FinanceLooker

Excrept from filing document 2025-02-02

The aggregate market value of the voting and non voting common equity held by non affiliates as of July 26 2024 the last business day of the registrant s most recently completed second fiscal quarter computed by reference to the closing price of 25 04 per share as reported on the New York Stock Exchange on July 26 2024 was approximately 3 5 billion
Portions of the registrant s Definitive Proxy Statement relating to the 2025 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10 K where indicated The registrant s Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant s fiscal year ended February 2 2025
This Annual Report on Form 10 K and the documents incorporated herein by reference contain 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 Annual Report on Form 10 K 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 not all forward looking statements contain these identifying words
Although we believe that the forward looking statements contained in this Annual Report 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 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
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 Annual Report on Form 10 K 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 included under Part I Item 1A below and elsewhere in this Annual Report on Form 10 K 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 Annual Report on Form 10 K 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 Annual Report on Form 10 K 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 Annual Report on Form 10 K 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 Annual Report on Form 10 K to reflect events or circumstances after the date of this Annual Report on Form 10 K 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
Investors and others should note that we may announce material information to our investors using our investor relations website https investor chewy com filings with the Securities and Exchange Commission the SEC press releases public conference calls and webcasts We use these channels as well as social media to communicate with our investors and the public about our company our business and other issues It is possible that the information that we post on these channels could be deemed to be material information We therefore encourage investors to visit these websites from time to time The information contained on such websites and social media posts is not incorporated by reference into this filing Further our references to website URLs in this filing are intended to be inactive textual references only
In this Annual Report on Form 10 K we refer to information regarding market data obtained from internal sources market research publicly available information and industry publications Estimates are inherently uncertain involve risks and uncertainties and are subject to change based on various factors including those discussed in the section titled Risk Factors included under Part I Item 1A below and elsewhere in this Annual Report on Form 10 K We believe that these sources and estimates are reliable as of the date of this report but have not independently verified them and cannot guarantee their accuracy or completeness
in 2011 and Chewy com LLC was formed as a Delaware limited liability company in October 2013 On March 16 2016 Chewy com LLC converted from a Delaware limited liability company to a Delaware corporation and changed its name to Chewy Inc
completed the initial public offering of its Class A common stock par value 0 01 per share the Class A common stock on June 18 2019 Unless the context requires otherwise references in this Annual Report on Form 10 K to Chewy the Company we our or us refer to Chewy Inc and its consolidated subsidiaries
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 3 200 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 130 000 products and services offerings to bring what we believe is a high bar customer centric experience to our customers By leveraging our extensive supply chain infrastructure consisting of fulfillment centers located in the U S and Canada we are typically able to offer our products in a localized manner with the capability to serve over 80 of the U S population overnight and almost 100 in two days
Pet parents increasingly view pets as part of the family and are willing to spend more on higher quality goods and services for those family members According to research conducted by Packaged Facts 93 of pet owners in the U S consider their pets to be a part of their family Additionally 85 of pet owners agree with the statement that pets are central to their home life and 73 would go as far as to say they consider themselves a pet parent Furthermore according to Packaged Facts pet parents look for products that improve their pet s health and wellness with 74 of pet parents willing to pay more for foods with extra health and wellness benefits
According to Packaged Facts spending in the U S pet market has grown from 92 billion in 2018 to an estimated 151 billion in 2024 or at an 8 7 compounded annual growth rate CAGR over that time Packaged Facts projects the U S pet market to grow at an estimated CAGR of approximately 4 from 2024 through 2028
Spending on pets is a necessity and most customers purchase frequently and at regular intervals The pet industry is one of the most resilient categories during economic downturns because of the nature of the pet parent pet relationship For example during the recession from 2008 to 2010 overall consumer spending in the U S declined while pet spending in the U S increased by 12 according to the American Pet Products Association the APPA In 2010 alone spending in the U S on entertainment decreased by 7 0 food decreased by 3 8 housing decreased by 2 0 and apparel and services decreased by 1 4 according to the U S Bureau of Labor Statistics while spending on pets increased by 6 2 according to the APPA
The pet industry experienced a significant increase in demand as a result of the COVID 19 pandemic despite the overall economic downturn particularly within the e commerce channel Pet adoptions and fostering surged with stay at home orders due to the COVID 19 pandemic further increasing demand and the continued humanization of pets The impacts of COVID 19 remain prominent in pet health trends with 46 of dog and cat owners noting they still pay closer attention to their pets health and wellness because of COVID 19 according to Packaged Facts
While the COVID 19 pandemic and subsequent economic downturn have impacted consumer spending broadly the pet industry continues to demonstrate resiliency and the stickiness of pet care spending According to Packaged Facts as of August 2024 only 10 of pet owners agreed that they were spending less on pet food compared to the preceding 12 months
The pet industry like many other industries in the U S continues to shift from in store to online purchases as internet shopping continues to take market share from brick and mortar retail Packaged Facts reports that online shopping grew from 20 of U S retail pet product sales in 2018 to an estimated 38 in 2024 with over 37 billion of pet food and treats sold online This represents a 23 CAGR for online pet retail over that time frame
According to Packaged Facts 56 of pet product shoppers surveyed in January 2024 had purchased pet products through a website in the last 12 months and 36 through a smartphone application We believe that the secular trend toward online shopping will continue for a significant period as consumers look to benefit from the convenience of home delivery and subscription based purchasing and the heightened safety of a contactless shopping experience
Additionally according to a Packaged Facts survey conducted in January 2024 among those who buy pet products online 54 have used an Autoship subscription purchasing program within the last 12 months for pet related products According to Packaged Facts 28 of pet parents surveyed in January 2024 used subscription based purchasing for pet food in the prior 12 months which was up from 22 of pet parents surveyed in January 2023 We believe that the trend of increased subscription based purchasing behavior within the broader trend towards online shopping supports higher levels of customer retention and revenue visibility
Everything about our company is organized around our commitment to provide an exceptional customer experience We make the shopping experience easy and enjoyable and that makes finding and buying the right product an amazing start to the customer journey We provide competitive prices customizable and convenient automatic reordering fast and reliable order delivery and innovative technology driven services
Our customer service representatives CSRs share a common bond they love pets This shared passion is evident in every interaction they have with our customers whether via phone email or interactive live chat In addition contacting us is easy with virtually all customer calls being answered in less than ten seconds From the moment they join Chewy our CSRs receive extensive training from our knowledgeable team learning about the world of pets and our product offerings Thereafter they continue learning about brands and pets of all types via recurring training This allows them to further hone their ability to deliver highly specialized informed and authentic advice to our customers
We empower our CSRs to go above and beyond for our customers and they do so with the knowledge that our commitment to our customers is our number one priority We engage with pet parents thousands of times per day and we embrace the opportunity to WOW our customers each time from surprising them with a hand painted pet portrait to sending personalized expressions of sympathy to a family who has recently lost their pet In addition we have developed integrated technology that enables us to capture profiles for each of our customers as well as their pets so that we may provide them with personalized recommendations The expertise of our CSRs combined with the tools that we provide them allows us to deliver a high touch and high quality experience to our customers which we believe results in higher retention rates
We carry approximately 3 200 carefully selected brands and approximately 130 000 products and service offerings representing many of the best and most popular products and we regularly add new products as we strive to offer everything that pet parents may need or want for their pets In addition we offer a wide range of free educational media such as blogs videos and tutorials on our website Be Chewy com and pet health focused content on our website PetMD com to enhance our product offerings and the buying experience helping pet parents choose the right product for their pet or find answers to commonly asked questions specific to their type of pet Additionally we offer a wide range of pet health related products and services and operate the 1 pet pharmacy in America In 2020 we launched medication compounding capabilities within our Chewy Pharmacy business and launched our telehealth service called Connect with a Vet In 2021 we expanded access to Connect with a Vet to all Chewy customers with access remaining free of charge for our Autoship customers and in 2022 we further expanded this access to all registered Chewy customers In 2022 we also launched Careplus our product suite of Insurance and Wellness plans offering comprehensive coverage options across varying price points In 2023 we expanded our CarePlus suite of offerings allowing us to meet the needs of a broader range of pet parents and increase access to affordable and high quality pet healthcare offerings In 2024 we opened and operated eight veterinary clinics under the brand name Chewy Vet Care offering pet health services including routine appointments urgent care and surgery Chewy Vet Care practices are powered by our own custom built technology platform offering a seamless and efficient experience for pet parents and vet care providers alike
The strategic placement of our fulfillment centers across the U S provides us with the capability to cost efficiently ship to over 80 of the U S population overnight and almost 100 in two days The high volume of our sales high participation rate in our Autoship subscription program and relatively low seasonality of our business allow us to optimize asset utilization across our network and lower our fixed and variable cost per unit and our inventory levels Additionally our investments in automation and artificial intelligence within our fulfillment centers drive efficiency across our distribution network
We invest cash flow generated from our existing customer base to attract new customers and scale our platforms Additionally we expect to continue to invest in new growth areas across our business including expansion of Chewy s health products and services offerings following the launch of Chewy Vet Care clinics in 2024 We also expect to continue to invest in technology and product innovation to continue scaling our platform customer support marketing efforts and supply chain in order to drive growth and profitability
Our advanced technology platform was developed to enable us to grow our sales volume and increase the number of active customers while reducing marginal transaction and operational costs Given the significant fixed cost component of our technology platform we expect that our cost per transaction will continue to decrease as our sales volume grows The scalability and integrated nature of our technology platform also allow us to run our operations in a cost efficient manner by decreasing the number of our operational personnel and automating many of our planning and fulfillment processes For example we have significantly improved our processes for picking and packing orders through better forecasting inventory placement and optimal labor planning as well as investing in automated fulfillment processes Our customer service model while high touch provides our CSRs with up to date customer data to optimize their productivity As we continue to grow we expect that we will be able to further scale our fixed costs Examples of our scalable technology include i our rollout of PracticeHub in 2021 which is an e commerce solution for veterinarians that allows them to integrate their existing practice management software with our fulfillment and customer service capabilities as well as ii our sponsored ads business which has evolved from a beta version in 2022 to a more comprehensive suite of ad product offerings for our vendor partners We believe sponsored ads will enable us to scale contextual advertisements which in turn should deliver highly relevant products to customers and high margin revenue to our business
We seek to expand our share of our customers wallets by broadening the selection of products and services that we offer as well as improving customer engagement Customers have historically spent more per purchase on our websites and mobile applications after their first year as they discover the wide range of our product and service offerings and the value proposition we provide Our exceptional customer service and WOW programs help us retain customers and increase their level of engagement and spending
We intend to increase brand awareness and reach new customers by investing free cash flow from our existing customer base in advertising and marketing to acquire new customers from existing and new channels Given the high levels of customer satisfaction that we see from our customers we believe that there is significant opportunity to grow our business as consumers become more aware of our brand and our strong value proposition
We believe that we can further improve our margins as we grow net sales and we remain committed to achieving this We expect to invest in technology automation and product innovation over time to continue scaling our platform customer support marketing efforts and supply chain Our management team is committed to a disciplined use of capital designed to drive measurable improvements in unit economics and further improve our profitability
In 2016 we launched our first hardgoods private brand Frisco followed by the launch of two consumables private brands American Journey and Tylee s Millions of customers have tried and reordered at least one of our private brands over the years Our goal is to provide value to our customers by offering private brands with compelling quality and pricing In 2022 we launched Vibeful our first private brand in the pet wellness category featuring products ranging from multivitamins to hip and joint supplements We believe there is significant room to grow our private brands through continued growth of our current brands and the launch of new ones
We provide customers with a broad and comprehensive selection of over the counter and veterinarian diet offerings and Chewy Pharmacy products for their prescription and special diet needs In recent years we have expanded our products and services to advance our mission to be the most trusted resource for pet parents and veterinarians alike and to make pet healthcare more affordable and accessible to pet parents We believe that we share a common goal of pet health and wellness with the veterinarian community and we will continue to utilize our strengths to enhance partnerships with customers and veterinarians alike In 2020 we launched Connect with a Vet an industry leading telehealth service that allows pet parents to connect directly with licensed veterinarians or veterinary technicians for pet care We expanded paid access for this service to all customers with complimentary access for our Autoship customers in 2021 and in 2022 we expanded complimentary access for this service to all registered customers In 2020 we also offered customers the ability to order compounding medications in the form of customized pharmaceutical grade prescription medications that meet their pets unique needs through our own Chewy Pharmacy Today Chewy operates the 1 pet pharmacy in America In 2021 we launched PracticeHub a complete e commerce solution for veterinarians that can integrate with their existing management software manage preapproved prescriptions and enable practices to earn revenue with Chewy while we handle inventory fulfillment shipping and customer service As of February 2 2025 we have approximately 17 000 veterinary practices enrolled in the platform representing an estimated 50 of all U S vet clinics In 2022 we launched and expanded the CarePlus product suite of Insurance and Wellness plans to provide diversified offerings across price points and coverage options In 2023 we expanded our CarePlus offering allowing us to meet the needs of a broader range of pet parents In 2022 we also completed our acquisition of Petabyte Technology Inc Petabyte a provider of veterinary cloud based technology solutions In 2024 we opened and operated eight veterinary clinics under the brand name Chewy Vet Care offering pet health services including routine appointments urgent care and surgery Chewy Vet Care practices are powered by our customized technology platform offering a seamless and efficient experience for pet parents and vet care providers alike
In 2023 we launched Chewy Canada bringing Chewy s compelling value proposition to millions of pet parents in Canada Canada has a large and growing pet market with a June 2024 Packaged Facts report estimating that approximately 63 of Canadian households have pets Our goal is to provide all pet parents with the same convenient delivery experience broad assortment and high quality service that our U S customers enjoy We believe Chewy s value proposition and business model can extend beyond North America and believe there is an opportunity to expand into additional international markets in the future We expect to remain highly thoughtful deliberate and ROI focused as we evaluate expansion into additional international markets
We believe that there are additional pet offerings that can drive future growth and that our platform extends strong complementarities to other categories including additional pet services should we choose to do so The strengths of our platform may enable us to sell directly to businesses in addition to consumers
We serve customers through our websites and mobile applications and focus on delivering the best products with the best service at competitive prices We operate customer service centers 24 7 to serve our customers every single day of the year We serve pet parents across the U S and in Canada
The pet products and services industry is highly competitive and can be organized into the following categories internet including online sales by omnichannel players pet specialty stores mass merchandisers discount stores supercenters food stores wholesale clubs farm feed stores independent pet channel dollar stores drug stores natural food and veterinary
Competition in the pet products and services industry is strong particularly within the e commerce channel as the industry continues to experience a shift from in store to online shopping We face competition from the websites of our competitors such as other online retailers online sales for omnichannel retailers our suppliers own websites and traditional brick and mortar retailers as well as those in the veterinary channel Some of the principal competitive factors influencing our business are price product selection and availability fast and reliable delivery and customer service We believe our ability to provide a seamless shopping experience fast and reliable delivery options including our convenient Autoship subscription program and our knowledgeable customer service sets us apart from our competitors
Our rights in our intellectual property including trademarks patents trade secrets copyrights and domain names as well as contractual provisions and restrictions on use of our intellectual property are important to our business For example our trademark rights assist in our marketing efforts to develop brand recognition and differentiate our brands from our competitors We own a number of trademark registrations and applications in the U S and in foreign jurisdictions These trademarks include among others American Journey Blue Box Event Careplus Chewy Chewy com Chewy Vet Care Dr Lyon s Frisco Goody Box Onguard PetMD PracticeHub Tiny Tiger True Acre Farms Tylee s Vibeful and The Zoo The current registrations of these trademarks are effective for varying periods of time and may be renewed periodically provided that we as the registered owner or our licensees where applicable comply with all applicable renewal requirements including where necessary the continued use of the trademarks in connection with similar goods and services We expect to pursue additional trademark registrations to the extent we believe they would be beneficial to protecting our rights
We also own numerous domain names in connection with our business including www chewy com We also enter into and rely on confidentiality proprietary rights and other agreements with our employees consultants contractors agents and business partners to secure our ownership and protect our intellectual property trade secrets proprietary technology and other confidential information We further control the use of our proprietary technology and ownership of our intellectual property through provisions in both our customer terms of use and in our vendor terms and conditions Further we enter into agreements that include provisions that protect our intellectual property with manufacturers to develop and market pet products in connection with our private brands
Seasonality in our business does not follow that of traditional retailers such as typically high concentration of revenue in the holiday quarter Our net sales reflect consistent customer purchasing behavior between quarters We recognized 24 24 24 and 28 of our annual net sales during the first second third and fourth quarters of fiscal year 2024 respectively and the fourth quarter of fiscal year 2024 included the impact of a 53rd week
Our employees are critical to us fulfilling our mission of being the most trusted and convenient destination for pet parents and partners everywhere We accomplish this in part by recruiting hiring training and motivating employees who share our core values of delivering superior customer service and caring about the needs of pets and their parents We strive to further our mission by offering competitive compensation and benefits focusing on employee safety sharing opportunities for positive societal impact through participation in philanthropic endeavors and fostering a workplace in which everyone feels empowered to do their best work
We employed approximately 18 000 full time and part time employees as of February 2 2025 and engage staffing agencies to supplement our workforce As of March 19 2025 none of our employees were represented by a labor union or covered by a collective bargaining agreement We provide our employees with support resources and programs that advance employee engagement communication and feedback such as an annual engagement survey and quarterly pulse surveys which we use to assess and improve our practices and policies We also invest in the education training and development of employees by providing learning opportunities through various courses and programs and our internal custom learning platform Chewy University
Our compensation and benefits are designed to enable us to attract motivate and retain highly qualified talent We offer market competitive compensation and benefits including life and health medical dental and vision insurance health savings accounts a 401 k plan voluntary supplemental benefits paid time off paid parental leave family support services including child adoption and surrogacy benefits and pet adoption reimbursement and a discount for purchases made on Chewy com We offer our employees opportunities to advance their careers and are passionate about providing employees with skills and development opportunities to meet the needs of our customers and the development of our business We also offer our corporate employees Paw ternity leave allowing them to work from home for the first two weeks after a new dog is brought into their home
We continue to take proactive and precautionary steps to protect the health and safety of our employees We provide several channels for all employees to speak up ask for guidance and report concerns related to ethics or safety violations and offer certain webinars and subscriptions to support our employees health and well being
Our Chewy Gives Back team works tirelessly at continuing our philanthropic mission of supporting animal shelters and rescues everywhere During fiscal year 2024 we donated 54 million in products and supplies to animal shelters and rescues
We strive to foster inclusive engaging and safe working environments in which our employees can be their authentic and best selves We hire retain and promote exceptional talent that values different backgrounds experiences and perspectives Our seven Team Member Resource Groups which are available to all full time employees and led by employee volunteers seek to provide opportunities for employees to build connections and understanding through awareness programs and events
Our website address is www chewy com and our investor relations website is investor chewy com We promptly make available on our investor relations website free of charge the reports that we file or furnish with the SEC corporate governance information including our Code of Business Conduct and Ethics and select press releases We file annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13 a 14 and 15 d of the Securities Exchange Act of 1934 as amended the Exchange Act The SEC maintains a website at www sec gov that contains reports proxy and information statements and other information regarding Chewy and other issuers that file electronically with the SEC
The following are important factors that could affect our business financial condition or results of operations and could cause actual results for future periods to differ materially from our anticipated results or other expectations including those expressed in any forward looking statements made in this Annual Report on Form 10 K our other filings with the SEC or in presentations such as telephone conferences and webcasts open to the public You should carefully consider the following factors in conjunction with this Annual Report on Form 10 K including Management s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and our consolidated financial statements and related notes in Item 8 The risks and uncertainties described below are not the only ones we face
Additional risks and uncertainties that we are unaware of or that we currently believe are not material may also become important factors that adversely affect our business financial condition or results of operations
If any of the following risks actually occur or other risks that we are not aware of become material our business financial condition results of operations and future prospects could be materially and adversely affected
Our business faces significant risks The risk factors described below are only a summary of the principal risk factors associated with an investment in us These risks are more fully described in this Risk Factors section including the following
Our business depends on network and mobile infrastructure our third party data center hosting facilities including cloud service providers other third party providers and our ability to maintain and scale our technology Any significant interruptions or delays in service on our websites or mobile applications or any undetected errors or design faults could result in limited capacity reduced demand processing delays and loss of customers or suppliers
Our failure or the failure of third party service providers to protect our websites networks and systems against cybersecurity incidents or to otherwise protect our confidential information could damage our reputation and brand and harm our business financial condition and results of operations
Risks associated with our suppliers and our outsourcing partners many of which are located outside of the United States U S could materially and adversely affect our business financial condition and results of operations
We are subject to extensive laws and regulations and we may incur material liabilities or costs related to complying with existing or future laws and regulations and our failure to comply may result in enforcements penalties recalls and other adverse actions
We may inadvertently not comply with various laws and regulations covering our pet health business which may subject us to reprimands sanctions probations fines suspensions or the loss of one or more of our licenses
Resistance from veterinarians to authorize prescriptions or their efforts to discourage pet owners from purchasing from us could cause our sales to decrease and could adversely affect our business financial condition and results of operations
Failure to comply with laws and regulations relating to privacy data protection cybersecurity marketing and advertising and consumer protection could adversely affect our business financial condition and results of operations
We may be unable to adequately protect our intellectual property rights Additionally we may be subject to intellectual property infringement claims or other allegations which could result in substantial damages and diversion of management s efforts and attention
We rely on the performance of members of management and highly skilled personnel and our business could be harmed if we are unable to attract develop motivate and retain highly qualified and skilled employees
