 

33,800

 

 

 

122

 

 

 

13,542

Deferred income tax benefit

 

—

 

 

—

 

 

 

(275,669

)

 

 

—

Exit costs

 

—

 

 

(778

)

 

 

—

 

 

 

6,839

Adjusted net income

$

84,922

 

$

63,449

 

 

$

326,776

 

 

$

215,953

Weighted-average common shares used in computing earnings (loss) per share and adjusted earnings per share:

 

 

 

 

 

 

 

Basic

 

414,361

 

 

430,758

 

 

 

426,203

 

 

 

428,743

Effect of dilutive share-based awards (1)

 

12,211

 

 

1,414

 

 

 

7,422

 

 

 

2,663

Diluted (1)

 

426,572

 

 

432,172

 

 

 

433,625

 

 

 

431,406

Earnings (loss) per share attributable to common Class A and Class B stockholders

 

 

 

 

 

 

 

Basic

$

0.01

 

$

(0.08

)

 

$

0.87

 

 

$

0.02

Diluted (1)

$

0.01

 

$

(0.08

)

 

$

0.85

 

 

$

0.02

Adjusted basic

$

0.20

 

$

0.15

 

 

$

0.77

 

 

$

0.50

Adjusted diluted (1)

$

0.20

 

$

0.15

 

 

$

0.75

 

 

$

0.50

(1)

For the thirteen weeks ended October 29, 2023, our calculation of adjusted diluted earnings per share attributable to common Class A and Class B stockholders requires an adjustment to the weighted-average common shares used in the calculation to include the weighted-average dilutive effect of share-based awards.

Free Cash Flow

To provide investors with additional information regarding our financial results, we also disclose free cash flow, a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less capital expenditures (which consist of purchases of property and equipment, capitalization of labor related to our websites, mobile applications, software development, and leasehold improvements). We have provided a reconciliation below of free cash flow to net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure.

We have included free cash flow because it is used by our management and board of directors as an important indicator of our liquidity as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Free cash flow has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. There are limitations to using non-GAAP financial measures, including that other companies, including companies in our industry, may calculate free cash flow differently. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used in) operating activities, capital expenditures and our other GAAP results.

The following table presents a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated:

(in thousands)

13 Weeks Ended

 

39 Weeks Ended

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

October 27, 2024

 

October 29, 2023

 

October 27, 2024

 

October 29, 2023

Net cash provided by operating activities

$

183,462

 

 

$

79,377

 

 

$

388,809

 

 

$

386,664

 

Deduct:

 

 

 

 

 

 

 

Capital expenditures

 

(31,695

)

 

 

(31,685

)

 

 

(92,920

)

 

 

(110,902

)

Free Cash Flow

$

151,767

 

 

$

47,692

 

 

$

295,889

 

 

$

275,762

 

Free cash flow may be affected in the near to medium term by the timing of capital investments (such as the launch of new fulfillment centers, pharmacy facilities, veterinary clinics, customer service infrastructure, and corporate offices and purchases of IT and other equipment), fluctuations in our growth and the effect of such fluctuations on working capital, and changes in our cash conversion cycle due to increases or decreases of vendor payment terms as well as inventory turnover.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241204895541/en/

Investor Contact: ir@chewy.com

Media Contact: Diane Pelkey dpelkey@chewy.com