A：The Q2 2025 performance showed a year-over-year growth in customer sales, with an increase in auto ship customer sales by nearly 15%, and a 15% growth in hardgoods sales, primarily due to structural volume growth. The Qi+ program exceeded expectations. The company also had year-over-year growth in new customer NPS for the Q2 2025 cohort. On the profitability side, gross margin reached 30.4%, an expansion of nearly 80 and 90 basis points compared to the prior year and prior quarter, respectively. Additionally, adjusted EBITDA and free cash flow both showed significant year-over-year increases.

A：Strategic initiatives contributing to Chilis's growth include the continued outperformance of the Chei Vet Care (CVC) network, which is generating strong demand and broader ecosystem benefits. The company remains on track to open 20 new practices in fiscal year 2025. Additionally, the Chei Plus program is rapidly strengthening, with approximately 3% of total monthly sales in the month of July to Chei Plus members. The company is observing strong incrementality in spend, net promoter score (NPS), and positive contribution profit per customer across Chei Plus customers. As a result, the program is expected to generate positive gross profit dollars in fiscal 2025, although at a lower gross margin rate than overall Chei.

A：Chilis expects approximately a mid-single-digit percentage of net sales to go through the Chei Plus program by the end of the year. The program is projected to generate positive gross profit dollars in fiscal 2025. However, the gross margin rate is anticipated to be below the company's overall gross margin due to the mix of states versus free trial members and the ramp in the second half of the year. As the program scales, the company will remain disciplined in evaluating program structure, including pricing and member benefits.

A：In August, Chilis launched Get Real, its new exclusive private brand of healthy, fresh dog food. The fresh and frozen segment is a fast-growing market due to humanization and premiumization trends in pet food. The new line of minimally processed fresh dog food, which is only available at Chewy, comes in three different varieties with a focus on palatability, quality, and overall customer experience. Although the product has only been in the market for a few weeks, customer reception has been strong, with positive feedback on shopping, delivery, and consumption.

A：The company expects to be ready by the end of 2025 to deliver a majority of its fresh food offering to customers within a one-day transit time. It has built up sufficient capacity through 2028 to support growth in the fresh frozen segment for both Get Reel and national brand partners, at the lower end of the previously set CapEx guidance range.

A：The company anticipates the second half of the year to be dynamic due to an evolving macro environment as retailers pass on tariff-related costs to customers. To mitigate these pressures, the company has a higher mix of consumables, health and safety investments in onshoring, incremental discretionary inventory, and is selectively evaluating pricing while protecting product margins. It plans to lean into growth by investing behind the expansion of programs like Chewy Plus and private brands.

A：The second quarter net sales grew 8.6% year over year to $3.1 billion, exceeding expectations. The second quarter gross margin expanded by 30.4%, representing approximately 90 basis points of margin expansion. However, SG&A expenses deleveraged by about 30 basis points year over year to $592.8 million or 19.1% of net sales. Q2 was impacted by higher inventory processing costs, the ramp of the Eastman Fulfillment Center, certain ship wound downs, and temporary increases in wage and benefit costs. The company believes these temporary increases are mainly due to seasonal demands and plans to deliver modest SG&A leverage in fiscal year 2025.

A：The company expects third quarter 2025 net sales to be between $3.07 and $3.1 billion, a growth of approximately 7 to 8% year over year. The full year 2025 net sales outlook has been raised and narrowed to between $12.5 and $12.6 billion, also showing a growth of approximately 7 to 8% year over year. The full year Adjusted EBITDA margin outlook is maintained at between 5.4% and 5.7%, with an expected Adjusted EBITDA flow-through of approximately 15% for the year. The company also expects Q3 adjusted diluted earnings per share in the range of $0.28 to $0.30 and reiterated its previously stated expectations for share-based compensation expense and interest income for 2025. The effective tax rate for 2025 is expected to be between 20% and 22%. The company also projects third quarter free cash flow to be around $105.9 million and for the full year, it reiterates its expectation to convert approximately 80% of adjusted EBITDA to free cash flow with CapEx at the low end of the previously stated range of 1.5 to 2% of net sales.

A：The strategy for converting existing customers to Plus members is to expose them to the program through the company's large base of customers, without spending any incremental dollars on marketing externally. This is being achieved through on-site and funnel shopping experiences. The results have been good participation from existing Simple members in converting to become Plus members, with a marginal cost of nearly zero to the company.

A：The approach to marketing for Reel is focused on leaning into the broader value proposition of being a destination for pet care, including food, supplies, and other services. This strategy aims for conversion of customers who visit the website, rather than just consideration building. The company has been focused on product quality and palatability, customer response, competitive pricing, and providing an enhanced product listing experience with high CRM capability.

A：The differentiation of the company's products in the market is contributed by several factors including the quality and value proposition balance, competitive pricing compared to many other products on the market, and the unique curated product experience offered to customers. This experience is paired with high internal CRM capabilities.