We may seek to grow our business through acquisitions or investments in new or complementary businesses technologies or offerings or through other strategic transactions and the failure to manage these acquisitions investments or strategic transactions or to integrate them with our existing business could have a material adverse effect on us
Government regulation of the Internet and e commerce is evolving and unfavorable changes or failure by us to comply with these regulations could harm our business financial condition and results of operations
Substantial future sales by affiliates of BC Partners the BCP Stockholder Parties or others of our Class A common stock and or Class B common stock par value 0 01 per share the Class B common stock and together with the Class A common stock the common stock or the perception that such sales may occur could depress the price of our Class A common stock
There could be potential conflicts of interests between us and affiliates of the BCP Stockholder Parties In addition our directors may encounter conflicts of interest involving us and the other entities with which they may be affiliated including matters that involve corporate opportunities
Anti takeover provisions in our charter documents and under Delaware law could make an acquisition of the Company more difficult limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock
Our amended and restated certificate of incorporation includes exclusive forum provisions which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors officers or employees
We cannot guarantee that our Repurchase Program as defined below will be fully consummated or that it will enhance long term stockholder value Share repurchases could also increase the volatility of the trading price of our common stock and could diminish our cash reserves
If our internal control over financial reporting or our disclosure controls and procedures are not effective we may be unable to accurately report our financial results prevent fraud or file our periodic reports in a timely manner which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price
The requirements of being a public company require significant resources and management attention and result in significant legal and financial compliance costs and changing laws regulations and standards are creating uncertainty for public companies
We have experienced significant growth in recent periods This rate of growth may not be sustainable or indicative of our future rate of growth We believe that our continued growth in net sales will depend upon among other factors our ability to
develop a scalable high performance technology and fulfillment infrastructure that can efficiently and reliably handle increased demand as well as the deployment of new features and the sale of new products and services
Our ability to improve margins and maintain profitability will also depend on the factors described above We cannot provide assurance that we will be able to successfully manage any of the foregoing challenges to our future growth Any of these factors and others not listed could cause our net sales growth to decline and may adversely affect our margins and profitability We have also benefited from increasing pet ownership and discretionary spending on pets To the extent these trends slow or reverse our net sales margins and profitability could be adversely affected Failure to continue our net sales growth or improve margins could have a material adverse effect on our business financial condition and results of operations You should not rely on our historical rate of net sales growth as an indication of our future performance
Our operations and supply chain could be disrupted by natural or man made disasters including severe weather hurricanes earthquakes floods fires power or water shortages telecommunications failures materials scarcity and price volatility terrorism civil unrest conflicts or wars and health epidemics or pandemics
Several of our fulfillment centers customer service centers and corporate offices are located in Florida Texas and other areas that are susceptible to hurricanes sea level rise earthquakes and other natural disasters and severe weather events including those resulting from climate change We recognize that the frequency and intensity of natural disasters and severe weather events may continue to increase and as a result our exposure to these events may increase A potential result of climate change is more frequent or severe natural disasters or weather events To the extent such natural disasters or weather events do become more frequent or severe disruptions to our business and costs to repair facilities or maintain or resume operations could increase The long term impacts of climate change may be widespread and unpredictable These changes over time could also affect for example the availability and cost of our products insurance commodities and energy including utilities which in turn may impact our ability to procure those certain goods or services required for the operation of our business Therefore we may experience certain risks including higher costs such as uninsured property losses and higher insurance premiums as well as unexpected disruptions to our business and operations which could materially and adversely affect our business financial condition and results of operations
Public health crises and the measures taken in response to such events have negatively impacted and may negatively impact our business operations in the future as well The extent to which any public health crisis may impact our business will depend on future developments that are uncertain and unpredictable including the duration and severity of such events their impact on capital and financial markets the availability and use of vaccines virus mutations and variants the length of time for economic and operating conditions to return to prior levels together with resulting consumer and government behaviors and numerous other uncertainties Any of these events could have a material adverse impact on our business financial condition results of operations and ability to execute and capitalize on our strategies for a period of time that is currently unknown
If any of our fulfillment centers were to shut down suffer substantial labor shortages or lose significant capacity for any reason our operations could be significantly disrupted Our business relies on an efficient and effective supply chain including the transportation of our products as well as the effective functioning of our fulfillment centers Any interruption or malfunction in our fulfillment operations that could negatively affect the flow or availability of our products and result in difficulties in timely obtaining product from vendors and transportation of those products to our fulfillment centers could adversely affect our sales and results of operations
Our success depends on our ability to acquire and retain new customers and to do so in a cost effective manner In order to expand our customer base we must in part acquire customers who have historically purchased their pet products and services from other retailers such as traditional brick and mortar retailers the websites of our competitors or our suppliers own websites We have made significant investments related to customer acquisition and expect to continue to spend significant amounts to acquire additional customers We cannot assure you that the net sales from the new customers we acquire will ultimately exceed the cost of acquiring those customers There are many factors that may result in our inability to acquire or retain customers If we are unable to acquire or retain customers who purchase products in volumes sufficient to grow our business we may be unable to generate the scale necessary to achieve operational efficiency and drive beneficial network effects with our suppliers Additionally we may be required to incur significantly higher marketing expenses in order to acquire new customers Consequently our prices may increase or may not decrease to levels sufficient to generate customer interest our net sales may decrease and our margins and profitability may decline or not improve As a result our business financial condition and results of operations may be materially and adversely affected
If our efforts to satisfy our customers are not successful we may be unable to acquire new customers in sufficient numbers to continue to grow our business and we may be required to incur significantly higher marketing expenses in order to acquire new customers
We also use paid and non paid advertising Our paid advertising includes search engine marketing direct mail display television radio and magazine advertising paid social media and product placement Our non paid advertising efforts include search engine optimization non paid social media and e mail marketing We have relied on and may continue relying on search engines to drive a significant amount of traffic to our websites Search engines frequently update and change the logic that determines the placement and display of results of a user s search such that the purchased or algorithmic placement of links to our websites can be negatively affected Moreover a search engine could for competitive or other purposes alter its search algorithms or results causing our websites to place lower in search query results If there are changes in the usage and functioning of search engines or decreases in consumer use of search engines for example as a result of the continued development of AI technology this could negatively impact our websites
We also drive a significant amount of traffic to our websites via social networking or other e commerce channels used by our current and prospective customers As social networking and e commerce channels continue to rapidly evolve we may be unable to develop or maintain a presence within these channels If we are unable to cost effectively drive traffic to our websites our ability to acquire new customers and our financial condition would be materially and adversely affected Additionally if we fail to increase our net sales per active customer generate repeat purchases or maintain high levels of customer engagement our business financial condition and results of operations could be materially and adversely affected
To manage our growth effectively we must continue to among other things implement our operational plans and strategies improve and expand our infrastructure of people and information systems and expand train and manage our employee base To support our continued growth we must effectively integrate develop and motivate our employees We face significant competition for personnel in the areas where our corporate offices are located and certain other areas in which we have operations Failure to manage our hiring needs effectively or successfully integrate our new hires may have a material adverse effect on our business financial condition and results of operations
Additionally the growth of our business places significant demands on our management and other employees We are required to manage relationships with a growing number of suppliers customers and other third parties Our information technology systems supply chain operations and our internal controls and procedures may not be adequate to support future growth of our customer or supplier base If we are unable to manage the growth of our organization effectively our business financial condition and results of operations may be materially and adversely affected
The growth of our business depends on our ability to accurately predict and timely respond to consumer trends successfully introduce new products and services improve existing products and services and expand into new offerings Our growth also depends on our ability to meet the requirements of our customers and the needs of their pets by successfully introducing new products and services improving and repositioning our existing products and services and expanding into new offerings These factors contribute to our ability to predict and respond to evolving consumer trends demands and preferences The development and introduction of innovative new products and services and expansion into new offerings involves considerable costs In addition it may be difficult to establish new supplier or partner relationships and determine appropriate product selection when developing a new product service or offering Any new product service or offering may not generate sufficient customer interest and sales to become profitable or to cover the costs of its development and promotion and may reduce our operating income In addition any such unsuccessful effort may adversely affect our brand and reputation If we are unable to anticipate identify develop or market products services or new offerings that respond to changes in consumer requirements and preferences or if our new product or service introductions repositioned products or services or new offerings fail to gain consumer acceptance we may be unable to grow our business as anticipated our sales may decline and our margins and profitability may decline or not improve As a result our business financial condition and results of operations may be materially and adversely affected
In addition while we plan to continue to invest in the expansion of our current offerings and new offerings we may be unable to maintain or expand our sales respond timely to changes in regulations or enter into strategic relationships with market leading suppliers and other market participants We may encounter certain challenges in manufacturing our products including the loss of key suppliers and product recalls Maintaining consistent product quality competitive pricing and availability of our products and services for our customers is essential to developing and maintaining customer loyalty and brand awareness Our inability to sustain the growth and sales of our current and future offerings may materially and adversely affect our projected growth rates business financial condition and results of operations
We believe that one of the reasons our customers prefer to shop at Chewy is the reputation we have built for providing an exceptional customer experience To be successful in the future we must continue to preserve grow and leverage the value of our reputation and our brand Reputational value is based in large part on perceptions of subjective qualities and even isolated incidents may erode trust and confidence and have adverse effects on our business and financial results particularly if they result in adverse publicity or widespread reaction on social media governmental investigations or litigation Our brand could be adversely affected if our public image or reputation were to be tarnished by negative publicity Failure to comply or accusations of failure to comply with ethical social product labor data privacy and environmental standards could also
jeopardize our reputation and potentially lead to various adverse consumer actions Any of these events could adversely affect our business Additionally there is an increasing focus from some regulators investors and other stakeholders on environmental social and governance ESG matters To the extent our products and services create ESG related concerns our reputation may be harmed
Our operating expenses may increase over the next several years as we increase our advertising and marketing launch and expand our offerings and geographical presence hire additional personnel and continue to develop and enhance features on our websites and mobile applications Our operating expenses have been affected and may again be affected by increased costs as a result of macroeconomic impacts While it is difficult for us to predict our future results of operations if we have future negative cash flow or losses resulting from our investment in our business our financial condition and stock price could be materially and adversely affected
Net sales and results of operations are difficult to forecast because they generally depend on the volume timing and type of orders we receive all of which are uncertain We base our expense levels and investment plans on our estimates of net sales and gross margins We cannot be sure the same growth rates trends and other key performance metrics are meaningful predictors of future growth If our assumptions prove to be wrong we may spend more than we anticipate acquiring and retaining customers or may generate lower net sales per active customer than anticipated either of which could have a negative impact on our business financial condition and results of operations
Data for sales of pet products and services is collected for most but not all channels and as a result it is difficult to estimate the size of the markets that we operate in and predict the rate at which the markets for our products and services will grow if at all While our market size estimates are made in good faith and are based on assumptions and estimates we believe to be reasonable these estimates may not be accurate If our estimates of the size of our addressable markets are not accurate our potential for future growth may be less than we currently anticipate which could have a material adverse effect on our business financial condition and results of operations
We also purchase significant amounts of products from a number of suppliers with limited supply capabilities There can be no assurance that our current suppliers will be able to accommodate our anticipated growth or continue to supply current quantities at preferential prices An inability of our existing suppliers to provide products in a timely or cost effective manner could impair our growth and materially and adversely affect our business financial condition and results of operations For instance we have experienced disruptions by existing suppliers being unable to supply us with products in a timely or cost effective manner While we believe these disruptions were temporary they may occur again and a continued inability of our existing suppliers to provide products or other product supply disruptions that may occur in the future could impair our business financial condition and results of operations
If any of our significant pet product suppliers discontinue selling to us at any time or discontinue offering us any preferential pricing or exclusive incentives we could experience a negative impact on our business financial condition and results of operations In addition in our experience it is challenging to persuade pet food buyers to switch to a different product which could make it difficult to retain certain customers if we lose a pet food supplier thereby exacerbating the negative impact of such loss on our business financial condition and results of operations
We continually seek to expand our base of suppliers and to identify new pet products If we are unable to identify or enter into distribution relationships with new suppliers or to replace the loss of any of our existing suppliers we may experience a competitive disadvantage our business may be disrupted and our business financial condition and results of operations may be adversely affected
Most of the premium pet food brands that we purchase are not widely carried in supermarkets warehouse clubs or mass merchants If any premium pet food manufacturers were to make premium pet food products widely available in supermarkets or through mass merchants or if the premium brands currently available to supermarkets and mass merchants were to increase their market share at the expense of the premium brands sold only through specialty pet food and supplies retailers our ability to attract and retain customers and our competitive position may suffer Furthermore if supermarkets warehouse clubs or mass merchants begin offering any of these premium pet food brands at lower prices our sales and gross margin could be adversely affected
Certain of our principal suppliers currently provide us with incentives related to various trade allowances cooperative advertising and market development funds A reduction or discontinuance of these incentives could reduce our overall profitability Similarly if one or more of our suppliers were to offer certain incentives including preferential pricing to our competitors our competitive advantage could be reduced which could materially and adversely affect our business financial condition and results of operations
We have relied on and will continue to rely on third party national regional and local logistics providers to ship and deliver our products If we are not able to negotiate acceptable pricing and other terms with these providers or if these providers experience performance problems or other difficulties in processing our orders or delivering our products to customers it could negatively impact our results of operations and our customers experience In addition our ability to receive inbound inventory efficiently and ship merchandise to customers may be negatively affected by factors beyond our and these providers control including inclement weather fire flood power loss earthquakes acts of war or terrorism or other events such as labor disputes financial difficulties volatility in the prices of fuel gasoline and commodities such as paper and packing supplies system failures and other disruptions to the operations of the shipping companies on which we rely We are also subject to risks of damage or loss during delivery by our shipping vendors If the products ordered by our customers are not delivered in a timely fashion or are damaged or lost during the delivery process our customers could become dissatisfied and cease buying our products which would adversely affect our business financial condition and results of operations Further due to conditions beyond our control we have experienced and may continue to experience disruptions and delays in national regional and local shipping which may negatively impact our customers experience and our results of operations These conditions may disrupt our suppliers and logistics providers and other third party delivery agents as their workers may be unable to report to work and transporting products within regions or countries may be limited due to extended holidays factory closures port closures and increased border controls and closures among other things We have incurred and may continue to incur higher shipping costs due to various surcharges by third party delivery agents If we are unable to recover these additional costs our margins and profitability may be adversely affected
If we do not optimize and operate our fulfillment centers successfully and efficiently it could result in excess or insufficient fulfillment capacity an increase in costs or impairment charges or harm to our business in other ways In addition if we do not have sufficient fulfillment capacity or experience problems fulfilling orders in a timely manner including as a result of unforeseen disruptions our customers may experience delays in receiving their purchases which could harm our reputation our relationship with our customers and our results of operations In addition we have had to and may again have to pause operations at a fulfillment center which resulted in and could again result in delayed or canceled orders These actions or other actions that we may take in response to unforeseen circumstances that have the effect of delaying or canceling orders could negatively impact our ability to maintain protect or enhance our brand We have also experienced and may continue to experience disruptions to our supply chain operations and labor workforce availability due to factors beyond our control If we are unable to successfully optimize our fulfillment centers or manage inventory effectively it could increase costs and adversely affect our business
We have designed and built our own fulfillment center infrastructure which is tailored to meet the specific needs of our business including customizing third party inventory and package handling software systems and automated fulfillment capabilities If we continue to add fulfillment and warehouse capabilities add new businesses or categories with different fulfillment requirements or change the mix in products that we sell our fulfillment network could become increasingly complex and operating it may become more challenging Failure to successfully address such challenges in a cost effective and timely manner could impair our ability to timely deliver our customers purchases and could harm our reputation and ultimately our business financial condition and results of operations
We may add additional fulfillment center capacity as our business continues to grow and our offerings expand We cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans If we are unable to secure new facilities for the expansion of our fulfillment operations recruit qualified personnel to support any such facilities or effectively control expansion related expenses our business financial condition and results of operations could be materially and adversely affected If we grow faster than we anticipate we may exceed our fulfillment center capacity sooner than we anticipate we may experience problems fulfilling orders in a timely manner or our customers may experience delays in receiving their purchases which could harm our reputation and our relationship with our customers and we would need to increase our capital expenditures more than anticipated and in a shorter time frame than we currently anticipate
Our ability to operate and potentially expand our fulfillment center capacity including our ability to secure suitable facilities and recruit qualified employees may be affected by unforeseen circumstances and macroeconomic impacts Many of the expenses and investments with respect to our fulfillment centers are fixed and any expansion of such fulfillment centers will require additional investment of capital We have incurred and may again incur increased capital expenditures for our fulfillment center operations as our business continues to grow We would typically incur such expenses and make such investments in advance of expected sales and such expected sales may not occur Any of these factors could materially and adversely affect our business financial condition and results of operations
Our customers generally access the Internet through devices other than personal computers including mobile phones handheld computers such as notebooks and tablets video game consoles and television set top devices The versions of our websites and mobile applications developed for these devices may not be compelling to consumers Adapting our services and or infrastructure to these devices as well as other new Internet networking or telecommunications technologies could be time consuming and could require us to incur substantial expenditures which could adversely affect our business financial condition and results of operations
Additionally as new mobile devices and platforms are released it is difficult to predict the problems we may encounter in developing applications for alternative devices and platforms and we may need to devote significant resources to the creation support and maintenance of such applications If we are unable to attract consumers to our websites or mobile applications through these devices or are slow to develop a version of our websites or mobile applications that is more compatible with alternative devices we may fail to capture a significant share of consumers in the pet food and accessory market and could also lose customers which could materially and adversely affect our business financial condition and results of operations
Our technology platform may also use open source software The use of such open source software may subject us to certain conditions including the obligation to offer distribute or disclose our technology platform for no or reduced cost make the proprietary source code subject to open source software licenses available to the public license our software and systems that use open source software for the purpose of making derivative works or allow reverse assembly disassembly or reverse engineering We monitor our use of open source software to avoid subjecting our technology platform to conditions we do not intend However if our technology platform becomes subject to such unintended conditions it could have an adverse effect on our business financial condition and results of operations
We continually consider whether to upgrade existing technologies and business applications and we may be required to implement new technologies such as those related to artificial intelligence AI in the future The implementation of upgrades and changes may require significant investments Our results of operations may be affected by the timing effectiveness and costs associated with the implementation of any upgrades or changes to our systems and infrastructure In the event that it is more difficult for our customers to buy products from us on their mobile devices or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites we could lose customers and fail to attract new customers As a result our customer growth could be harmed and our business financial condition and results of operations may be materially and adversely affected
We currently accept payments using a variety of methods including credit card debit card PayPal Apple Pay and gift cards and may offer new payment options over time These payment options subject us to additional regulations and compliance requirements and may also increase our exposure to fraud criminal activity and other risks For certain payment methods we pay interchange and other fees which may increase over time and raise our operating costs and lower profitability We are also subject to payment card association operating rules and certification requirements including the Payment Card Industry Data Security Standard PCI DSS and rules governing electronic funds transfers which could change or be reinterpreted to make it difficult or impossible for us to comply Failure to comply with PCI DSS or to meet other payment card standards may result in the imposition of financial penalties or the allocation by the card brands of the costs of fraudulent charges to us
Furthermore as our business changes we may be subject to different rules under existing standards which may require new assessments that involve additional costs for compliance In the future as we offer new payment options to consumers including by way of integrating emerging mobile and other payment methods we may be subject to additional regulations compliance requirements and fraud If we fail to comply with the rules or requirements of any provider of a payment method we accept if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept or if a data breach occurs relating to our payment systems we may among other things be subject to fines or higher transaction fees and may lose or face restrictions placed upon our ability to accept credit card payments from consumers or facilitate other types of online payments If any of these events were to occur our business financial condition and results of operations could be materially and adversely affected
We have previously received and could continue to receive orders placed with fraudulent data Bad actors have exploited and may continue to exploit stolen data from data breaches unrelated to us which may increase the number of orders placed with fraudulent data If we are unable to detect or control fraud our liability for these transactions could harm our business financial condition and results of operations
other third party providers and our ability to maintain and scale our technology Any significant interruptions or delays in service on our websites or mobile applications or any undetected errors or design faults could result in limited capacity reduced demand processing delays and loss of customers or suppliers
An element of our strategy is to generate a high volume of traffic on and use of our websites and mobile applications Our reputation and ability to acquire retain and serve our customers are dependent upon the reliable performance of our websites mobile applications on premises systems and the underlying network infrastructure As our customer base and the amount of information shared on our websites and mobile applications continue to grow we are likely to need an increasing amount of network capacity and computing power We have spent and expect to continue to spend substantial amounts on data centers including cloud providers and equipment and related network infrastructure to handle the traffic on our websites and mobile applications The operation of these systems is complex and we have experienced and could in the future experience minor interruptions which could increase in severity and result in operational failures In some cases we access platforms run by third party cloud providers which makes us vulnerable to their service interruptions In the event that the volume of traffic of our customers exceeds the capacity of our current network infrastructure or in the event that our customer base or the amount of traffic on our websites and mobile applications grows more quickly than anticipated we may be required to incur significant additional costs to enhance the underlying network infrastructure Significant interruptions or delays in these systems whether due to system failures computer viruses physical or electronic break ins undetected errors design faults or other unexpected events or causes could affect the security or availability of our websites and mobile applications and prevent our customers from accessing our websites and mobile applications If sustained or repeated these performance issues could reduce the attractiveness of our products and services In addition the costs and complexities involved in expanding and upgrading our systems may prevent us from doing so in a timely manner and may prevent us from adequately meeting the demand placed on our systems Any web or mobile platform interruption or inadequacy that causes performance issues or interruptions in the availability of our websites or mobile applications could reduce consumer satisfaction and result in a reduction in the number of consumers using our products and services
We depend on the development and maintenance of the Internet and mobile infrastructure This includes maintenance of reliable Internet and mobile infrastructure with the necessary speed data capacity and security as well as timely development of complementary products for providing reliable Internet and mobile access We also use and rely on services from other third parties such as our telecommunications services and payment processors and those services may be subject to outages and interruptions that are not within our control We have experienced telecommunication issues and increased failures by our telecommunications providers may interrupt our ability to provide phone support to our customers and distributed denial of service DDoS attacks directed at our telecommunication service providers could prevent customers from accessing our websites In addition we have and may continue to experience down periods where our third party payment processors are unable to process the online payments of our customers and our ability to receive customer orders is disrupted Our business financial condition and results of operations could be materially and adversely affected if for any reason the reliability of our Internet telecommunications payment systems and mobile infrastructure is compromised
We currently rely upon third party service providers including cloud service providers such as Amazon Web Services AWS Nearly all of our data storage and analytics are conducted on and the data and content we create associated with sales on our websites and mobile applications are processed through servers hosted by these providers We also rely on e mail service providers bandwidth providers Internet service providers and mobile networks to deliver e mail and push communications to customers and to allow customers to access our websites We have experienced and may again experience cybersecurity incidents due to disruptions to systems maintained by third party service providers
Any significant damage to or failure of our systems or the systems of our third party data centers or our other service providers could result in prolonged interruptions to the availability or functionality of our websites and mobile applications As a result we could lose customer data and miss order fulfillment deadlines which could result in decreased sales increased overhead costs excess inventory and product shortages If for any reason our arrangements with our data centers cloud service providers or other third party providers are terminated or interrupted such termination or interruption could adversely affect our business financial condition and results of operations We exercise little control over these providers which increases our vulnerability to problems with the services they provide We have designed certain of our software and computer systems to also utilize data processing storage capabilities and other services provided by AWS Given this along with the fact that we cannot rapidly switch our AWS operations to another cloud provider any disruption of or interference with our use of AWS would impact our operations and our business would be adversely impacted We could experience additional expense in arranging for new facilities technology services and support In addition the failure of our third party data centers including cloud service providers or any other third party providers to meet our capacity requirements could result in interruption in the availability or functionality of our websites and mobile applications
The satisfactory performance reliability and availability of our websites mobile applications transaction processing systems and technology infrastructure are critical to our reputation and our ability to acquire and retain customers as well as to maintain adequate customer service levels We have experienced and may again experience unavailability of our websites and mobile applications primarily due to DDoS events and increased unavailability of our websites or of our mobile applications or reduced order fulfillment performance would reduce the volume of goods sold and could also materially and adversely affect consumer perception of our brand Any slowdown or failure of our websites mobile applications or the underlying technology infrastructure could harm our business reputation and our ability to acquire retain and serve our customers
The occurrence of a natural disaster power loss telecommunications failure data loss computer virus ransomware attack an act of terrorism cyberattack vandalism or sabotage act of war or any similar event or a decision to close our third party data centers on which we normally operate or the facilities of any other third party provider without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in the availability of our websites and mobile applications Cloud computing in particular is dependent upon having access to an Internet connection in order to retrieve data If a natural disaster pandemic blackout or other unforeseen event were to occur that disrupted the ability to obtain an Internet connection we may experience a slowdown or delay in our operations While we have some limited business continuity arrangements in place our preparations may not be adequate to account for disasters or similar events that may occur in the future and may not effectively permit us to continue operating in the event of any problems with respect to our systems or those of our third party data centers or any other third party facilities Our business continuity and data redundancy plans may be inadequate and our business interruption insurance may not be sufficient to compensate us for the losses that could occur If any such event were to occur to our business our operations could be impaired and our business financial condition and results of operations may be materially and adversely affected
We use SaaS technologies from third parties in order to operate critical functions of our business including financial management services customer relationship management services supply chain services and data storage services If these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices or for any other reason our expenses could increase our ability to manage our finances could be interrupted our processes for managing sales of our offerings and supporting our customers could be impaired our ability to communicate with our suppliers could be weakened and our ability to access or save data stored to the cloud may be impaired until equivalent services if available are identified obtained and implemented all of which could harm our business financial condition and results of operations
Our failure or the failure of third party service providers to protect our websites networks and systems against cybersecurity incidents or to otherwise protect our confidential information could damage our reputation and brand and harm our business financial condition and results of operations
As a result of our services being primarily web based we collect process transmit and store large amounts of data about our customers employees suppliers and others including credit card information which we don t store and personally identifiable information as well as other confidential and proprietary information We also employ third party service providers for a variety of reasons including storing processing and transmitting proprietary personal and confidential information on our behalf While we rely on tokenization solutions licensed from third parties in an effort to securely transmit confidential and sensitive information including credit card numbers advances in computer capabilities new technological discoveries or other developments may result in the whole or partial failure of these solutions to protect confidential and sensitive information from being breached or compromised Similarly our security measures and those of our third party service providers may not detect or prevent all attempts to hack our systems or those of our third party service providers DDoS attacks viruses malicious software break ins phishing attacks ransomware social engineering cyber attacks security breaches or other cybersecurity incidents and similar disruptions that may jeopardize the security of information stored in or transmitted by our websites networks and systems or that we or our third party service providers otherwise maintain including payment card systems may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods The integration of AI into our operations could also increase cybersecurity and privacy risks and could lead to potential unauthorized access misuse acquisition release disclosure alteration or destruction of company or customer data or other confidential or proprietary information Further threat actors may leverage AI technology to launch more sophisticated automated targeted and coordinated attacks that are more difficult to detect We and our service providers may not anticipate or prevent all types of attacks until after they have already been launched and techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third party service providers In addition cybersecurity incidents can also occur as a result of non technical issues including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships
Breaches of our security measures or those of our third party service providers or any cybersecurity incident could result in unauthorized access to our websites networks and systems unauthorized access to and misappropriation of consumer and or
employee information including personally identifiable information or other sensitive confidential or proprietary information of ourselves or third parties viruses worms spyware or other malware being served from our websites networks or systems deletion or modification of content or the display of unauthorized content on our websites interruption disruption or malfunction of operations costs relating to cybersecurity incident remediation deployment of additional personnel and
protection technologies response to governmental investigations and media inquiries and coverage engagement of third party experts and consultants litigation regulatory action and other potential liabilities If any of these cybersecurity incidents occur or there is a public perception that we or our third party service providers have suffered such a breach our reputation and brand could also be damaged and we could be required to expend significant capital and other resources to alleviate problems caused by such cybersecurity incidents As a consequence our business could be materially and adversely affected and we could also be exposed to litigation and regulatory action and possible liability In addition any party who is able to illicitly obtain a customer s password could access the customer s transaction data or personal information Any compromise or breach of our security measures or those of our third party service providers could violate applicable privacy data security and other
laws and cause significant legal and financial exposure adverse publicity and a loss of confidence in our security measures which could have a material adverse effect on our business financial condition and results of operations This is more so since governmental authorities throughout the U S and around the world are devoting more attention to data privacy and security issues
While we maintain privacy data breach and network security liability insurance we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms or at all Additionally even though we continue to devote significant resources to monitor and update our systems and implement information security measures to protect our systems there can be no assurance that any controls and procedures we have in place will be sufficient to protect us from future cybersecurity incidents Failure by us or our vendors to comply with data security requirements or rectify a security issue may result in class action litigation fines and the imposition of restrictions on our ability to accept payment cards which could adversely affect our operations As cyber threats are continually evolving our controls and procedures may become inadequate and we may be required to devote additional resources to modify or enhance our systems in the future As a result we may face interruptions to our systems reputational damage claims under privacy cybersecurity and data protection laws and regulations customer dissatisfaction legal liability enforcement actions or additional costs any and all of which could adversely affect our business financial condition and results of operations For more information on the management of our cybersecurity programs see Item 1C Cybersecurity
We could be adversely affected if consumers lose confidence in the safety and quality of our food or other products All of our suppliers are required to comply with applicable product safety laws and we are dependent upon them to ensure such compliance One or more of our suppliers including manufacturers of our private brand products might not adhere to product safety requirements or our quality control standards Any issues of product safety or allegations that our products are in violation of governmental regulations including but not limited to issues involving products manufactured in foreign countries could cause those products to be recalled Adverse publicity about these types of concerns whether valid or not may discourage consumers from buying the products we offer or cause supplier production and delivery disruptions The real or perceived sale of contaminated food products by us could result in product liability claims against our suppliers or us expose us or our suppliers to governmental enforcement action or private litigation or lead to costly recalls and a loss of consumer confidence any of which could have an adverse effect on our business financial condition and results of operations In addition our products may be exposed to product recalls and we may be subject to litigation if they are alleged to cause or pose a risk of injury or illness or if they are alleged to have been mislabeled misbranded or adulterated or to otherwise be in violation of governmental regulations We may also voluntarily recall or withdraw products that we consider do not meet our standards whether for palatability appearance or otherwise in order to protect our brand and reputation While we carry product liability insurance our insurance may not be adequate to cover all liabilities that we may incur in connection with product liability claims For example punitive damages are generally not covered by insurance In addition we may be unable to continue to maintain our existing insurance obtain comparable insurance at a reasonable cost if at all or secure additional coverage which may result in future product liability claims being uninsured Any of these factors could negatively impact our business financial condition and results of operations
Risks associated with our suppliers and our outsourcing partners many of which are located outside of the U S could materially and adversely affect our business financial condition and results of operations
We depend on a number of suppliers and outsourcing partners to provide our customers with a wide range of products in a timely and efficient manner A significant portion of our suppliers for our private brand business and our non consumable business are located in China and if we are unable to maintain our relationships with our existing outsourcing partners or cannot enter into relationships with new outsourcing partners to meet the manufacturing and assembly needs of our private brand business our private brand business may be disrupted and our business financial condition and results of operations may be materially and adversely affected In addition political and economic instability the financial stability of our suppliers and outsourcing partners and their ability to meet our standards conflict and hostilities labor problems the availability and prices of raw materials merchandise quality issues currency exchange rates transport availability and cost transport security inflation natural disasters and epidemics tariffs taxes export controls trade restrictions and sanctions among other factors are beyond our control and may materially and adversely affect our suppliers and outsourcing partners and in turn our business financial condition and results of operations Our business has been affected by and may continue to be affected by disruptions or restrictions on our employees and other service providers ability to travel temporary closures of our facilities including one or more of our fulfillment centers or customer service centers or the facilities of our suppliers and other vendors in our supply chain In addition to the potential direct effects on us of any events beyond our control such as a public health crisis we could be materially adversely impacted including from any disruption to critical vendor services or losses of business if any of our suppliers face significant business disruptions
In addition continued and ongoing international conflict has led to disruption instability and volatility in the global markets and industries that could negatively impact our operations For example while we do not have direct operations within Russia or Ukraine the conflict involving these nations could adversely affect our business supply chain and partners Similarly while we also do not have direct operations in the Middle East the escalating tensions in the region may disrupt global markets and impact our business supply chain and customers The impact of these global events on our longer term operational and financial performance will depend on future developments our response and governmental response to inflation and the duration and severity of such conflicts
Moreover there is uncertainty regarding the future of international trade agreements and the U S position on international trade For example the current U S administration has announced and may in the future announce plans to implement or increase tariffs on imports from China Mexico Canada and other countries The U S federal government may also withdraw from or materially modify international trade agreements While we are unable to predict the extent of changes the current administration may bring to the U S government s trade policy such changes may cause us to amend our supply chain strategies or adversely impact our own costs
Additional trade restrictions including tariffs quotas embargoes safeguards and customs restrictions could increase the cost or reduce the supply of products available to us and to our suppliers and may require us to modify our supply chain organization or other current business practices any of which could harm our business financial condition and results of operations
We are subject to extensive laws and regulations and we may incur material liabilities or costs related to complying with existing or future laws and regulations and our failure to comply may result in enforcements penalties recalls and other adverse actions
We are subject to a broad range of federal state local and foreign laws and regulations including those intended to protect public and worker health and safety natural resources and the environment Our operations are subject to regulation by the Occupational Safety and Health Administration the Food and Drug Administration the Department of Agriculture and other federal state local and foreign authorities regarding the processing packaging storage distribution advertising labeling and export of our products including food safety standards In addition we and our partners are subject to additional regulatory requirements including environmental health and safety laws and regulations administered by the U S Environmental Protection Agency federal state local and foreign environmental health and safety legislative and regulatory authorities including the Department of Labor and the National Labor Relations Board covering such areas as discharges and emissions to air and water the use management disposal and remediation of and human exposure to hazardous materials and wastes and public and worker health and safety These laws and regulations also govern our relationships with employees including minimum wage requirements overtime terms and conditions of employment working conditions and citizenship requirements Violations of or liability under any of these laws and regulations may result in administrative civil or criminal fines penalties or sanctions against us revocation or modification of applicable permits licenses or authorizations environmental health and safety investigations or remedial activities voluntary or involuntary product recalls warning or untitled letters or cease and desist orders against operations that are not in compliance among other things Such laws and regulations generally have become more stringent over time and may become more so in the future and we may incur directly or indirectly material costs to comply with current or future laws and regulations or in any required product recalls Liabilities or costs of compliance with any such laws and regulations could materially and adversely affect our business financial condition and results of operations In addition changes in these laws and regulations could impose significant limitations and require changes to our business which may increase our compliance expenses make our business more costly and less efficient to conduct and compromise our growth strategy
Among other regulatory requirements the FDA reviews the inclusion of certain claims in pet food labeling For example pet food products that are labeled or marketed with claims that may suggest that they are intended to treat or prevent disease in pets would potentially meet the statutory definitions of both a food and a drug The FDA has issued guidance containing a list of specific factors it will consider in determining whether to initiate enforcement action against such products if they do not comply with the applicable regulatory requirements These factors include among other things whether the product is only made available through or under the direction of a veterinarian and does not present a known safety risk when used as labeled While we believe that we market our products in compliance with the FDA s guidance and regulations related to food and drugs the FDA may disagree with our practices or classify some of our products differently than we do and may impose additional regulatory requirements which could lead to alleged violations enforcement actions and product market withdrawals or recalls In addition we may produce new products that may be subject to FDA pre market review before we can market and sell such products
From time to time the FDA the Association of American Feed Control Officials or state regulatory authorities may enact a regulation requirement or other guidance that impacts pet food packaging labeling or marketing materials As a result we may need to incur material costs to change our packaging labeling or marketing to comply with such regulation or requirement and could be subject to liabilities if we fail to timely comply with such requirements which could have a material adverse effect on our business financial condition and results of operations
In addition to enforcement actions initiated by government agencies there has been an increasing tendency in the U S among pharmaceutical companies to resort to the courts and industry and self regulatory bodies to challenge comparative prescription drug advertising on the grounds that the advertising is false and deceptive Through the years there has been a continuing expansion of specific rules prohibitions media restrictions labeling disclosures and warning requirements with respect to the advertising for certain products
The sale and delivery of prescription pet medications and the provision of pharmacy veterinary and telehealth services are generally governed by federal and state laws and regulations and are subject to extensive oversight by state and federal governmental authorities Governmental authorities that regulate our business have broad latitude to make interpret and enforce the applicable laws and regulations and they continue to interpret and enforce those laws and regulations more strictly and more aggressively each year We are currently and may in the future continue to be subject to routine administrative inquiries related to our pharmacy veterinary and telehealth services businesses We cannot assure you that we will not be subject to reprimands sanctions probations or fines or that one or more of our licenses will not be suspended or revoked or that our ability to offer pharmacy and telehealth services will not be challenged in connection with these complaints or otherwise
Our insurance pharmacy and veterinary businesses also involve the provision of professional services that could expose us to professional liability claims Our pharmacy business is subject to risks inherent in the dispensing packaging and distribution of drugs and other health care products and services including claims related to purported dispensing and other operational errors Our veterinary business is subject to risks inherent in the administration of veterinary services including claims relating to veterinary malpractice Any failure to adhere to the laws and regulations applicable to the dispensing of drugs or provision of veterinary services could subject our businesses to administrative civil and criminal penalties
If we are unable to maintain the licenses granted by relevant state authorities in connection with our insurance pharmacy and veterinary businesses or if we become subject to actions by the FDA or other regulators our dispensing of prescription medications to pet parents could cease and we may be subject to reprimands sanctions probations or fines which could have a material adverse effect on our business financial condition and results of operations
Resistance from veterinarians to authorize prescriptions or their efforts to discourage pet owners from purchasing from us could cause our sales to decrease and could adversely affect our business financial condition and results of operations
The laws and regulations relating to the sale and delivery of prescription pet medications vary from state to state but generally require that prescription pet medications be dispensed with authorization from a prescribing veterinarian Some veterinarians resist providing customers with a copy of their pet s prescription or authorizing the prescription to our pharmacy staff thereby effectively preventing us from filling such prescriptions under applicable law Certain veterinarians have also tried to discourage pet owners from purchasing prescription medication from Internet mail order pharmacies If the number of veterinarians who refuse to authorize prescriptions to our pharmacy staff increases or if veterinarians are successful in discouraging pet owners from purchasing from us our sales could decrease and our business financial condition and results of operations may be materially adversely affected
Failure to comply with laws and regulations relating to privacy data protection cybersecurity marketing and advertising and consumer protection could adversely affect our business financial condition and results of operations
We rely on a variety of advertising and marketing techniques including email and social media marketing and postal mailings and we are subject to various laws and regulations that govern such practices A variety of applicable laws and regulations govern the collection use retention sharing and security of consumer data particularly in the context of online advertising which we rely upon to attract new customers In addition we also collect store and transmit employees health information for certain reasons such as administering employee benefits accommodating disabilities and injuries complying with public health requirements and maintaining employee safety in the workplace
Laws and regulations relating to privacy data protection cybersecurity advertising and marketing and consumer protection are evolving and subject to potentially differing interpretations These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices As a result our practices may not have complied or may not comply in the future with all such laws regulations requirements and obligations Any failure or perceived failure by us to comply with our posted privacy policies or with any privacy or consumer protection related laws regulations industry self regulatory principles industry standards or codes of conduct regulatory guidance orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation brand and business and may result in claims liabilities proceedings or actions against us by governmental entities customers suppliers or others or may require us to change our operations and or cease using certain data sets Any such claims proceedings or actions could hurt our reputation brand and business force us to incur significant expenses in defense of such