A：The company is pairing detria with a strong acquisition offer targeting customers who are high spenders on health and wellness. The potential for this category is considered to be the highest gross profit per unit category in the company. There are no incremental CapEx investments expected to 2028, assuming the program meets expectations. However, if the program exceeds expectations, the company will address the situation at that point.

A：The company plans to leverage costs in 2025 by expecting roughly 60% of adjusted EBITDA margin expansion from gross margin and 40% from Opex leverage. This indicates that the company does expect to deliver SGMA leverage in 2025, as underlined by the performance in the first half of the year. The company's progress aligns with the target of delivering 200 basis points of leverage, having already achieved 50% of that target with the majority of leverage coming from ramping fulfillment sites.

A：Specific factors impacting the leverage path in the back half of the year include the ramping up of the Houston facility, which takes about six months to deliver sufficient leverage, and faster unit growth that enhances variable costs due to structural growth. This growth allows for greater cost extraction and the realization of economies of scale as the facility reaches full capacity. One-time elements such as inventory build-up and higher inbound processing costs due to expected price increases, as well as higher wages and benefits, also play a role. These are expected to moderate in the back half of the year, contributing to the overall leverage path.

A：The drivers of gross margin expansion in the current quarter include product mix across merchandising-led businesses, such as health, premium consumables, and hardware growth, as well as increasing auto-ship penetration and scale that provide economies of scale, and the ramping of sponsored ads initiatives.

A：The company plans to deliver a healthy level of gross margin expansion on an annualized basis, with approximately 60% of the 2025 EBITDA margin expansion expected to come from gross margin.

A：For the back half of the year, the company is investing the incremental profit of approximately $5 million back into the business, which includes growing the Chewy Plus membership program, continuing to grow ownership, and opportunistically evaluating the market for selective pricing.

A：The initial franchise characteristics show that 70% of customers are existing customers, and 30% are net new customers. The company is benefiting from industry-wide traffic and is priming itself for conversion using its site experience.

A：The category's size is projected to be north of $8 billion over the next several years, with a category growth rate of mid-teens.

A：The company expects to have a meaningful amount of share in the category, with a share position commensurate with the category's size and their current capacity and supply chain sophistication.

A：The projected revenue for the new business is north of $800 for toppers because they expect to attach two or three additional categories, and for full meals, the projected revenue is a plus $2500 customer on an annual basis.

A：The company believes it is taking share and is excited about growing between 7 and 8% on a 52-week basis and the script range or so on a 53-week basis, which is on top of tougher comps moving into the back half of the year.

A：The company expects to grow active customers at the high end of the low single-digit range in 2025 despite modestly tougher comps in Q4. Net new accounts are expected to trend in the 4.5 to 5.5 percent range as the company benefits from stronger auto share and a stronger product mix.

A：The competitive intensity in the market is high, and the company is pleased with its performance, including a 14% increase in net traffic and over a 25% increase in mobile app sessions year over year. This suggests the company is effectively attracting customers which is positive for sponsored ads.

A：The primary drivers of hard goods recovery include a rapid acceleration in inventory expansion with more products available for customers to choose from, high in-stock levels, and continued customer exposure through communication strategies both on-site and off-site.

A：The company differentiates by credibly connecting food supply with the entire health ecosystem, including B2C, B2B, and B2B2C services. They have also established a compelling health TAM, growing at two times the rate of food and supplies, with offerings in various sectors such as pharmacy and compounding business. They leverage their scale to grow in these areas and provide personalized service akin to a local neighborhood pet store.

A：The barriers to entry in the compounding industry are very high.

A：The CDC is ramping higher than expectations, which generates excitement for future projections.

A：The Chewie class program offers benefits similar to Amazon Prime or Costco membership and is positioned as the best pet membership program in the industry, without significant concerns about competitive intensity.

A：The quality of cohorts has improved due to two factors: an increase in customers enrolling in programs like autoshop or being brought in through programs like chei plus, and an improvement in net pac consolidation. This allows for more opportunities to retain customers and leads to better net retention rates.

A：The auto ship program has increased gross subscription adds and improved retention rates, resulting in a stronger net retention in ownership. This has contributed to a 'layer cake' effect, pushing a greater portion of sales through the auto ship program.

A：Chei plus members engage with the program by adding an average of three more categories than non-members, leading to a healthier mix of cohorts for the company. This has enabled the consolidation of baskets and has allowed the company to expand its reach into high spend cohorts. The program has a strong impact on the quality of cohorts and overall business health.

A：The company views itself as the preferred place for the low-end value segment of the market, which represents roughly 12% of customers. However, it also operates in the broader market and benefits from online share consolidation from offline sales.

A：While the intention behind the Chewie class program is not explicitly stated in terms of revenue penetration, it is anticipated to be margin accretive. The company retains a high percentage of customers from year two onwards, indicating minimal attrition and a focus on loyalty and retention.

A：It is expected that the Chewie class program will be margin accretive. While the program will initially be gross margin rate dilutive, it will be highly accretive on a dollar basis and on a contribution profit basis. This indicates that the investment will result in significant revenue growth.