proceedings or actions distract our management increase our costs of doing business result in a loss of customers and suppliers and result in the imposition of monetary penalties We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non compliance with any laws regulations or other legal obligations relating to privacy data protection cybersecurity or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business
Governmental authorities continue to evaluate the privacy implications inherent in the use of third party cookies and other methods of online tracking for behavioral advertising and other purposes The U S government and state governments have enacted have considered or are considering enacting legislation or regulations that could significantly restrict the ability of companies and individuals to engage in these activities such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools Additionally some providers of consumer devices and web browsers have implemented or announced plans to implement means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies which could result in the use of third party cookies and other methods of online tracking becoming significantly less effective The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new customers on cost effective terms and consequently materially and adversely affect our business financial condition and results of operations
In addition various legislative and regulatory bodies or self regulatory organizations may expand current laws or regulations enact new laws or regulations or issue revised rules or guidance regarding privacy data protection cybersecurity consumer protection and advertising For example in June 2018 the State of California enacted the California Consumer Privacy Act of 2018 the CCPA which became effective on January 1 2020 The CCPA requires companies that process information of California residents to make new disclosures to consumers about their data collection use and sharing practices and allows consumers to opt out of selling their data to third parties and provides a new cause of action for data breaches Further the California Privacy Rights Act the CPRA became effective on January 1 2023 and significantly amended the CCPA by imposing additional data protection obligations on companies doing business in California including additional consumer rights processes and opt outs for certain uses of sensitive data It also created a new California data protection agency specifically tasked to enforce the law which could result in increased regulatory scrutiny of businesses conducting activities in California in the areas of data protection and security Other states in which we operate have also enacted laws similar to CPRA and similar laws have been proposed in other states and at the federal level in the U S and if passed such laws may have potentially conflicting requirements that would make compliance challenging Additionally the Federal Trade Commission the FTC and many state attorneys general are interpreting consumer protection laws to impose standards for the online collection use dissemination and security of data Consumer protection laws require us to publish statements that describe how we handle personal data and choices individuals may have about the way we handle their personal data If such information that we publish is considered untrue we may be subject to government claims of unfair or deceptive trade practices which could lead to significant liabilities and consequences Further according to the FTC violating consumers privacy rights or failing to take appropriate steps to keep consumers personal data secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5 a of the Federal Trade Commission Act Additionally government entities in Canada have enacted and continue to enact laws that may restrict our ability to attract new customers through our certain advertising and marketing technologies Each of these privacy security and data protection laws and regulations and any other such changes or new laws or regulations could impose significant limitations require changes to our business impose fines and other penalties or restrict our use or storage of personal information which may increase our compliance expenses and make our business more costly or less efficient to conduct Any such changes could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively which in turn could adversely affect our business financial condition and results of operations
Our ability to use our federal and state net operating losses and tax credits and other tax attributes to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income and we cannot predict with certainty when or whether we will generate sufficient taxable income to use all of our accumulated tax benefits In addition Sections 382 and 383 of the Internal Revenue Code of 1986 as amended the Code contain rules that impose an annual limitation on the ability of a company with net operating loss and tax credit carryforwards that undergoes an ownership change which is generally any change in ownership of more than 50 of its stock by value over a three year period to utilize its net operating loss carryforwards in years after the ownership change These rules generally operate by focusing on ownership changes among holders owning directly or indirectly 5 or more of the shares of stock of a company or any change in ownership arising from a new issuance of shares of stock by such company If a company s income in any year is less than the annual limitation prescribed by Sections 382 and 383 of the Code the unused portion of such limitation amount may be carried forward to increase the limitation and net operating loss and tax credit carryforward utilization in subsequent tax years
In addition to the aforementioned federal income tax implications pursuant to Sections 382 and 383 of the Code most states follow the general provisions of Sections 382 and 383 of the Code either explicitly or implicitly resulting in separate state net operating loss and tax credit limitations
We may be unable to adequately protect our intellectual property rights Additionally we may be subject to intellectual property infringement claims or other allegations which could result in substantial damages and diversion of management s efforts and attention
We regard our brand customer lists trademarks trade dress domain names trade secrets patents proprietary technology and similar intellectual property as critical to our success We rely on trademark copyright and patent law trade secret protection confidentiality agreements and other methods with our employees and others to protect our proprietary rights Effective intellectual property protection may not be available in every country in which we operate Additionally the use or adoption of new and emerging technologies such as AI may increase our exposure to intellectual property claims The protection of our intellectual property rights may require the expenditure of significant financial managerial and operational resources Moreover the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights and we may be unable to broadly enforce all of our intellectual property rights Any of our intellectual property rights may be challenged or invalidated through administrative process or litigation Our patent and trademark applications may never be granted Additionally the process of obtaining patent protection is expensive and time consuming and we may be unable to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner Even if issued there can be no assurance that these patents will adequately protect our intellectual property as the legal standards relating to the validity enforceability and scope of protection of patent and other intellectual property rights are uncertain We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or intellectual property rights Furthermore our confidentiality agreements may not effectively prevent disclosure of our proprietary information technologies and processes and may not provide an adequate remedy in the event of unauthorized disclosure of such information
We might be required to spend significant resources to monitor and protect our intellectual property rights For example we have initiated and may again initiate claims or litigation against others for infringement misappropriation or violation of our intellectual property rights or other proprietary rights or to establish the validity of such rights However we may be unable to discover or determine the extent of any infringement misappropriation or other violation of our intellectual property rights and other proprietary rights Despite our efforts we may be unable to prevent third parties from infringing upon misappropriating or otherwise violating our intellectual property rights and other proprietary rights Any litigation whether or not it is resolved in our favor could result in significant expense to us and divert the efforts of our technical and management personnel which may materially and adversely affect our business financial condition and results of operations
Third parties have from time to time claimed and may claim in the future that we have infringed their intellectual property rights These claims whether meritorious or not could be time consuming result in considerable litigation costs require significant amounts of management time or result in the diversion of significant operational resources and expensive changes to our business model result in the payment of substantial damages or injunctions against us or require us to enter into costly royalty or licensing agreements if available In addition we may be unable to obtain or use licenses or other rights with respect to intellectual property we do not own These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims Any payments we are required to make and any injunctions we are required to comply with as a result of these claims could materially and adversely affect our business financial condition and results of operations
Our business involves risks of personal injury workers compensation product liability labor and employment and other claims in the ordinary course of business Product liability claims from customers and product recalls for merchandise alleged to be defective or harmful could lead to the disposal or write off of merchandise inventories the incurrence of fines or penalties the provision of customer credits increased labor costs
and damage to our reputation We maintain general liability insurance with a self insured retention and workers compensation insurance with a deductible for each occurrence We also maintain umbrella insurance above the primary general liability and product liability coverage In many cases we have indemnification rights against the manufacturers of our products and are entitled to coverage under their products liability and product recall insurance Our ability to recover costs and damages under such insurance or indemnification arrangements is subject to the financial viability of the insurers and manufacturers the terms of the policy and the specific allegations of a claim No assurance can be given that any insurance coverage or the manufacturers indemnity will be available or sufficient in any claims brought against or losses incurred by us
Additionally we are subject to federal state and local employment laws that expose us to potential liability if we are determined to have violated such employment laws This includes but is not limited to laws related to wages hours worked and other terms and conditions of employment unlawful discrimination harassment retaliation or failure to accommodate and wrongful termination Compliance with these laws including the remediation of any alleged violation may have a material adverse effect on our business financial condition or results of operations
We rely on the performance of members of management and highly skilled personnel and our business could be harmed if we are unable to attract develop motivate and retain highly qualified and skilled employees
Our ability to maintain our competitive position is largely dependent on the services of our senior management and other key personnel In addition our future success depends on our continuing ability to attract develop motivate and retain highly qualified and skilled employees The market for such positions has been and may continue to be highly competitive and we may incur significant costs to attract and retain qualified individuals In addition the loss of any of our senior management or other key employees or our inability to recruit and develop mid level managers could materially and adversely affect our ability to execute our business plan and we may be unable to find adequate replacements Other than our Chief Executive Officer Chief Financial Officer and certain other senior executives all of our employees are at will employees meaning that they may terminate their employment relationship with us at any time and their knowledge of our business and industry would be difficult to replace If we fail to retain talented senior management and other key personnel or if we do not succeed in attracting highly qualified employees or motivating and retaining existing employees our business financial condition and results of operations may be materially and adversely affected
We compete with other companies for employees some of whom are larger than us and have access to greater capital resources than we do If we are unable to successfully recruit and retain personnel we may face labor shortages or be forced to increase wages and enhance benefits for such personnel which may have an adverse effect on our results of operations
Employee availability may be affected if a significant number of employees are limited in their ability to work at or travel to our locations due to disruptions to our business Future actions in response to certain events by federal state or local authorities including those that order the shutdown of non essential businesses or limit the ability of our employees to travel to work could impact our ability to take or fulfill our customers orders and operate our business and we may be unable to fully meet our customers demands for our products and services
Our results of operations are sensitive to changes in certain macroeconomic conditions that impact the pet market which could adversely impact our business financial condition and results of operations Factors such as inflation and rising interest rates have affected us and can adversely affect us by increasing costs of materials and labor In a highly inflationary environment we may be unable to raise the price of our products and services at or above the rate of inflation which could reduce our profitability In addition our costs of capital labor and materials can materially increase which could have an adverse impact on our business financial condition and results of operations Deflation could cause an overall decrease in spending and borrowing capacity which could lead to deterioration in economic conditions and employment levels Deflation could also cause the value of our inventories to decline Other uncertainties in economic conditions that impact the pet products market and its participants such as our vendors suppliers and investors may also adversely affect our business financial condition and results of operations
Some of the factors that may affect consumer spending on pet products and services include consumer confidence levels of unemployment inflation interest rates tax rates and general uncertainty regarding the overall future economic environment We may experience declines in sales or changes in the types of products sold during economic downturns Any material decline in the amount of consumer spending or other adverse economic changes could reduce our sales and a decrease in the sales of higher margin products could reduce profitability and in each case harm our business financial condition and results of operations
We allow our customers to return products or offer refunds subject to our return and refunds policy If merchandise returns or refunds are significant or higher than anticipated and forecasted our business financial condition and results of operations could be adversely affected Further we modify our policies relating to returns or refunds from time to time and may do so in the future which may result in customer dissatisfaction and harm to our reputation or brand or an increase in the number of product returns or the amount of refunds we make
We may seek to grow our business through acquisitions or investments in new or complementary businesses technologies or offerings or through other strategic transactions and the failure to manage these acquisitions investments or strategic transactions or to integrate them with our existing business could have a material adverse effect on us
We have acquired and invested in a number of businesses and we may in the future consider opportunities to acquire or make investments in new or complementary businesses facilities technologies offerings or products or enter into strategic alliances that may enhance our capabilities expand our outsourcing and supplier network complement our current products and services or expand the breadth of our markets Acquisitions investments and other strategic alliances involve numerous risks including
Our ability to successfully grow through strategic transactions depends upon our ability to identify negotiate complete and integrate suitable target businesses facilities technologies and products and to obtain any necessary financing These efforts could be expensive and time consuming and may disrupt our ongoing business and prevent management from focusing on our operations As a result of future strategic transactions we might need to issue additional equity securities spend our cash or incur debt which may only be available on unfavorable terms if at all contingent liabilities impairment charges or amortization expenses related to intangible assets any of which could reduce our profitability and harm our business If we are unable to identify suitable acquisitions investments or strategic relationships or if we are unable to integrate any acquired businesses facilities technologies offerings and products effectively our business financial condition and results of operations could be materially and adversely affected Also while we employ several different methodologies to assess potential business opportunities the new businesses or investments may not meet or exceed our expectations or desired objectives
We have expanded our business into new markets and into new product and service categories and we may continue such expansion As a new entrant we expect to face many competitive challenges including competing successfully with incumbent providers who may have longer operating histories large customer bases high brand recognition and greater financial technical marketing and other resources than we do To compete effectively we may need to invest significant resources to create brand awareness and build our reputation in these markets and categories and our efforts at building maintaining and enhancing our reputation could fail There can be no assurance that we will be able to maintain or enhance our reputation and failure to do so could materially adversely affect our business financial condition and results of operations If we are unable to maintain or enhance consumer awareness of our brand cost effectively our business financial condition and results of operations could be materially adversely affected
The laws and regulations governing the offer sale and purchase of insurance for pets are subject to change and future changes may be adverse to our business For example if a jurisdiction were to alter the requirements for obtaining or maintaining an agent s license in connection with the enrollment of a member it could have an adverse effect on our operations Some states in the U S have adopted and others are expected to adopt new laws and regulations related to the pet insurance industry Although model laws are available to guide individual states and business it is difficult to predict how these or any other new laws and regulations will impact our business but in some cases changes in insurance laws regulations and guidelines may be incompatible with various aspects of our business and require that we make significant modifications to our existing technology or practices which may be costly and time consuming to implement and could also harm our business financial condition and results of operations
Our strategy may include the continued expansion of our operations to international markets Although some of our executive officers have experience in international business from prior positions we have minimal experience with operations outside the U S and Canada Our ability to successfully execute this strategy is affected by many of the same operational risks we face in expanding our operations In addition our international expansion may be adversely affected by our ability to identify and gain access to local suppliers our ability to staff develop and manage foreign operations as a result of distance language and cultural differences our ability to obtain and protect relevant trademarks domain names and other intellectual property and local laws and customs legal and regulatory constraints political and economic conditions and currency regulations of the countries or regions in which we operate or intend to operate in the future including limitations on the repatriation and investment of funds and foreign currency exchange restrictions Risks inherent in expanding our operations internationally also
include among others the costs and difficulties of managing international operations adverse tax consequences domestic and international tariffs and other barriers to trade Further the extent and impact of any sanctions imposed in connection with the escalation of hostilities between Russia and Ukraine and in the Middle East or other geopolitical events may cause additional financial market volatility and impact the global economy and also impact our strategy of expansion into international markets
The pet products and services health and retail industries are very competitive We compete with pet product retail stores supermarkets warehouse clubs and other mass and general retail and online merchandisers including e tailers many of which are larger than us and have significantly greater capital resources than we do We also compete with a number of specialty pet supply stores and independent pet stores catalog retailers and other specialty e tailers
Many of our current competitors have and potential competitors may have longer operating histories greater brand recognition larger fulfillment infrastructures greater technical capabilities significantly greater financial marketing and other resources and larger customer bases than we do These factors may allow our competitors to derive greater net sales and profits from their existing customer base acquire customers at lower costs or respond more quickly than we can to new or emerging technologies such as AI and changes in consumer preferences or habits These competitors may engage in more extensive research and development efforts undertake more far reaching marketing campaigns and adopt more aggressive pricing policies including but not limited to predatory pricing policies and the provision of substantial discounts which may allow them to build larger customer bases or generate net sales from their customer bases more effectively than we do
We have been able to compete successfully by differentiating ourselves from our competitors by providing a large selection of high quality pet food treats and supplies competitive pricing convenience and exceptional customer service If changes in consumer preferences decrease the competitive advantage attributable to these factors or if we fail to otherwise positively differentiate our product offering or customer experience from our competitors our business financial condition and results of operations may be materially and adversely affected In particular a key component of our business strategy is to rely on our reputation for exceptional customer service This is done in part by recruiting hiring training and retaining employees who share our core values of delivering superior service to our customers and caring about the needs of pet parents and partners If our reputation is negatively affected by the actions of our employees by our inability to conduct our operations in a manner that is appealing to current or prospective customers or otherwise our business financial condition and results of operations may be materially and adversely affected In addition if we are unable to maintain our current levels of customer service and our reputation for customer service as we grow or otherwise our net sales may not continue to grow or may decline and our business financial condition and results of operations may be materially and adversely affected
We compete directly and indirectly with veterinarians for the sale of pet medications and other pet health products and services Veterinarians hold a competitive advantage over us because many pet parents may find it more convenient or preferable to purchase these products directly from their veterinarians at the time of an office visit We also compete directly and indirectly with both online and traditional pet pharmacies Both online and traditional pet pharmacies may hold a competitive advantage over us because of longer operating histories established brand names greater resources and or an established customer base Online pet pharmacies may have a competitive advantage over us because of established affiliate relationships that drive traffic to their website Traditional pet pharmacies may hold a competitive advantage over us because pet parents may prefer to purchase these products from a store instead of online In addition we face growing competition from online and multichannel pet pharmacies some of whom may have a lower cost structure than ours as customers now routinely use computers tablets smartphones and other mobile devices and mobile applications to shop online and compare prices and products in real time In order to effectively compete in the future we may be required to offer promotions and other incentives which may result in lower operating margins and in turn adversely affect our results of operations We also face a significant challenge from our competitors forming alliances with each other such as those between online and traditional pet pharmacies These relationships may enable both their retail and online stores to negotiate better pricing and better terms from suppliers by aggregating the demand for products and negotiating volume discounts which could be a competitive disadvantage to us
We expect competition in the pet products and services health and retail industries in particular Internet based competition generally to continue to increase If we fail to compete successfully our business financial condition and results of operations may be materially and adversely affected
Government regulation of the Internet and e commerce is evolving and unfavorable changes or failure by us to comply with these regulations could harm our business financial condition and results of operations
We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e commerce Existing and future regulations and laws could impede the growth of the Internet e commerce or mobile commerce which could adversely affect our growth As we grow our business outside of the U S and Canada we may be exposed to different and more comprehensive regulations and laws that apply to our business
consumer protection and Internet neutrality It is not clear how existing laws governing issues such as property ownership sales and other taxes and consumer privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e commerce It is possible that general business regulations and laws or those specifically governing the Internet or e commerce may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices We cannot be sure that our practices have complied comply or will comply fully with all such laws and regulations Any failure or perceived failure by us to comply with any of these laws or regulations could result in damage to our reputation a loss in business and proceedings or actions against us by governmental entities customers suppliers or others Any such proceeding or action could hurt our reputation force us to spend significant amounts in defense of these proceedings distract our management increase our costs of doing business decrease the use of our websites and mobile applications by consumers and suppliers and may result in the imposition of monetary liabilities We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non compliance with any such laws or regulations As a result adverse developments with respect to these laws and regulations could harm our business financial condition and results of operations
On June 21 2018 the Supreme Court of the United States the Supreme Court overturned a prior decision under which e tailers had not been required to collect sales tax unless they had a physical presence in the buyer s state As a result a state may now enforce or adopt laws requiring e tailers to collect and remit sales tax even if the e tailer has no physical presence within the taxing state provided certain conditions are met In response an increasing number of states have adopted or are considering adopting laws or administrative practices with or without notice that impose sales or similar value added or consumption taxes on e commerce activity as well as taxes on all or a portion of gross revenue or other similar amounts earned by an e tailer from sales to customers in the state Since October 28 2018 we have collected sales tax on sales and remitted such tax to the extent required in the states to which we ship If any state were to assert that we have any liability for sales tax for prior periods and seek to collect such tax in arrears and or impose penalties for past non payment of taxes it could have an adverse effect on us
New laws or regulations the application of laws and regulations from jurisdictions including other countries whose laws do not currently apply to our business or the application of existing laws and regulations to the Internet and commercial online services could similarly result in significant additional taxes on our business These taxes or tax collection obligations could have an adverse effect on us including by way of creating additional administrative burdens on us For instance the Supreme Court s decision and the enactment and enforcement of laws resulting therefrom could also impact where we are required to file state income taxes As a result our effective income tax rate as well as the cost and growth of our business could be materially and adversely affected which could in turn have a material adverse effect on our financial condition and results of operations New or revised taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over the Internet New taxes could also create significant increases in internal costs necessary to capture data and collect and remit taxes Furthermore there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements
We are also subject to federal and state laws regulations and administrative practices that require us to collect information from our customers vendors merchants and other third parties for tax reporting purposes and report such information to various government agencies The scope of such requirements continues to expand requiring us to develop and implement new compliance systems Failure to comply with such laws and regulations could result in significant penalties We cannot predict the effect of current attempts to impose sales income or other taxes or fees on e commerce Any of these events could have a material adverse effect on our business financial condition and results of operations
The BCP Stockholder Parties have previously sold and may continue to sell their shares of our common stock in a privately negotiated transaction or otherwise The sale by the BCP Stockholder Parties of a substantial number of shares of our common stock or the perception that such sales could occur could significantly reduce the market price of our Class A common stock If the BCP Stockholder Parties sell their significant equity interest in the Company we may in the future become subject to the control of a presently unknown third party Such third party may have conflicts of interest with those of our other stockholders Further if the BCP Stockholder Parties sell a controlling interest in the Company to a third party any outstanding indebtedness may be subject to acceleration and our commercial agreement and relationships could be impacted all of which may adversely affect our ability to run our business and may have a material adverse effect on our business financial condition and results of operations
In addition we have granted certain registration rights to the BCP Stockholder Parties pursuant to which they have the right to demand that we register shares of Class A common stock beneficially owned by them under the Securities Act of 1933 as amended the Securities Act as well as the right to demand that we include any such shares in any registration statement that we file with the SEC subject to certain exceptions
There could be potential conflicts of interests between us and affiliates of the BCP Stockholder Parties In addition our directors may encounter conflicts of interest involving us and the other entities with which they may be affiliated including matters that involve corporate opportunities
The BCP Stockholder Parties and their affiliates may from time to time acquire and hold interests in businesses that are engaged in the same or similar business activities as us Affiliates of the BCP Stockholder Parties may also engage in transactions with us The BCP Stockholder Parties could pursue business interests or exercise their voting power as stockholders in ways that are detrimental to us but beneficial to other companies in which they invest or have a relationship with In addition our directors may encounter conflicts of interest involving us and the other entities with which they may be affiliated The presence or appearance of conflicts of interests could have material implications for us
Additionally our directors and the BCP Stockholder Parties in the course of their other business activities may become aware of or involved in investments business opportunities or information which may be appropriate for presentation to us as well as to other entities with which they are affiliated Pursuant to our amended and restated certificate of incorporation the BCP Stockholder Parties and non employee directors have no duty to the fullest extent permitted by law to refrain from engaging in the same or similar business activities or lines of business in which we are now engaged in or from otherwise competing with us Our amended and restated certificate of incorporation also provides that to the fullest extent permitted by law the BCP Stockholder Parties and our non employee directors will not be liable to us or our stockholders for breach of any fiduciary duty solely by reason of the fact of their engagement in such activities Moreover pursuant to our amended and restated certificate of incorporation we may be unable to take advantage of corporate opportunities presented to the BCP Stockholder Parties and our non employee directors As a result we may be precluded from pursuing certain advantageous transactions or growth initiatives
The market price of our Class A common stock has fluctuated significantly in response to numerous factors and may continue to fluctuate for these and other reasons many of which are beyond our control including
failure of securities analysts to maintain coverage of the Company changes in financial estimates or ratings by any securities analysts who follow the Company or our failure to meet these estimates or the expectations of investors
changes in operating performance and stock market valuations of other retail or technology companies generally or those in our industry in particular including as a result of uncertainties in economic conditions industry trends and market conditions
The stock market has recently experienced and may again experience extreme price and volume fluctuations The market prices of securities of companies have experienced fluctuations that often have been unrelated or disproportionate to their operating results In the past stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities Any similar litigation against us could result in substantial costs divert management s attention and resources and harm our business financial condition and results of operations
Since our dual class capital structure limits the voting power of our publicly held shares of Class A common stock we are currently ineligible for inclusion in all FTSE Russell indices such as the Russell 2000 As a result mutual funds exchange traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our stock Furthermore we cannot assure you that other stock indices will not take a similar approach FTSE Russell in the future Exclusion from indices could make our Class A common stock less attractive to investors and as a result the market price of our Class A common stock could be adversely affected
Anti takeover provisions in our charter documents and under Delaware law could make an acquisition of the Company more difficult limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that
provide that a director may be removed only for cause and only by the affirmative vote of the holders of at least 66 2 3 of the votes that all of our stockholders would be entitled to cast in an annual election of directors after the date on which the outstanding shares of Class B common stock represent less than 50 of the combined voting power of our Class A common stock and Class B common stock
require the affirmative vote of at least 75 of the voting power of the Company s outstanding shares of Class A common stock and Class B common stock in order to amend i certain provisions in our amended and restated certificate of incorporation and ii our amended and restated bylaws in each case after the date on which the outstanding shares of Class B common stock represent less than 50 of the combined voting power of our Class A common stock and Class B common stock
eliminate the ability of our stockholders to call special meetings of stockholders after the date on which the outstanding shares of Class B common stock represent less than 50 of the combined voting power of our Class A common stock and Class B common stock
prohibit stockholder action by written consent instead requiring stockholder actions to be taken at a meeting of our stockholders when the outstanding shares of our Class B common stock represent less than 50 of the combined voting power of our Class A common stock and Class B common stock
permit our board of directors without further action by our stockholders to fix the rights preferences privileges and restrictions of preferred stock the rights of which may be greater than the rights of our Class A common stock
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors which is responsible for appointing the members of our management As a result these provisions may adversely affect the market price and market for our Class A common stock if they are viewed as limiting the liquidity of our stock or as discouraging takeover attempts in the future
Our amended and restated certificate of incorporation includes exclusive forum provisions which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors officers or employees
Our amended and restated certificate of incorporation provides that subject to certain exceptions the Court of Chancery of the State of Delaware is the exclusive forum for i any derivative action or proceeding brought on behalf of the Company ii any action asserting a breach of fiduciary duty owed by any director officer or other employee or stockholder of the Company to the Company or the Company s stockholders creditors or other constituents iii any action asserting a claim against the Company or any director or officer of the Company arising pursuant to the Delaware General Corporation Law our amended and restated certificate of incorporation or our amended and restated bylaws or iv any action asserting a claim against the Company or any director or officer of the Company that is governed by the internal affairs doctrine In addition our amended and restated certificate of incorporation provides that unless we consent in writing to the selection of an alternative forum the
federal district courts of the United States of America will to the fullest extent permitted by law be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act However Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder Accordingly both state and federal courts have jurisdiction to entertain such claims Due to the concurrent jurisdiction for federal and state courts created by Section 22 of the Securities Act over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder there is uncertainty as to whether a court would enforce this exclusive forum provision These exclusive forum provision also may not apply to suits brought to enforce a duty or liability vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware such as those created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction
These exclusive forum provisions may limit a stockholder s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors officers or other employees which may discourage such lawsuits and make our securities less attractive for investors Alternatively if a court were to find the exclusive forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action we may incur additional costs associated with resolving such action in other jurisdictions which could materially and adversely affect our business financial condition and results of operations
As of March 19 2025 the BCP Stockholder Parties beneficially owned more than 50 of our outstanding shares of common stock and together with its affiliates exercised control over more than 90 of the voting power of our outstanding common stock So long as the BCP Stockholder Parties remain our controlling stockholder they will be able to control directly or indirectly and subject to applicable law all matters affecting us including
Because the BCP Stockholder Parties interests may differ from ours or from those of our other stockholders actions that the BCP Stockholder Parties take with respect to us as our controlling stockholders may not be favorable to us or our other stockholders including holders of our Class A common stock In addition even if the BCP Stockholder Parties were to control less than a majority of the voting power of our outstanding common stock they may be able to influence the outcome of such matters so long as they own a significant portion of our common stock
As of March 19 2025 the BCP Stockholder Parties control a majority of the voting power of our outstanding common stock As a result we are considered a controlled company within the meaning of the corporate governance standards of the NYSE Under these rules a listed company of which more than 50 of the voting power is held by an individual group or another company is a controlled company and may elect not to comply with certain corporate governance requirements including
While the BCP Stockholder Parties control a majority of the voting power of our outstanding common stock we intend to rely on these exemptions and as a result will not have a majority of independent directors on our board of directors and our nominating and corporate governance and compensation committees will also not consist entirely of independent directors Accordingly holders of our Class A common stock do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE
Our revolving credit facility also contains covenants requiring us to maintain certain financial ratios The provisions of our revolving credit facility may affect our ability to obtain future financing and to pursue attractive business opportunities and our flexibility in planning for and reacting to changes in business conditions As a result restrictions in our revolving credit facility could adversely affect our business financial condition and results of operations In addition a failure to comply with the provisions of our revolving credit facility could result in a default or an event of default that could enable our lenders to declare the outstanding principal of that debt together with accrued and unpaid interest to be immediately due and payable If the payment of outstanding amounts under our revolving credit facility is accelerated our assets may be insufficient to repay such amounts in full and our stockholders could experience a partial or total loss of their investment
We currently intend to retain any future earnings to finance the operation and expansion of our business as well as fund our Repurchase Program and we do not expect to declare or pay any dividends in the foreseeable future Moreover the terms of our revolving credit facility may restrict our ability to pay dividends and any additional debt we may incur in the future may include similar restrictions As a result and for the foreseeable future stockholders must rely on sales of their Class A common stock after price appreciation as the only way to realize any future gains on their investment
We cannot guarantee that our Repurchase Program will be fully consummated or that it will enhance long term stockholder value Share repurchases could also increase the volatility of the trading price of our common stock and could diminish our cash reserves
Although our board of directors has authorized the Repurchase Program the program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares of common stock The actual timing and amount of any share repurchases remains subject to a variety of factors including stock price trading volume market conditions compliance with applicable legal requirements and other general business considerations In addition the terms of our credit facility impose certain limitations on our ability to repurchase shares of common stock The Repurchase Program has no expiration date but it may be modified suspended or terminated at any time and we cannot guarantee that the Repurchase Program will be fully consummated or that it will enhance long term stockholder value The failure to repurchase common stock after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively affect our stock price Furthermore our execution of the Repurchase Program could affect the trading price of our common stock and increase volatility and any announcement of a termination of the Repurchase Program may result in a decrease in the trading price of our common stock In addition the Repurchase Program could diminish our cash reserves
Lawsuits and other administrative or legal proceedings that may arise in the course of our operations can involve substantial costs including the costs associated with investigation litigation and possible settlement judgment penalty or fine In addition lawsuits and other legal proceedings may be time consuming and may require a commitment of management and personnel resources that will be diverted from our normal business operations Although we generally maintain insurance to mitigate certain costs there can be no assurance that costs associated with lawsuits or other legal proceedings will not exceed the limits of insurance policies Moreover we may be unable to continue to maintain our existing insurance at a reasonable cost if at all or to secure additional coverage which may result in costs associated with lawsuits and other legal proceedings being uninsured Our business financial condition and results of operations could be materially and adversely affected if a judgment penalty or fine is not fully covered by insurance
In the future we could be required to raise capital through public or private financing or other arrangements Such financing may not be acceptable or available due to factors beyond our control such as rising interest rates uncertainty in financial markets or economic instability and our failure to raise capital when needed could harm our business We may sell shares of Class A common stock convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time If we sell any such securities in subsequent transactions investors in our Class A common stock may be materially diluted New investors in such subsequent transactions could gain rights preferences and privileges senior to those of holders of our Class A common stock Debt financing if available may involve restrictive covenants and could reduce our operational flexibility or profitability If we cannot raise funds on acceptable terms we may be forced to raise funds on undesirable terms or our business may contract or we may be unable to grow our business or respond to competitive pressures any of which could have a material adverse effect on our business financial condition and results of operations
We are subject to U S federal and state income taxes Canadian federal and provincial income taxes Chinese income taxes and may be subject to additional income tax depending on our operations Tax laws regulations and administrative practices in various jurisdictions may be subject to significant change with or without advance notice due to economic political and other conditions and significant judgment is required in evaluating and estimating our provision and accruals for these taxes Such changes may have a material impact on us
On August 16 2022 legislation commonly known as the Inflation Reduction Act the IRA was signed into law Among other things the IRA includes a 1 excise tax on corporate stock repurchases applicable to repurchases after December 31 2022 and also a new minimum tax based on book income Any change in current federal state local or non U S tax law facts or any significant variance of our current interpretation of current legislation or future legislation from any future regulations or interpretive guidance could result in a change to the presentation of our financial condition and results of operations and could materially and adversely affect our business financial condition and results of operations
We entered into certain transactions the Transactions with affiliates of BC Partners pursuant to an Agreement and Plan of Merger the Merger Agreement which closed on October 30 2023 The Transactions were entered into for valid business purposes and it is anticipated that the Transactions will not have a material impact on our financial condition As a part of the Merger Agreement we assumed certain filing responsibilities and tax obligations from the Transactions We have been paid for the cost of the assumed filings and all taxes payable on those filings We are also indemnified for any future tax exposure up to 196 million Any tax exposure in excess of 196 million would be our responsibility
There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain Our effective tax rates could be affected by numerous factors such as changes in tax accounting and other laws regulations administrative practices principles and interpretations the mix and level of earnings in a given taxing jurisdiction or our ownership or capital structures
If our internal control over financial reporting or our disclosure controls and procedures are not effective we may be unable to accurately report our financial results prevent fraud or file our periodic reports in a timely manner which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price
We are subject to the internal control and financial reporting requirements that are required of a publicly traded company including the requirements of The Sarbanes Oxley Act of 2002 the Sarbanes Oxley Act The Sarbanes Oxley Act requires that we maintain effective internal control over financial reporting and disclosure controls and procedures In particular we must perform system and process evaluation document our controls and perform testing of our key controls over financial reporting to allow management and our independent public accounting firm to report on the effectiveness of our internal control over financial reporting as required by Section 404 of the Sarbanes Oxley Act Our testing or the subsequent testing by our independent public accounting firm may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses If we are not able to comply with the requirements of Section 404 of the Sarbanes Oxley Act in a timely manner or if we or our accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses the market price of our stock would likely decline and we could be subject to lawsuits sanctions or investigations by regulatory authorities which would require additional financial and management resources
As a public company we are subject to the reporting requirements of the Exchange Act the Sarbanes Oxley Act and any rules promulgated thereunder as well as the rules of the NYSE The Sarbanes Oxley Act requires among other things that we maintain effective disclosure controls and procedures and internal controls for financial reporting In order to maintain and if required improve our disclosure controls and procedures and internal control over financial reporting to meet this standard significant resources and management oversight are required and as a result management s attention may be diverted from other business concerns
In addition changing laws regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies increasing legal and financial compliance costs and making some activities more time consuming These laws regulations and standards are subject to varying interpretations in many cases due to their lack of specificity as well as certain legal challenges and as a result their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies or as pending or future litigation is resolved This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices
We have an enterprise wide information security program designed to assess identify and manage the Company s information security risks and identify protect evaluate respond to and resolve information security incidents To protect our information systems from information security incidents we use various processes and tools to identify prevent detect escalate investigate resolve and recover from identified vulnerabilities and threats These include but are not limited to reporting monitoring and detection tools and services that are widely used in the industry and internal solutions We have an enterprise wide Information Security Incident Response Plan IRP which describes the detailed processes and procedures that should be followed in the event of an information security incident We conduct assessments based on the National Institute of Standards and Technology cybersecurity framework the NIST CSF to measure our progress under the maturity framework of NIST CSF and continue to identify opportunities for improvement in our information security program
We continuously assess technology risks and threats and monitor our information systems for potential vulnerabilities based on industry trends and evolving threats We use our IRP to identify protect evaluate respond to and resolve information security incidents We conduct regular reviews of our information security program and also validate our IRP by conducting tabletop exercises penetration and vulnerability testing red team campaigns to identify potential vulnerabilities simulations and other exercises to evaluate the effectiveness of our information security program and improve our IRP Our auditors perform independent audits on aspects of our information security program for assurance purposes We occasionally engage third party assessors to assess different aspects of our information security program We conduct regular training for employees on different cybersecurity topics and best practices We also conduct a risk based analysis on third party vendors that we engage to process personal data and confidential information for us and provide them with our information security requirements prior to their engagement
We are occasionally subject to cybersecurity incidents and we use our IRP to respond to such incidents Our e commerce systems are periodically the target of directed attacks intended to lead to interruptions and delays in our service and operations We also occasionally experience the misuse or unauthorized disclosure of personal information other data confidential information or intellectual property We occasionally experience incidents unrelated to our system where bad actors attempt to take over customer accounts by using the credentials of customers These incidents have not had a material impact on us to date including our business strategy financial condition or results of operations We can provide no assurance that there will not be incidents in the future or that they will not materially affect us including our business strategy financial condition or results of operations For more information about the cybersecurity risks we face see the risk factor titled Our failure or the failure of third party service providers to protect our websites networks and systems against cybersecurity incidents or to otherwise protect our confidential information could damage our reputation and brand and harm our business financial condition and results of operations under Item 1A Risk Factors of this Annual Report on Form 10 K
The Vice President of Corporate Systems the CISO leads our information security organization and is responsible for managing our information security program Our CISO has over 30 years of industry experience including serving in similar roles leading cybersecurity programs at other public companies Team members who support our information security program have relevant educational industry and professional experience Our information security team provides regular reports to senior management and other relevant teams on various cybersecurity threats assessments and findings
Our enterprise risk assessment includes our key cybersecurity risks The Board oversees our annual enterprise risk assessment where we assess key risks within the Company including technology risks and cybersecurity threats Our CISO provides quarterly updates to the Audit Committee of the Board which oversees our cybersecurity risks and regularly reviews and discusses with management various cybersecurity matters including risk assessments mitigation strategies areas of emerging risks incidents and industry trends and other areas of importance discussion on policies guidelines and processes used by management to assess and manage such matters and the steps management has taken to monitor and control such matters
We lease properties across North America to support our operations Our corporate offices include our co headquarters in Plantation Florida and Boston Massachusetts Our fulfillment centers receive products from vendors ship products to customers and receive and process returns from customers while our customer service centers respond to customer inquiries Our veterinary clinics provide pet health services including routine appointments urgent care and surgery We believe that our properties have been adequately maintained are in good condition and are generally suitable and adequate to support our operations The following table sets forth the category number of locations and size of our material properties as of March 19 2025
Information concerning legal proceedings is provided in Item 8 of Part II Financial Statements and Supplementary Data Note 7 Commitments and Contingencies Legal Matters and is incorporated by reference herein
Mr Singh has served as our Chief Executive Officer since March 2018 and as a Director on our board of directors since April 2019 He also served as our Chief Operating Officer from September 2017 to March 2018 In 2020 he was inducted into the Bloomberg 50 List of Global Leaders Prior to joining Chewy Mr Singh held senior leadership positions at Amazon Inc Amazon where from 2015 to 2017 he served as Worldwide Director of Amazon s Consumables i e fresh and pantry businesses and from 2013 to 2015 as General Manager for Amazon s North American merchant fulfillment and third party businesses Prior to Amazon Mr Singh served in senior management positions at Dell Technologies Inc Mr Singh has served on the board of directors of Booking Holdings Inc since April 2022 Mr Singh holds a Bachelor of Technology degree from Punjab Technical University and a Master of Science degree in Engineering from the University of Texas at Austin where in 2019 he was inducted into the Academy of Distinguished Alumni for outstanding achievement He also holds a Master of Business Administration degree from the University of Chicago Booth School of Business
Mr Reeder has served as our Chief Financial Officer since February 2024 From 2020 to 2024 he served as Chief Financial Officer of GlobalFoundries Inc GFS where he oversaw GFS s initial public offering in 2021 Mr Reeder served as Chief Executive Officer of Tower Hill Insurance Group from 2017 to 2020 and as President and Chief Executive Officer of Lexmark International Inc from 2015 to 2017 Mr Reeder has also served as Chief Financial Officer of Electronics for Imaging Inc and has held executive roles at Cisco Systems Inc Broadcom Inc and Texas Instruments Incorporated Mr Reeder has been a member of the board of directors of Entegris Inc since March 2024 and of Alphawave IP Group plc since September 2023 He also served on the board of directors of Milacron Holdings Corp from 2017 until November 2019 Mr Reeder holds a Bachelor of Science degree in Chemical Engineering from the University of Arkansas and a Master of Business Administration degree from Southern Methodist University
Mr Mehta has served as our Chief Technology Officer since June 2018 From July 2017 to June 2018 Mr Mehta served as Vice President Data and Analytics Solutions for UnitedHealth Group Incorporated Prior to that Mr Mehta served in various capacities at Staples Inc including serving as Vice President Price Data Analytics Omni Channel and Innovation Labs from January 2014 to July 2017 From November 2005 to January 2014 Mr Mehta served in various positions at Yahoo Inc including as Senior Director Global Data and Ad Tech Mr Mehta served on the board of directors of Express Inc from December 2022 until December 2024 Mr Mehta holds a Bachelor of Science degree in Physics and Math from Jawaharlal Nehru University and a Master of Business Administration degree from California Miramar University
Our Class A common stock par value 0 01 per share is listed on the New York Stock Exchange under the symbol CHWY and began trading on June 14 2019 Prior to that date there was no public trading market for our Class A common stock There is no public trading market for our Class B common stock par value 0 01 per share
As of the close of business on March 19 2025 there were 207 stockholders of record of our Class A common stock and 2 stockholders of our Class B common stock The actual number of holders of our Class A common stock is greater than the number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers or other nominees The number of holders of record present here also do not include stockholders whose shares may be held in trust by other entities
We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends for the foreseeable future Other than share repurchases pursuant to the Repurchase Program or otherwise we expect to retain future earnings if any to fund the development and growth of our business Any future determination to pay dividends on our common stock will be made at the discretion of the Board and will depend upon among other factors our financial condition operating results current and anticipated cash needs plans for expansion and other factors that the Board may deem relevant In addition the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock
The purchased shares consisted of 509 601 shares of Class A common stock repurchased pursuant to the Repurchase Program and 1 596 424 shares of Class A common stock repurchased pursuant to the December 2024 Concurrent Stock Repurchase as defined below
Average price paid per share under the Repurchase Program excludes the cost of commissions and excise taxes associated with the repurchases For the period of November 25 2024 through December 29 2024 the average price paid per share pursuant to the Repurchase Program and December 2024 Concurrent Stock Repurchase was 33 75 and 31 32 respectively
On May 24 2024 the Company s Board of Directors authorized the Company to repurchase up to 500 million of the Company s common stock pursuant to the Repurchase Program The Repurchase Program has no expiration date and may be modified suspended or terminated at any time Refer to Note 10 Stockholders Equity Deficit in the Notes to Consolidated Financial Statements included in Part II Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10 K for additional information
The following performance graph shall not be deemed soliciting material or to be filed with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Chewy Inc under the Securities Act or the Exchange Act
The following graph compares the cumulative total return to stockholders of our Class A common stock relative to the cumulative total returns of the S P 500 Index and DJ Internet Commerce Index An investment of 100 is assumed to have been made in our Class A common stock and in the indices on February 2 2020 and their relative performance is tracked through February 2 2025 The comparisons are based on historical data and are not indicative of nor intended to forecast the future performance of our Class A common stock
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included in this Annual Report on Form 10 K for fiscal year 2024 10 K Report This discussion contains forward looking statements that involve risks and uncertainties As a result of many factors such as those set forth under the Risk Factors and Cautionary Note Regarding Forward Looking Statements sections herein our actual results may differ materially from those anticipated in these forward looking statements Unless the context requires otherwise references in this 10 K Report to Chewy the Company we our or us refer to Chewy Inc and its consolidated subsidiaries
Investors and others should note that we may announce material information to our investors using our investor relations website https investor chewy com filings with the SEC press releases public conference calls and webcasts We use these channels as well as social media to communicate with our investors and the public about our company our business and other issues It is possible that the information that we post on these channels could be deemed to be material information We therefore encourage investors to visit these websites from time to time The information contained on such websites and social media posts is not incorporated by reference into this filing Further our references to website URLs in this filing are intended to be inactive textual references only
We are the largest pet e tailer in the United States offering virtually every product a pet needs We launched Chewy in 2011 to bring the best of the neighborhood pet store shopping experience to a larger audience enhanced by the depth and wide selection of products and services as well as the around the clock convenience that only e commerce can offer We believe that we are the preeminent destination for pet parents as a result of our broad selection of high quality products and expanded menu of service offerings which we offer at great prices and deliver with an exceptional level of care and a personal touch We are the trusted source for pet parents and partners and continually develop innovative ways for our customers to engage with us We partner with approximately 3 200 of the best and most trusted brands in the pet industry and we create and offer our own outstanding private brands Through our websites and mobile applications we offer our customers approximately 130 000 products compelling merchandising an easy and enjoyable shopping experience and exceptional customer service
Evolving macroeconomic conditions including current inflation levels and high interest rates have affected and continue to affect our business and consumer shopping behavior We continue to monitor conditions closely and adapt aspects of our logistics transportation supply chain and purchasing processes accordingly to meet the needs of our growing community of pets pet parents and partners As our customers react to these economic conditions we will adapt our business accordingly to meet their evolving needs
We are unable to predict the duration and ultimate impact of evolving macroeconomic conditions on the broader economy or our operations and liquidity As such macroeconomic risks and uncertainties remain Please refer to the Cautionary Note Regarding Forward Looking Statements and the section titled Risk Factors in Item 1A of this 10 K Report
We have a 52 or 53 week fiscal year ending each year on the Sunday that is closest to January 31 of that year Our 2024 fiscal year ended February 2 2025 and included 53 weeks Fiscal Year 2024 Our 2023 fiscal year ended January 28 2024 and included 52 weeks Fiscal Year 2023 Our 2022 fiscal year ended January 29 2023 and included 52 weeks Fiscal Year 2022
We have provided restated financial and operating data for the historical comparative periods in Management s Discussion and Analysis of Financial Condition and Results of Operations of this 10 K Report For additional information related to this restatement see section titled Basis of Presentation in Note 2 Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part II Item 8 Financial Statements and Supplementary Data of this 10 K Report
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
To provide investors with additional information regarding our financial results we have disclosed here and elsewhere in this 10 K Report 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 10 K Report 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 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
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
To provide investors with additional information regarding our financial results we have disclosed here and elsewhere in this 10 K Report 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 releases of 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 10 K Report 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 releases of 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
To provide investors with additional information regarding our financial results we have also disclosed here and elsewhere in this 10 K Report free cash flow a non GAAP financial measure that we calculate as net cash provided by 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 operating activities the most directly comparable GAAP financial measure
We have included free cash flow in this 10 K Report 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 operating activities capital expenditures and our other GAAP results
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
As of the last date of each reporting period we determine our number of active customers by counting the total number of individual customers who have ordered a product or service and for whom a product has shipped or for whom a service has been provided at least once during the preceding 364 day period The change in active customers in a reporting period captures both the inflow of new customers and the outflow of customers who have not made a purchase in the last 364 days We view the number of active customers as a key indicator of our growth acquisition and retention of customers as a result of our marketing efforts and the value we provide to our customers The number of active customers has grown over time as we acquired new customers and retained previously acquired customers
We define net sales per active customer as the aggregate net sales for the preceding four fiscal quarters divided by the total number of active customers at the end of that period We view net sales per active customer as a key indicator of our customers purchasing patterns including their initial and repeat purchase behavior
We define Autoship customers as customers in a given fiscal quarter that had an order shipped through our Autoship subscription program during the preceding 364 day period We define Autoship as our subscription program which provides automatic ordering payment and delivery of products to our customers We view our Autoship subscription program as a key driver of recurring net sales and customer retention For a given fiscal quarter Autoship customer sales consist of sales and shipping revenues from all Autoship subscription program purchases and purchases outside of the Autoship subscription program by Autoship customers excluding taxes collected from customers excluding any refunds and net of any promotional offers such as percentage discounts off current purchases and other similar offers for that quarter For a given fiscal year Autoship customer sales equal the sum of the Autoship customer sales for each of the fiscal quarters in that fiscal year
We define Autoship customer sales as a percentage of net sales as the Autoship customer sales in a given reporting period divided by the net sales from all orders in that period We view Autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention
We derive net sales primarily from sales of both third party brand and private brand pet food pet products pet medications and other pet health products and related shipping fees Sales of third party brand and private brand pet food pet products and shipping revenues are recorded when products are shipped net of promotional discounts and refunds and allowances Taxes collected from customers are excluded from net sales Net sales is primarily driven by growth of new customers and active customers and the frequency with which customers purchase and subscribe to our Autoship subscription program
We also periodically provide promotional offers including discount offers such as percentage discounts off current purchases and other similar offers These offers are treated as a reduction to the purchase price of the related transaction and are reflected as a net amount in net sales
Cost of goods sold consists of the cost of third party brand and private brand products sold to customers inventory freight shipping supply costs inventory shrinkage costs and inventory valuation adjustments offset by reductions for promotions and percentage or volume rebates offered by our vendors which may depend on reaching minimum purchase thresholds Generally amounts received from vendors are considered a reduction of the carrying value of inventory and are ultimately reflected as a reduction of cost of goods sold
Selling general and administrative expenses consist of fulfillment costs incurred in operating and staffing fulfillment centers customer service centers and veterinary clinics payroll and related expenses for employees involved in general corporate functions including accounting finance tax legal and human resources costs associated with the use of facilities and equipment such as depreciation expense and rent share based compensation professional fees and other general corporate costs
Fulfillment costs include costs attributable to buying receiving inspecting and warehousing inventories picking packaging and preparing customer orders for shipment payment processing providing pet health services and responding to inquiries from customers Included within fulfillment costs are merchant processing fees charged by third parties that provide merchant processing services for credit cards
Our other income expense net consists of changes in the fair value of equity warrants equity investments tax indemnification receivables foreign currency transaction gains and losses and allowances for credit losses
The following discussion and analysis of our Results of Consolidated Operations and Liquidity and Capital Resources includes a comparison of Fiscal Year 2024 to Fiscal Year 2023 A similar discussion and analysis which compares Fiscal Year 2023 to Fiscal Year 2022 may be found in the section titled Management s Discussion and Analysis of Financial Condition and Results of Operations of our annual report filed with the SEC on March 20 2024 and is incorporated herein by reference
The following tables set forth our results of operations for the fiscal years presented and express the relationship of certain line items as a percentage of net sales for those periods The period to period comparison of financial results is not necessarily indicative of future results
Net sales for Fiscal Year 2024 increased by 713 6 million or 6 4 to 11 9 billion compared to 11 1 billion for Fiscal Year 2023 Excluding net sales of 226 6 million in the 53rd week net sales for Fiscal Year 2024 increased by 487 0 million or 4 4 to 11 6 billion compared to 11 1 billion for Fiscal Year 2023 This increase was primarily driven by growth in customer spending from new and existing customers and the frequency with which customers purchase and subscribe to our Autoship subscription program Net sales per active customer increased 23 or 4 1 to 578 in Fiscal Year 2024 compared to Fiscal Year 2023 driven by growth across our healthcare and specialty businesses
Cost of goods sold for Fiscal Year 2024 increased by 407 4 million or 5 1 to 8 4 billion compared to 8 0 billion in Fiscal Year 2023 This increase was primarily due to an increase in associated product outbound freight and shipping supply costs The increase in cost of goods sold was lower than the increase in net sales on a percentage basis reflecting supply chain efficiency gains across our fulfillment network
Gross profit for Fiscal Year 2024 increased by 306 2 million or 9 7 to 3 5 billion compared to 3 2 billion in Fiscal Year 2023 This increase was primarily due to the year over year increase in net sales as described above Gross profit as a percentage of net sales for Fiscal Year 2024 increased by approximately 80 basis points compared to Fiscal Year 2023 primarily due to supply chain efficiency gains across our network as well as margin expansion across our consumables and healthcare businesses
Selling general and administrative expenses for Fiscal Year 2024 increased by 108 3 million or 4 4 to 2 6 billion compared to 2 4 billion in Fiscal Year 2023 This was primarily due to an increase of 83 5 million in non cash share based compensation expense and related taxes and an increase of 23 2 million in fulfillment costs attributable to the continued expansion of our pharmacy fulfillment network and launch of veterinary clinics
We have recently undertaken a project that will modernize our finance information technology architecture At the conclusion of this project which we believe will occur towards the end of our 2025 fiscal year we aim to have among other things i the ability to produce financial information across different segments of the Company which supports scalability for future growth ii expanded visibility and analytical capabilities with respect to our data and iii an infrastructure that enables the use of artificial intelligence and other system advancements that will create further efficiencies for our team members The project will not require meaningful capital investment
Advertising and marketing expenses for Fiscal Year 2024 increased by 61 6 million or 8 3 to 804 1 million compared to 742 5 million in Fiscal Year 2023 Our marketing expenses increased due to additional investment in our lower and upper funnel marketing channels as well as expansion into Canada contributing to new customer acquisition customer retention and an increase in wallet share from our large and stable customer base
Interest income for Fiscal Year 2024 decreased by 23 4 million to 35 1 million compared to interest income of 58 5 million in Fiscal Year 2023 While interest income generated by cash and cash equivalents and marketable securities exceeded interest expenses incurred in Fiscal Year 2024 this decrease was due in large part to additional interest income generated by investment of proceeds from the parent reorganization transaction in Fiscal Year 2023
Other income for Fiscal Year 2024 decreased by 9 4 million to 4 0 million compared to other income of 13 4 million This decrease was primarily due to smaller increases in the fair value of equity warrants as well as foreign currency transaction losses partially offset by increases in the fair value of tax indemnification receivables and equity investments
We finance our operations and capital expenditures primarily through cash flows generated by operations Our principal sources of liquidity are expected to be our cash and cash equivalents marketable securities and our revolving credit facility Cash and cash equivalents consisted primarily of cash on deposit with banks Cash and cash equivalents totaled 595 8 million as of February 2 2025 a decrease of 6 5 million from January 28 2024 Marketable securities consisted primarily of equity investments and U S Treasury securities and totaled 0 9 million as of February 2 2025 a decrease of 530 9 million from January 28 2024 due to the maturities and sales that occurred during Fiscal Year 2024
We believe that our cash and cash equivalents marketable securities and availability under our revolving credit facility will be sufficient to fund our working capital capital expenditure requirements and contractual obligations for at least the next twelve months In addition we may choose to raise additional funds at any time through equity or debt financing arrangements which may or may not be needed for additional working capital capital expenditures share repurchases or other strategic investments Our opinions concerning liquidity are based on currently available information To the extent this information proves to be inaccurate or if circumstances change future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected Our future capital requirements and the adequacy of available funds will depend on many factors including those described in the section titled Risk Factors in Item 1A of this 10 K Report Depending on the severity and direct impact of these factors on us we may be unable to secure additional financing to meet our operating requirements on terms favorable to us or at all
We have contractual obligations and other commitments that will need to be funded in the future in addition to our working capital capital expenditures and other strategic initiatives Material contractual obligations generally relate to operating and real estate lease obligations
Operating and real estate lease obligations relate to fulfillment and customer service centers veterinary clinics corporate offices and certain equipment under non cancelable operating leases which expire at various dates through 2038 Real estate obligations include legally binding minimum lease payments for operating lease arrangements which have not yet commenced As of February 2 2025 operating and real estate lease obligations included legally binding minimum lease payments of 850 8 million For additional information related to real estate and operating leases see Note 9 Leases in the Notes to Consolidated Financial Statements included in Part II Item 8 Financial Statements and Supplementary Data of this 10 K Report
Net cash provided by operating activities was 596 3 million for Fiscal Year 2024 which primarily consisted of i 392 7 million of net income ii non cash adjustments of 197 2 million including share based compensation expense of 306 4 million and depreciation and amortization expense of 114 6 million partially offset by a deferred income tax benefit of 257 5 million as well as iii an increase of 33 8 million from working capital changes This increase was primarily driven by an increase in other current liabilities and payables partially offset by an increase in inventories receivables and other current assets
Net cash provided by operating activities was 486 2 million for Fiscal Year 2023 which primarily consisted of i 39 6 million of net income ii non cash adjustments of 377 1 million including share based compensation expense of 239 1 million and depreciation and amortization expense of 109 7 million as well as iii an increase of 105 7 million from working capital changes This increase was primarily driven by an increase in other current liabilities and payables partially offset by an increase in other current assets inventories and receivables
Net cash provided by investing activities was 394 6 million for Fiscal Year 2024 primarily consisting of 538 4 million for the maturities and sales of marketable securities partially offset by 143 8 million for capital expenditures related to the launch of new and future pharmacy facilities veterinary clinics and fulfillment centers as well as additional investments in IT hardware and software
Net cash used in investing activities was 287 4 million for Fiscal Year 2023 primarily consisting of 143 7 million for the purchase of marketable securities net of maturities and 143 3 million for capital expenditures related to the launch of new and future fulfillment centers and additional investments in IT hardware and software
Net cash used in financing activities was 996 7 million for Fiscal Year 2024 primarily consisting of 942 8 million for repurchases of common stock 51 9 million for income taxes paid for net of proceeds from the parent reorganization transaction payments for secondary offering costs and principal repayments of finance lease obligations
Net cash provided by financing activities was 71 6 million for Fiscal Year 2023 and consisted of 60 6 million of proceeds from the parent reorganization transaction and 22 0 million of capital contributions from the parent reorganization transaction partially offset by 10 3 million of payments made pursuant to the tax sharing agreement with related parties principal repayments of finance lease obligations and payment of debt modification costs
We have a senior secured asset based credit facility the ABL Credit Facility which matures on August 27 2026 and provides for non amortizing revolving loans in the aggregate principal amount of up to 800 million subject to a borrowing base comprised of among other things inventory and sales receivables subject to certain reserves The ABL Credit Facility provides the right to request incremental commitments and add incremental asset based revolving loan facilities up to 250 million subject to customary conditions We are required to pay a 0 25 per annum commitment fee with respect to the undrawn portion of the commitments which is generally based on average daily usage of the facility Based on our borrowing base as of February 2 2025 which is reduced by standby letters of credit we had 782 6 million of borrowing capacity under the ABL Credit Facility As of February 2 2025 we had no outstanding borrowings under the ABL Credit Facility
For additional information with respect to our ABL Credit Facility see Note 8 Debt in the Notes to Consolidated Financial Statements included in Part II Item 8 Financial Statements and Supplementary Data of this 10 K Report
On May 24 2024 our Board of Directors authorized the Company to repurchase up to 500 million of its Class A common stock and or Class B common stock pursuant to a share repurchase program the Repurchase Program The actual timing and amount of any share repurchases remains subject to a variety of factors including stock price trading volume market conditions compliance with applicable legal requirements and other general business considerations We are not required to repurchase any specific dollar amount or to acquire any specific number of shares of common stock The Repurchase Program has no expiration date and may be modified suspended or terminated at any time
On June 26 2024 the Company entered into an agreement the Stock Repurchase Agreement with Buddy Chester Sub LLC an entity affiliated with the Sponsors the Seller to repurchase an aggregate of 17 550 000 shares of Class A common stock from the Seller at a price per share of 28 49 resulting in an aggregate repurchase price of 500 million the Stock Repurchase
On September 18 2024 the Company entered into an agreement the September 2024 Concurrent Stock Repurchase Agreement with the Seller to repurchase 300 million of shares of Class A common stock from the Seller at a price per share of 29 40 resulting in the repurchase of an aggregate of 10 204 081 shares of Class A common stock the September 2024 Concurrent Stock Repurchase
On December 9 2024 the Company entered into an agreement the December 2024 Concurrent Stock Repurchase Agreement with the Seller to repurchase 50 million of shares of Class A common stock from the Seller at a price per share of 31 32 resulting in the repurchase of an aggregate of 1 596 424 shares of Class A common stock the December 2024 Concurrent Stock Repurchase
During Fiscal Year 2024 3 439 858 17 550 000 10 204 081 and 1 596 424 shares of Class A common stock were repurchased and subsequently cancelled and retired pursuant to the Repurchase Program the Stock Repurchase Agreement the September 2024 Concurrent Stock Repurchase and the December 2024 Concurrent Stock Repurchase for a total cost of 93 3 million 500 0 million 300 0 million and 50 0 million respectively excluding the cost of commissions and excise taxes The authorized value of shares available to be repurchased under the Repurchase Program excludes the cost of commissions and excise taxes and as of February 2 2025 the remaining value of shares of common stock that were authorized to be repurchased under the Repurchase Program was 406 7 million As of February 2 2025 the total unpaid cost of share repurchases was 5 6 million which included 5 1 million for excise taxes
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with GAAP The preparation of our consolidated financial statements and related disclosures requires us to make estimates assumptions and judgments that affect the reported amounts of assets liabilities net sales costs and expenses and related disclosures We believe that the estimates assumptions and judgments involved in the accounting policies described below involve a significant level of estimation uncertainty and have the greatest potential impact on our financial condition and results of operations and therefore we consider these to be our critical accounting policies Accordingly we evaluate our estimates assumptions and judgments on an ongoing basis Our actual results may differ from these estimates under different assumptions judgments and conditions See Note 2 Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part II Item 8 Financial Statements and Supplementary Data of this 10 K Report for a description of our significant accounting policies as well as a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this 10 K Report
Estimates of deferred income taxes reflect management s assessment of actual future taxes to be paid on items reflected in the consolidated financial statements giving consideration to both timing and the probability of realization Actual income taxes could vary from these estimates due to future changes in income tax law state income tax apportionment or the outcome of any review of our tax returns by the Internal Revenue Service as well as actual operating results that may vary significantly from anticipated results For additional information on deferred tax assets and liabilities see Note 13 Income Taxes in the Notes to Consolidated Financial Statements included in Part II Item 8 Financial Statements and Supplementary Data of this 10 K Report
Information regarding recent accounting pronouncements is included in Note 2 Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part II Item 8 Financial Statements and Supplementary Data of this 10 K Report
We have operations principally within the U S and therefore have only minimal foreign currency exposure We are exposed to market risks in the ordinary course of our business including the effects of interest rate changes Information relating to quantitative and qualitative disclosures about these market risks is set forth below
Our cash equivalents consist primarily of demand and money market accounts U S Treasury securities certificates of deposit and commercial paper and have an original maturity date of 90 days or less Our marketable securities consist primarily of investment grade short to intermediate term fixed income securities including U S Treasury securities certificates of deposit and commercial paper and have an original maturity greater than 90 days and less than one year The fair value of our cash and cash equivalents and marketable securities would not be significantly affected by either an increase or decrease in interest rates due mainly to the short term nature of these instruments Any future borrowings incurred under our revolving credit facility will accrue interest at a floating rate based on a formula tied to certain market rates at the time of incurrence A 10 increase or decrease in interest rates would not have a material effect on our interest income or expense
We have audited the accompanying consolidated balance sheets of Chewy Inc and subsidiaries the Company as of February 2 2025 and January 28 2024 the related consolidated statements of operations and comprehensive income stockholders equity deficit and cash flows for each of the three years in the periods ended February 2 2025 January 28 2024 and January 29 2023 and the related notes collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of February 2 2025 and January 28 2024 and the results of its operations and its cash flows for each of the three years in the periods ended February 2 2025 January 28 2024 and January 29 2023 in conformity with accounting principles generally accepted in the United States of America
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of February 2 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 26 2025 expressed an unqualified opinion on the Company s internal control over financial reporting
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
The Company has agreements with vendors to receive either percentage or volume based rebates collectively referred to as purchase based vendor rebates Amounts received from vendors are considered a reduction of the carrying value of the Company s inventory and therefore such amounts are ultimately recorded as a reduction of cost of goods sold in the consolidated statements of operations
Given the significance of purchase based vendor rebates to the financial statements the terms and the significant number of the individual vendor agreements auditing purchase based vendor rebates was complex and subjective due to the extent of effort required to evaluate whether the purchase based vendor rebates were recorded in accordance with the terms of the vendor agreements and that the rebates deferred as a reduction of the carrying value of inventory were complete and accurate
Our audit procedures related to evaluating whether the purchase based vendor rebates were recorded in accordance with the terms of the vendor agreements and the completeness and accuracy of deferred purchase based vendor rebates included the following among others
We tested the effectiveness of controls over the recording of purchase based vendor rebates including management s controls over the calculation of purchase based vendor rebates earned and the determination of the deferred purchase based vendor rebates recorded as a reduction to inventory
We selected a sample of purchase based vendor rebates earned during the year and using the terms of the vendor agreement and related inventory purchased recalculated the amount recorded as a reduction of the carrying value of inventory For each selected purchase based deal we sent a confirmation to the vendor to confirm the terms of the purchase based agreement are complete and accurate that there are no disputes over the terms of the agreement and that no side agreements exist
We tested the amount of the deferred purchase based vendor rebates recorded as a reduction of cost of goods sold by developing an expectation of the amount based on the turnover of inventory in the current year and compared our expectation to the amount recorded
Chewy Inc and its wholly owned subsidiaries collectively Chewy or the Company is primarily an e commerce business geared toward pet products and services Chewy serves its customers through its retail websites and its mobile applications and focuses on delivering exceptional customer service competitive prices outstanding convenience including Chewy s Autoship subscription program fast shipping and hassle free returns and a large selection of high quality pet food treats and supplies and pet healthcare products and services
The Company is controlled by a consortium including private investment funds advised by BC Partners Advisors LP BC Partners and its affiliates La Caisse de dépôt et placement du Québec affiliates of GIC Special Investments Pte Ltd affiliates of StepStone Group LP and funds advised by Longview Asset Management LLC collectively the Sponsors
On October 30 2023 the Closing Date the Company entered into certain transactions the Transactions with affiliates of BC Partners pursuant to an Agreement and Plan of Merger the Merger Agreement The Transactions resulted in such affiliates restructuring their ownership interests in the Company and Chewy Pharmacy KY LLC Chewy Pharmacy KY becoming an indirect wholly owned subsidiary of the Company
Contemporaneously with the execution and delivery of the Merger Agreement the Company and the BC Partners affiliated stockholders named therein the BCP Stockholder Parties entered into an Amended and Restated Investor Rights Agreement the A R Investor Rights Agreement which amended and restated in its entirety that certain Investor Rights Agreement dated as of June 13 2019 by and among the Company and the stockholders identified therein The A R Investor Rights Agreement contains changes to the governing arrangements between the BCP Stockholder Parties and the Company including i the gradual elimination of the Company s dual class share structure through the conversion of the Company s Class B common stock par value 0 01 per share the Class B common stock ten votes per share into Class A common stock par value 0 01 per share the Class A common stock and together with the Class B common stock the common stock one vote per share ii certain revisions to the BCP Stockholder Parties director nomination rights which will accelerate the step down of their nomination rights as the economic ownership of the BCP Stockholder Parties decreases following the date that such stockholders no longer hold an aggregate of over 50 of the outstanding Class A and Class B common stock of the Company iii the approval of a disinterested and independent committee of the Company s board of directors for certain change of control transactions iv certain standstill commitments and v additional transfer restrictions
On the Closing Date affiliates of BC Partners transferred 1 9 billion to the Company to be used to fund i tax obligations of its affiliates that were inherited by the Company as a result of the Transactions and ii expenses incurred by the Company in connection with the Transactions The Merger Agreement requires affiliates of BC Partners to indemnify the Company for certain tax liabilities and includes customary indemnifications related to the Transactions For additional information see Note 13 Income Taxes
The Company s accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America GAAP as set forth in the Financial Accounting Standards Board s FASB accounting standards codification ASC
In connection with the Transactions described in Note 1 Description of Business the Company has provided recasted condensed consolidated financial statements and related notes for the historical comparative periods in this 10 K Report reflecting the operations of Chewy Pharmacy KY as part of the Company s consolidated financial statements The recasted financial information was accounted for as a common control transaction with Chewy Pharmacy KY s net assets transferred at the previous parent company s historical basis
The Company has a 52 or 53 week fiscal year ending each year on the Sunday that is closest to January 31 of that year The Company s 2024 fiscal year ended February 2 2025 and included 53 weeks Fiscal Year 2024 The Company s 2023 fiscal year ended January 28 2024 and included 52 weeks Fiscal Year 2023 The Company s 2022 fiscal year ended January 29 2023 and included 52 weeks Fiscal Year 2022
The consolidated financial statements and related notes include the accounts of Chewy Inc and its wholly owned subsidiaries All intercompany balances and transactions have been eliminated in consolidation
GAAP requires management to make certain estimates judgments and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period On an ongoing basis management evaluates these estimates and judgments Actual results could differ from those estimates
Key estimates relate primarily to determining the net realizable value and demand for inventory useful lives associated with property and equipment and intangible assets valuation allowances with respect to deferred tax assets contingencies self insurance accruals evaluation of sales tax positions and the valuation and assumptions underlying share based compensation and equity warrants On an ongoing basis management evaluates its estimates compared to historical experience and trends which form the basis for making judgments about the carrying value of assets and liabilities
The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents Cash equivalents primarily consist of institutional money market funds U S Treasury securities certificates of deposit and commercial paper and are carried at cost which approximates fair value
The Company maintains the majority of its cash and cash equivalents in accounts with large financial institutions At times balances in these accounts may exceed federally insured limits however to date the Company has not incurred any losses on its deposits of cash and cash equivalents
The Company generally invests its excess cash in AAA rated money market funds and investment grade short to intermediate term fixed income securities including U S Treasury securities certificates of deposit and commercial paper Such investments are included in cash and cash equivalents or marketable securities on the accompanying consolidated balance sheets and are classified based on original maturity The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents and considers all highly liquid investments with an original maturity greater than 90 days and less than one year to be marketable securities
Marketable fixed income securities are classified as available for sale and reported at fair value with unrealized gains and losses included in accumulated other comprehensive income loss Each reporting period the Company evaluates whether declines in fair value below carrying value are due to expected credit losses as well as its ability and intent to hold the investment until a forecasted recovery of the carrying value occurs Expected credit losses are recorded as an allowance through other income expense net on the Company s consolidated statements of operations
Equity investments in public companies that have readily determinable fair values are included in marketable securities on the Company s consolidated balance sheets and measured at fair value with changes recognized in other income expense net on the Company s consolidated statements of operations
The Company holds equity warrants giving it the right to acquire stock of other companies These warrants are classified as derivative assets and are recorded within other non current assets on the Company s consolidated balance sheets with gains and losses recognized in other income expense net on the Company s consolidated statements of operations These warrants are subject to vesting requirements and the fair value established at contract inception is recognized as a deferred credit reported within other long term liabilities on the Company s consolidated balance sheets and is amortized as the vesting requirements are achieved For more information see Note 4 Financial Instruments
The Company s accounts receivable are comprised of customer and vendor receivables The Company s net customer receivables were 114 2 million and 110 0 million as of February 2 2025 and January 28 2024 respectively and consist of credit and debit card receivables from banks which typically settle within five business days The Company s vendor receivables were 54 8 million and 44 0 million as of February 2 2025 and January 28 2024 respectively The Company does not maintain an allowance for doubtful accounts as neither historical losses on customer and vendor receivables nor future projected losses on such receivables have been or are expected to be significant
The Company s inventories represent finished goods consist of products available for sale and are accounted for using the first in first out FIFO method and valued at the lower of cost or net realizable value
Inventory costs consist of product and inbound shipping and handling costs Inventory valuation requires the Company to make judgments based on currently available information about the likely method of disposition such as through sales to individual customers or returns to product vendors Inventory valuation losses are recorded as cost of goods sold and historical losses have not been significant
Property and equipment are stated at cost less accumulated depreciation and amortization Depreciation is calculated over the estimated useful lives of the related assets using the straight line method Amortization of leasehold improvements is computed using the straight line method over the shorter of the remaining lease term including renewals that are reasonably assured or the estimated useful lives of the improvements For internal use software external costs and employee payroll expenses directly associated with developing new or enhancing existing software applications are capitalized subsequent to the preliminary stage of development Internal use software costs are amortized using the straight line method over the estimated useful life of the software when the project is substantially complete and ready for its intended use
Expenditures for major additions and improvements are capitalized and minor replacements maintenance and repairs are expensed as incurred When property and equipment are retired or otherwise disposed of the cost and accumulated depreciation are removed from the accounts and any resulting gains or losses are included in the Company s results of operations for the respective period For more information see Note 5 Property and Equipment net
The Company has operating and finance lease agreements for its fulfillment and customer service centers veterinary clinics corporate offices and certain equipment The Company determines if an arrangement contains a lease at inception based on the ability to control a physically distinct asset Operating and finance lease right of use assets are recorded in the consolidated balance sheets based on the initial measurement of the lease liability as adjusted to include prepaid rent and initial direct costs less any lease incentives received Lease liabilities are measured at the commencement date based on the present value of the lease payments over the lease term Lease payments are generally fixed but may include provisions for future rent increases based on a market index The Company separately accounts for lease and non lease components within lease agreements the non lease components primarily relate to common area maintenance for real estate leases The Company uses its incremental borrowing rate to present value the lease liability as key inputs to determine the interest rate implicit in the lease are not shared by lessors
Operating lease expense is recorded on a straight line basis over the lease term Right of use assets and lease liabilities for short term leases are not recognized in the consolidated balance sheets Payments for short term leases are recognized in the consolidated statements of operations on a straight line basis over the lease term
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination Goodwill is not amortized The Company evaluates goodwill for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable The Company has the option to first perform a qualitative assessment of its goodwill to determine whether it is necessary to perform a quantitative impairment test If the Company concludes via the qualitative assessment that it is more likely than not that goodwill is impaired management performs the quantitative impairment test to evaluate the recoverability of goodwill by comparing the carrying value of the Company s reporting units to their fair values An impairment charge is recorded for the amount by which the carrying amounts exceed the fair values of the reporting units with the loss recognized not exceeding the total amount of goodwill The Company did not record any goodwill impairment during the periods presented
Intangible assets are recognized and recorded at their acquisition date fair values Intangible assets are amortized on a straight line basis over their estimated useful lives with amortization expense included within selling general and administrative expenses in the consolidated statements of operations The Company determined the useful lives of its intangible assets based on multiple factors including obsolescence and the period over which expected cash flows are used to measure the fair value of the intangible asset at acquisition The Company periodically reassesses the useful lives of its intangible assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate Intangible assets net of accumulated amortization are included within other non current assets on the consolidated balance sheets
The Company s long lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset a significant change in the extent or manner in which an asset is used or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable For asset groups held and used the carrying value of the asset group is considered recoverable when the estimated undiscounted future cash flows expected to be generated from the use and eventual disposition of the asset group exceed the respective carrying value In the event that the carrying value is not considered recoverable an impairment charge would be recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group Impairment charges are recognized within selling general and administrative expenses in the consolidated statements of operations Impairment charges recorded by the Company were not material for Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022
The Company uses a combination of self insurance programs and large deductible purchased insurance to provide for the costs of medical and workers compensation claims The Company periodically evaluates its level of insurance coverage and adjusts its insurance levels based on risk tolerance and premium expense Liabilities for the risks the Company retains including estimates of claims incurred but not reported are not discounted and are estimated in part by considering historical cost experience demographic and severity factors and judgments about current and expected levels of cost per claim and retention levels Additionally claims may emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial projections The Company believes the actuarial methods are appropriate for measuring these self insurance accruals However based on the number of claims and the length of time from incurrence of the claims to ultimate settlement the use of any estimation method is sensitive to the assumptions and factors described above Accordingly changes in these assumptions and factors can affect the estimated liability and those amounts may be different than the actual costs paid to settle the claims
The Company maintains a 401 k defined contribution plan which covers all employees who meet minimum requirements and elect to participate The Company is currently matching employee contributions up to specified percentages of those contributions
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date To increase the comparability of fair value measures the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value
Level 3 Valuations based on unobservable inputs reflecting the Company s assumptions consistent with reasonably available assumptions made by other market participants These valuations require significant judgment
The carrying amounts of the Company s cash and cash equivalents accounts receivable trade accounts payable and accrued expenses and other current liabilities approximate fair value based on the short term maturities of these instruments
Certain conditions may exist which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur The Company s management assesses such contingent liabilities and such assessments inherently involve an exercise of judgment In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is estimable the liability would be accrued in the Company s consolidated financial statements If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible or is probable but cannot be estimated the nature of the contingent liability together with an estimate of the range of possible loss if determinable and material would be disclosed
Loss contingencies considered remote are generally not disclosed Unasserted claims that are not considered probable of being asserted and those for which an unfavorable outcome is not reasonably possible have not been disclosed
Chewy primarily recognizes revenues from product sales when the customer orders an item through Chewy s websites or mobile applications via the electronic shopping cart funds are collected from the customer and the item is shipped from one of the Company s fulfillment centers and delivered to the carrier Certain products are shipped directly from manufacturers to Chewy customers For all of the preceding the Company is considered to be a principal to these transactions and revenue is recognized on a gross basis as the Company is i the primary entity responsible for fulfilling the promise to provide the specified products in the arrangement with the customer and provides the primary customer service for all products sold on Chewy s websites or mobile applications ii has inventory risk before the products have been transferred to a customer and maintains inventory risk upon accepting returns
Chewy primarily generates net sales from sales of pet food pet products pet medications and other pet health products and related shipping fees Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products To encourage customers to purchase its products the Company periodically provides incentive offers Generally these promotions include current discount offers such as percentage discounts off current purchases and other similar offers These offers when accepted by customers are treated as a reduction to the transaction price Revenue typically consists of the consideration received from the customer when the order is executed less a refund allowance which is estimated using historical experience
Cost of goods sold includes the purchase price of inventory sold freight costs associated with inventory shipping supply costs inventory shrinkage costs and valuation adjustments and reductions for promotions and discounts offered by the Company s vendors
The Company has agreements with vendors to receive either percentage or volume rebates Additionally certain vendors provide funding for discounts relating to the Autoship subscription program which are passed on to the Company s customers The Company primarily receives agreed upon percentage rebates from vendors however certain of its vendor rebates are dependent upon reaching minimum purchase thresholds In these instances the Company evaluates the likelihood of reaching purchase thresholds using past experience and current year forecasts When volume rebates can be reasonably estimated and it is probable that minimum purchase thresholds will be met the Company records a portion of the rebate as it makes progress towards the purchase threshold The Company also receives vendor funding in the form of advertising agreements related to general marketing activities Amounts received from vendors are considered a reduction of the carrying value of the Company s inventory and therefore such amounts are ultimately recorded as a reduction of cost of goods sold in the consolidated statements of operations
The Company purchases inventory from an assortment of vendors worldwide Sales of products from the Company s three largest vendors represented approximately 39 39 and 38 of the Company s net sales for Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022 respectively
Selling general and administrative expenses consist of fulfillment costs incurred in operating and staffing fulfillment centers customer service centers and veterinary clinics payroll and related expenses for employees involved in general corporate functions including accounting finance tax legal and human resources costs associated with the use of facilities and equipment such as depreciation expense and rent share based compensation expense professional fees and other general corporate costs
Fulfillment costs include costs attributable to buying receiving inspecting and warehousing inventories picking packaging and preparing customer orders for shipment payment processing providing pet health services and responding to inquiries from customers For Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022 the Company recorded fulfillment costs of 1 3 billion 1 3 billion and 1 2 billion respectively Included within fulfillment costs are merchant processing fees charged by third parties that provide merchant processing services for credit cards For Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022 the Company recorded merchant processing fees of 250 5 million 234 0 million and 207 7 million respectively
The Company recognizes share based compensation expense based on the equity award s grant date fair value For grants of restricted stock units subject to service based and company performance based vesting conditions the fair value is established based on the market price on the date of the grant For grants of restricted stock units subject to market based vesting conditions the fair value is established using the Monte Carlo simulation lattice model The determination of the fair value of share based awards is affected by the Company s stock price and a number of assumptions including volatility performance period risk free interest rate and expected dividends The Company accounts for forfeitures as they occur The grant date fair value of each restricted stock unit is amortized over the requisite service period
Advertising and marketing expenses primarily consist of advertising and payroll related expenses for personnel engaged in marketing business development and selling activities Advertising and marketing costs are expensed in the period that the advertising first takes place
The Company generates interest income from its cash and cash equivalents and marketable securities and incurs interest expense in relation to its borrowing facilities finance leases and uncertain tax positions The following table provides additional information about the Company s interest income expense net in thousands
The Company s other income expense net consists of i changes in the fair value of equity warrants investments and tax indemnification receivables ii foreign currency transaction losses and gains and iii allowances for credit losses The following table provides additional information about the Company s other expense income net in thousands
Income taxes are accounted for under the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences of events that have been recognized in the Company s financial statements or tax returns The Company s calculation relies on several factors including pre tax earnings and losses differences between tax laws and accounting rules statutory tax rates uncertain tax positions and valuation allowances Valuation allowances are established when in the Company s judgment it is more likely than not that its deferred tax assets will not be realized based on all available evidence Management considers all available evidence both positive and negative including historical levels of income expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance
Chewy determines whether it is more likely than not that a tax position will be sustained upon examination If it is not more likely than not that a position will be sustained no amount of benefit attributable to the position is recognized The tax benefit of any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50 likely of being realized upon resolution of the contingency The Company records interest related to uncertain tax positions within interest expense in the consolidated statements of operations and within other long term liabilities on the Company s consolidated balance sheets
The Company collects and remits sales tax in jurisdictions in which it has a physical presence or it believes nexus exists The Company maintains liabilities for potential exposure in states where taxability is uncertain and the Company did not collect sales tax
Operating segments are defined as components of an entity that engage in business activities for which discrete financial information is available and is regularly reviewed by the Chief Operating Decision Maker CODM in deciding how to allocate resources to an individual segment and in assessing performance The Company s CODM is its Chief Executive Officer The Company operates in one operating segment and one reportable segment For more information see Note 11 Segment Information
In June 2022 the FASB issued this Accounting Standards Update ASU to clarify the guidance when measuring the fair value of an equity security subject to contractual sale restrictions that prohibit the sale of an equity security This update became effective at the beginning of the Company s 2024 fiscal year The adoption of this standard did not have a material impact on the Company s consolidated financial statements
In November 2023 the FASB issued this ASU to update reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance This update became effective with the Company s Fiscal Year 2024 annual reporting period The adoption of this standard did not have a material impact on the Company s consolidated financial statements and resulted in additional segment disclosures within Note 11 Segment Information
In December 2023 the FASB issued this ASU to update income tax disclosure requirements primarily related to the income tax rate reconciliation and income taxes paid information This update is effective beginning with the Company s 2025 fiscal year annual reporting period with early adoption permitted The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements
In November 2024 the FASB issued this ASU to improve disclosures regarding the types of expenses included in commonly presented expense captions This update is effective beginning with the Company s 2027 fiscal year annual reporting period with early adoption permitted The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements
On October 23 2022 the Company entered into a definitive Agreement and Plan of Merger the Petabyte Merger Agreement with Petabyte Technology Inc Petabyte a Delaware corporation Under the terms of the Petabyte Merger Agreement the Company and Petabyte effected a merger on November 7 2022 and Petabyte became a wholly owned subsidiary of the Company Headquartered in Bellevue Washington Petabyte is a provider of cloud based technology solutions to the veterinary sector and the acquisition is expected to further strengthen the Company s pet healthcare product and service offering
Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their fair values with the remaining unallocated purchase price recorded as goodwill Goodwill represents the expected synergies and cost rationalization from the merger of operations as well as intangible assets that do not qualify for separate recognition such as an assembled workforce
In connection with this acquisition the Company recorded goodwill of 39 4 million none of which is deductible for tax purposes The identified intangible assets consisted of 1 5 million of developed technology with an amortization period of 3 0 years
Marketable securities are carried at fair value and are classified within Level 1 because they are valued using quoted market prices Specific to marketable fixed income securities the Company did not record any gross unrealized gains and losses as fair value approximates amortized cost The Company did not record any credit losses
Equity warrants are classified within Level 3 because they are valued based on observable and unobservable inputs reflecting the Company s assumptions consistent with reasonably available assumptions made by other market participants The Company utilized certain valuation techniques such as the Black Scholes option pricing model and the Monte Carlo simulation model to determine the fair value of equity warrants The application of these models requires the use of a number of complex assumptions based on unobservable inputs including the expected term expected equity volatility discounts for lack of marketability cash flow projections and probability with respect to vesting requirements
As of February 2 2025 and January 28 2024 the deferred credit subject to vesting requirements recognized within other long term liabilities in exchange for the equity warrants was 4 5 million and 1 9 million respectively
Internal use software includes labor and license costs associated with software development for internal use As of February 2 2025 and January 28 2024 the Company had accumulated amortization related to internal use software of 125 1 million and 87 5 million respectively
Construction in progress is stated at cost which includes the cost of construction and other directly attributable costs No provision for depreciation is made on construction in progress until the relevant assets are completed and put into use
For Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022 the Company recorded depreciation expense on property and equipment of 73 4 million 75 6 million and 57 5 million respectively and amortization expense related to internal use software costs of 37 6 million 30 2 million and 22 4 million respectively The aforementioned depreciation and amortization expenses were included within selling general and administrative expenses in the consolidated statements of operations
For Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022 the Company recorded amortization expense related to intangible assets of 3 6 million 3 9 million and 3 5 million respectively The Company expects to record future amortization of intangible assets of 0 4 million during Fiscal Year 2025
Various legal claims arise from time to time in the normal course of business In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein
The Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable The Company does not believe that the ultimate resolution of any matters to which it is presently a party will have a material adverse effect on the Company s results of operations financial condition or cash flows However the results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company s financial condition results of operations or cash flows
The Company has a senior secured asset based credit facility the ABL Credit Facility which matures on August 27 2026 and provides for non amortizing revolving loans in an aggregate principal amount of up to 800 million subject to a borrowing base comprised of among other things inventory and sales receivables subject to certain reserves The ABL Credit Facility provides the right to request incremental commitments and add incremental asset based revolving loan facilities in an aggregate principal amount of up to 250 million subject to customary conditions
Borrowings under the ABL Credit Facility bear interest at a rate per annum equal to an applicable margin plus at the Company s option either a base rate or a term Secured Overnight Financing Rate SOFR The applicable margin is generally determined based on the average excess liquidity during the immediately preceding fiscal quarter as a percentage of the maximum borrowing amount under the ABL Credit Facility and is between 0 25 and 0 75 per annum for base rate loans and between 1 25 and 1 75 per annum for term SOFR loans The Company is also required to pay a commitment fee of 0 25 per annum with respect to the undrawn portion of the commitments which is generally based on average daily usage of the facility
All obligations under the ABL Credit Facility are guaranteed on a senior secured first lien basis by the Company s wholly owned domestic subsidiaries subject to certain exceptions and secured subject to permitted liens and other exceptions by a perfected first priority security interest in substantially all of the Company s and its wholly owned domestic subsidiaries assets The ABL Credit Facility contains customary covenants with which the Company is in compliance
The ABL Credit Facility requires the Company to maintain a minimum fixed charge coverage ratio of 1 0 1 0 if excess liquidity under the facility is less than the greater of 10 of the maximum borrowing amount and 72 0 million for a certain period of time The ABL Credit Facility also contains certain customary events of default for facilities of this type including an event of default upon a change in control Based on the Company s borrowing base as of February 2 2025 which is reduced by standby letters of credit the Company had 782 6 million of borrowing capacity under the ABL Credit Facility As of February 2 2025 the Company had no outstanding borrowings under the ABL Credit Facility
The Company leases all of its fulfillment and customer service centers and corporate offices under non cancelable operating lease agreements The terms of the Company s real estate leases generally range from 5 to 15 years and typically allow for the leases to be renewed for up to three additional five year terms Fulfillment and customer service center veterinary clinic and corporate office leases expire at various dates through 2038 excluding renewal options The Company also leases certain equipment under operating and finance leases The terms of equipment leases generally range from 3 to 5 years and do not contain renewal options These leases expire at various dates through 2025
For Fiscal Year 2024 and Fiscal Year 2023 assets acquired in exchange for new operating lease liabilities were 9 1 million and 106 3 million respectively Lease expense primarily related to operating lease costs and were included within selling general and administrative expenses in the consolidated statements of operations For Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022 the Company recorded lease expense of 107 0 million 104 4 million and 90 9 million of which short term and variable lease payments were 28 3 million 24 8 million and 18 9 million respectively
As of February 2 2025 the weighted average remaining lease term and weighted average discount rate for operating leases was 11 0 years and 8 3 respectively As of January 28 2024 the weighted average remaining lease term and weighted average discount rate for operating leases was 11 8 years and 8 4 respectively
The table above includes all locations for which the Company had the right to control the use of the property In addition as of February 2 2025 the Company had lease arrangements which had not yet commenced with total future lease payments of 13 0 million The weighted average lease term for these lease arrangements is approximately 10 1 years
The Company maintains arrangements with certain local government agencies which provide for certain ad valorem tax incentives in connection with the Company s capital investment in property plant and equipment purchases to outfit new facilities over a specified timeframe To facilitate the incentives the Company conveys the purchased equipment to the local government agency and will lease the equipment from such agency for nominal consideration Upon termination of the lease including early termination the equipment will be conveyed to the Company for a nominal fee
Holders of the Company s Class A and Class B common stock are entitled to vote together as a single class on all matters submitted to a vote or for the consent of the stockholders of the Company unless otherwise required by law or the Company s amended and restated certificate of incorporation Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to ten votes per share
Subject to the preferences applicable to any series of preferred stock if any outstanding holders of Class A and Class B common stock are entitled to share equally on a per share basis in dividends and other distributions of cash property or securities of the Company
Subject to the preferences applicable to any series of preferred stock if any outstanding in the event of the voluntary or involuntary liquidation dissolution distribution of assets or winding up of the Company all assets of the Company available for distribution to common stockholders would be divided among and paid ratably to holders of Class A and Class B common stock
On May 24 2024 the Company s Board of Directors authorized the Company to repurchase up to 500 million of its Class A common stock and or Class B common stock pursuant to a share repurchase program the Repurchase Program Under the Repurchase Program the Company may repurchase shares of common stock on a discretionary basis from time to time through open market repurchases in privately negotiated transactions through repurchases made in compliance with Rule 10b 18 and or Rule 10b5 1 under the Securities Exchange Act of 1934 as amended or other means The actual timing and amount of any share repurchases remains subject to a variety of factors including stock price trading volume market conditions compliance with applicable legal requirements and other general business considerations The Repurchase Program does not require the Company to repurchase any specific dollar amount or to acquire any any specific number of shares of common stock The Repurchase Program has no expiration date and may be modified suspended or terminated at any time
On June 26 2024 the Company entered into an agreement the Stock Repurchase Agreement with Buddy Chester Sub LLC an entity affiliated with the Sponsors the Seller to repurchase an aggregate of 17 550 000 shares of Class A common stock from the Seller at a price per share of 28 49 resulting in an aggregate repurchase price of 500 million the Stock Repurchase The Stock Repurchase Agreement contains customary representations warranties and covenants of the parties
On September 19 2024 the Company entered into an underwriting agreement the September 2024 Underwriting Agreement with the Seller and Morgan Stanley Co LLC relating to the offer and sale by the Seller of 16 666 667 shares of Class A common stock at a price to the public of 30 00 per share the September 2024 Secondary Offering In addition the Seller granted Morgan Stanley Co LLC a 30 day option to purchase up to an additional 2 500 000 shares of Class A common stock which was exercised with respect to 1 250 000 shares of Class A common stock the September 2024 Option Shares Offering The Company did not sell any shares of Class A common stock and did not receive any proceeds in connection with either of the September 2024 Secondary Offering or the September 2024 Option Shares Offering Additionally on September 18 2024 the Company entered into an agreement the September 2024 Concurrent Stock Repurchase Agreement with the Seller to repurchase 300 million of shares of Class A common stock from the Seller at a price per share of 29 40 resulting in the repurchase of an aggregate of 10 204 081 shares of Class A common stock the September 2024 Concurrent Stock Repurchase The September 2024 Concurrent Stock Repurchase Agreement contains customary representations warranties and covenants of the parties
On December 11 2024 the Company entered into an underwriting agreement the December 2024 Underwriting Agreement with the Seller and Barclays Capital Inc relating to the offer and sale by the Seller of 15 852 886 shares of Class A common stock at a price to the public of 31 54 per share the December 2024 Secondary Offering In addition the Seller granted Barclays Capital Inc a 30 day option to purchase up to an additional 2 377 932 shares of Class A common stock which was exercised with respect to 2 377 932 shares of Class A common stock the December 2024 Option Shares Offering The Company did not sell any shares of Class A common stock and did not receive any proceeds in connection with either of the December 2024 Secondary Offering or the December 2024 Option Shares Offering Additionally on December 9 2024 the Company entered into an agreement the December 2024 Concurrent Stock Repurchase Agreement with the Seller to repurchase 50 million of shares of Class A common stock from the Seller at a price per share of 31 32 resulting in the repurchase of an aggregate of 1 596 424 shares of Class A common stock the December 2024 Concurrent Stock Repurchase The December 2024 Concurrent Stock Repurchase Agreement contains customary representations warranties and covenants of the parties
The total cost of repurchased shares of Class A common stock in excess of par value including the cost of commissions and excise taxes is recorded to additional paid in capital The total cost for share repurchases executed and unpaid as well as the cost of unpaid commissions and excise taxes are included in accrued expenses and other current liabilities on the Company s consolidated balance sheets During Fiscal Year 2024 3 439 858 17 550 000 10 204 081 and 1 596 424 shares of Class A common stock were repurchased and subsequently cancelled and retired pursuant to the Repurchase Program the Stock Repurchase Agreement the September 2024 Concurrent Stock Repurchase and the December 2024 Concurrent Stock Repurchase for a total cost of 93 3 million 500 0 million 300 0 million and 50 0 million respectively excluding the cost of commissions and excise taxes The authorized value of shares available to be repurchased under the Repurchase Program excludes the cost of commissions and excise taxes and as of February 2 2025 the remaining value of shares of common stock that were authorized to be repurchased under the Repurchase Program was 406 7 million As of February 2 2025 the total unpaid cost of share repurchases was 5 6 million which included 5 1 million for excise taxes
On May 8 2020 Buddy Chester Sub LLC a wholly owned subsidiary of the Sponsors converted 17 584 098 shares of the Company s Class B common stock into Class A common stock On May 11 2020 Buddy Chester Sub LLC entered into a variable forward purchase agreement the Contract to deliver up to 17 584 098 shares of the Company s Class A common stock at the exchange date with the number of shares to be issued based on the trading price of the Company s common stock during a 20 day observation period On each of May 15 2023 and May 16 2023 Buddy Chester Sub LLC settled its obligations under the Contract and delivered a total of 17 584 098 shares
On September 23 2024 Buddy Chester Sub LLC converted 26 870 748 shares of Class B common stock into Class A common stock contemporaneously with the closing of the September 2024 Secondary Offering and September 2024 Concurrent Stock Repurchase
On October 15 2024 in connection with the September 2024 Option Shares Offering Buddy Chester Sub LLC converted 1 250 000 shares of Class B common stock into Class A common stock and sold these shares to Morgan Stanley Co LLC
On December 13 2024 Buddy Chester Sub LLC converted 17 449 310 shares of Class B common stock into Class A common stock contemporaneously with the closing of the December 2024 Secondary Offering and December 2024 Concurrent Stock Repurchase
On December 13 2024 in connection with the December 2024 Option Shares Offering Buddy Chester Sub LLC converted 2 377 932 shares of Class B common stock into Class A common stock and sold these shares to Barclays Capital Inc
All shares of Class B common stock shall automatically without further action by any holder be converted into an identical number of shares of fully paid and nonassessable Class A common stock i on the first trading day on or after the date on which the outstanding shares of Class B common stock constitute less than 7 5 of the aggregate number of shares of common stock then outstanding or ii upon the occurrence of an event specified by the affirmative vote or written consent of the holders of a majority of the then outstanding shares of Class B common stock voting as a separate class
In addition each share of Class B common stock will convert automatically into one share of Class A common stock i upon the sale or transfer of such share of Class B common stock except for certain transfers described in the Company s amended and restated certificate of incorporation including transfers to affiliates of the holder and another holder of Class B common stock or ii if the holder is not an affiliate of any of the Sponsors
Preferred stock may be issued from time to time by the Company for such consideration as may be fixed by the board of directors Except as otherwise required by law holders of any series of preferred stock shall be entitled to only such voting rights if any as shall expressly be granted by the Company s amended and restated certificate of incorporation including any certificate of designation relating to such series of preferred stock
The Company operates in one operating segment and one reportable segment organized around the sale of pet products and services as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions allocating resources and evaluating financial performance The CODM utilizes gross profit and net income as the measures of segment profit
In July 2024 the Company s stockholders approved the Chewy Inc 2024 Omnibus Incentive Plan the 2024 Plan replacing the Chewy Inc 2022 Omnibus Incentive Plan the 2022 Plan The 2024 Plan became effective on July 11 2024 and the maximum number of shares of Class A common stock that may be covered by awards granted under the 2024 Plan may not exceed the aggregate total of i 80 0 million shares plus ii the number of shares remaining available for new awards under the 2022 Plan as of the effective date up to 3 1 million shares Following the effective date any shares subject to an award under the 2022 Plan or the 2024 Plan that expires or are canceled forfeited or terminated without the issuance of the full number of shares to which the award related will again be available for issuance under the 2024 Plan No awards may be granted under the 2024 Plan after July 2034 The 2024 Plan provides for grants of i options including incentive stock options and non qualified stock options ii restricted stock units iii other share based awards including share appreciation rights phantom stock restricted shares performance shares deferred share units and share denominated performance units iv cash awards v substitute awards and vi dividend equivalents collectively the awards The awards may be granted to i the Company s employees consultants and non employee directors ii employees of the Company s affiliates and subsidiaries and iii consultants of the Company s affiliates
The Company granted restricted stock units with service based vesting conditions RSUs which vested subject to the employee s continued employment with the Company through the applicable vesting date The Company recorded share based compensation expense for RSUs on a straight line basis over the requisite service period and accounted for forfeitures as they occur
As of February 2 2025 total unrecognized compensation expense related to unvested RSUs was 465 4 million and is expected to be recognized over a weighted average expected performance period of 2 5 years
The Company granted restricted stock units which vested upon satisfaction of both service based vesting conditions and company performance based vesting conditions PRSUs subject to the employee s continued employment with the Company through the applicable vesting date The Company recorded share based compensation expense for PRSUs over the requisite service period and accounted for forfeitures as they occur
As of February 2 2025 total unrecognized compensation expense related to unvested PRSUs was 22 6 million and is expected to be recognized over a weighted average expected performance period of 1 8 years
During Fiscal Year 2023 and Fiscal Year 2022 vesting occurred for 0 1 million and 0 2 million PRSUs respectively that were previously granted to an employee of PetSmart LLC PetSmart For accounting purposes the issuance of Class A common stock upon vesting of these PRSUs is treated as a distribution to a parent entity because both the Company and PetSmart are controlled by affiliates of BC Partners
Share based compensation expense is included within selling general and administrative expenses in the consolidated statements of operations The Company recognized share based compensation expense as follows in thousands
Chewy is subject to taxation in the U S and various state local and foreign jurisdictions Income taxes as presented in the Company s consolidated financial statements have been prepared based on Chewy s separate return method As a result of the Transactions the Company no longer files consolidated or combined state and local income tax returns with affiliates of BC Partners and no longer considers hypothetical net operating losses or credits associated with such income tax returns
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible The Company considers the scheduled reversal of deferred tax liabilities including the effect of available carryback and carryforward periods in making this assessment To fully utilize the net operating loss NOL and tax credit carryforwards the Company will need to generate sufficient future taxable income in each respective jurisdiction Prior to Fiscal Year 2024 and due to its history of losses the Company determined it was more likely than not that its deferred tax assets would not be realized and accordingly established a full valuation allowance on its net deferred tax assets A valuation allowance is recorded when it is more likely than not that some portion of the deferred tax assets will not be realized To the extent that a valuation allowance has been established and it is subsequently determined that it is more likely than not that the deferred tax assets will be recovered the valuation allowance will be released During Fiscal Year 2024 based on all available evidence the Company determined that it was appropriate to release the valuation allowance on its U S federal and other state deferred tax assets of 275 7 million As of February 2 2025 the Company maintained a full valuation allowance against its foreign net deferred tax assets and certain U S state deferred tax assets
The valuation allowance decreased by 259 3 million during Fiscal Year 2024 The decrease in the valuation allowance primarily relates to the release of the 275 7 million valuation allowance on U S deferred tax assets partially offset by an increase of 13 1 million relating to current year foreign deferred tax asset activity and an increase of 3 3 million related to U S state deferred tax assets that are expected to expire prior to utilization
As of February 2 2025 the Company had federal state and foreign NOL carryforwards of 180 0 million 400 3 million and 69 8 million respectively The federal NOL carryforwards have no expiration and can only be used to offset 80 of the Company s future taxable income The state NOL carryforwards include 178 5 million with definitive expiration dates and 221 8 million with no expiration The state NOLs are presented as an apportioned amount The foreign NOL carryforwards have a 20 year expiration and can be used to offset 100 of the Company s future taxable income
The Company participates in various federal and state credit programs which provide credits against current and future tax liabilities Credits not used in the current year are carried forward to future years
As of February 2 2025 the Company had unrecognized tax benefits of 43 5 million inclusive of 3 4 million in interest If recognized 40 1 million would benefit the Company s effective tax rate The unrecognized tax benefits include 21 7 million inclusive of 3 4 million in interest that the Company became the obligor for in connection with the Transactions in Fiscal Year 2023 Chewy is fully indemnified by affiliates of BC Partners for these unrecognized tax benefits and related interest For more information see Note 15 Certain Relationships and Related Party Transactions
The Company does not expect changes in the unrecognized tax benefits within the next 12 months that would have a material impact to its consolidated financial statements The Company is no longer subject to U S state or local tax examinations by tax authorities for years prior to Fiscal Year 2022 other than a few exceptions
The tax sharing agreement entered into between the Company PetSmart and Argos Holdco during Fiscal Year 2019 was terminated by all parties to the agreement on October 30 2023 in connection with the Transactions No remaining obligations exist between the parties During Fiscal Years 2023 and 2022 the Company paid 10 3 million and 2 8 million respectively pursuant to the tax sharing agreement
In connection with the Transactions Chewy assumed 1 9 billion of federal and state income taxes which were fully indemnified by affiliates of BC Partners During Fiscal Year 2023 the Company paid 1 8 billion of these income taxes and had a remaining income tax payable of 108 9 million as of January 28 2024 During Fiscal Year 2024 the Company paid 93 2 million net of refunds received and affiliates of BC Partners directly assumed 7 3 million for these income taxes Following the reclassification of 6 6 million of refunds received to reflect a payable to affiliates of BC Partners the Company had a remaining income tax payable of 1 8 million as of February 2 2025 For more information see Note 15 Certain Relationships and Related Party Transactions
The Company paid 25 0 million and 5 0 million net of refunds received for federal state and foreign income taxes other than the Transactions during Fiscal Years 2024 and 2023 respectively The Company had an income tax receivable of 4 1 million and an income tax payable of 4 4 million for these income taxes as of February 2 2025 and January 28 2024 respectively
On August 16 2022 the U S enacted the Inflation Reduction Act which introduced new tax provisions including a 15 corporate alternative minimum tax a 1 excise tax on corporate stock buybacks and several tax incentives to promote clean energy As of February 2 2025 the Company had a payable for excise taxes of 5 1 million which was included in accrued expenses and other current liabilities on the Company s consolidated balance sheets For more information see Note 10 Stockholders Equity Deficit
Beginning in 2022 the 2017 Tax Cuts and Jobs Act amended Section 174 to eliminate current year deductibility of research and experimentation R E and software development costs and instead requires taxpayers to charge their R E expenditures to a capital account amortized over five years 15 years for expenditures attributable to R E activity performed outside the United States As of February 2 2025 the Company recorded deferred tax assets of 164 0 million before any valuation allowance with respect to capitalized R E expenditures
Basic and diluted earnings per share attributable to the Company s common stockholders are presented using the two class method required for participating securities Under the two class method net income attributable to the Company s common stockholders is determined by allocating undistributed earnings between common stock and participating securities Undistributed earnings for the periods presented are calculated as net income less distributed earnings Undistributed earnings are allocated proportionally to the Company s common Class A and Class B stockholders as both classes are entitled to share equally on a per share basis in dividends and other distributions Basic and diluted earnings per share are calculated by dividing net income attributable to the Company s common stockholders by the weighted average shares outstanding during the period
As of February 2 2025 the Company had a payable to affiliates of BC Partners of 6 9 million with respect to refunds received pursuant to tax payments made in connection with the Transactions which was included in accrued expenses and other current liabilities on the Company s consolidated balance sheets As of January 28 2024 the Company had a receivable from affiliates of BC Partners of 48 3 million with respect to future tax payments in connection with the Transactions which was included in prepaid expenses and other current assets on the Company s consolidated balance sheets For more information see Note 13 Income Taxes
As of February 2 2025 and January 28 2024 the Company had a receivable from affiliates of BC Partners of 21 7 million and 19 7 million respectively with respect to the indemnification for certain tax liabilities in connection with the Transactions which was included in other non current assets on the Company s consolidated balance sheets For more information see Note 13 Income Taxes
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms and that such information is accumulated and communicated to our management including our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required financial disclosure
As of the end of the period covered by this 10 K Report our management under the supervision and with the participation of our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a 15 e and 15d 15 e Based upon this evaluation our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of February 2 2025
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f under the Exchange Act Management conducted an assessment of the effectiveness of the Company s internal control over financial reporting based on the criteria set forth in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework Management has concluded that its internal control over financial reporting was effective as of February 2 2025 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U S GAAP The effectiveness of our internal control over financial reporting as of February 2 2025 has been audited by Deloitte Touche LLP an independent registered public accounting firm as stated in their report which appears in Part II Item 8 of this Annual Report on Form 10 K
There were no changes in our internal control over financial reporting that materially affected or are reasonably likely to materially affect our internal control over financial reporting during the fourteen weeks ended February 2 2025
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above Management does not expect however that our disclosure controls and procedures will prevent or detect all error and fraud Any control system no matter how well designed and operated is based on certain assumptions and can provide only reasonable not absolute assurance that its objectives will be met Further no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud if any within the Company have been detected
issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of February 2 2025 based on criteria established in
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements as of and for the year ended February 2 2025 of the Company and our report dated March 26 2025 expressed an unqualified opinion on those financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Annual Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
During the fourteen weeks ended February 2 2025 none of the Company s directors or officers adopted modified or terminated a Rule 10b5 1 trading arrangement or a non Rule 10b5 1 trading arrangement as such terms are defined under Item 408 of Regulation S K
Incorporated herein by reference is the text found in this Annual Report on Form 10 K under the caption Information About Our Executive Officers The remaining information regarding our directors executive officers and corporate governance is incorporated herein by reference from the sections titled Board of Directors and Corporate Governance
Board Committees from our Definitive Proxy Statement for the 2025 Annual Meeting of Stockholders the Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the close of Fiscal Year 2024
Information on security ownership of certain beneficial owners and management and related shareholder matters is incorporated herein by reference from the sections titled Named Executive Officer Compensation
The documents listed in the Exhibit Index of this Annual Report on Form 10 K are incorporated by reference or are filed with this Annual Report on Form 10 K in each case as indicated therein numbered in accordance with Item 601 of Regulation S K
Agreement and Plan of Merger dated as of October 30 2023 by and among Chewy Inc Chewy Kentucky Holding LLC Buddy Chester Sub Parent Holdco Inc and solely for the purposes of certain articles identified therein Buddy Chester Sub LLC
Amendment No 1 to the ABL Credit Agreement dated as of August 27 2021 among Chewy Inc the Lenders as defined therein from time to time party hereto Wells Fargo Bank National Association as administrative agent and JPMorgan Chase Bank N A as syndication agent
Amendment No 2 to the ABL Credit Agreement dated as of January 26 2023 among Chewy Inc the Lenders as defined therein from time to time party hereto Wells Fargo Bank National Association as administrative agent and JPMorgan Chase Bank N A as syndication agent
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Company Name	Chewy, Inc. Vist SEC web-site
Category	RETAIL-CATALOG & MAIL-ORDER HOUSES
Trading Symbol	CHWY