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What changed in Chewy, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Chewy, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+382 added−387 removedSource: 10-K (2023-03-22) vs 10-K (2022-03-29)

Top changes in Chewy, Inc.'s 2023 10-K

382 paragraphs added · 387 removed · 324 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeDuring 2020 and 2021, we continued to grow and innovate our pet healthcare business by introducing the below service offerings: • Telehealth - In October 2020, we launched “Connect with a Vet,” a telehealth service that allows pet parents and veterinarians to leverage our proprietary tele-triage platform to allow for continuous veterinarian care.
Biggest changeIn 2020, we launched “Connect with a Vet,” a telehealth service that allows pet parents to connect directly with licensed veterinarians for pet care, and in 2021, we expanded paid access to all customers with continued complimentary access for our Autoship customers, and in 2022 we expanded complimentary access to all registered customers.
Item 1. Business Overview Chewy, Inc. began operating as Chewy.com in 2011 and, in October 2013, Chewy.com, LLC was formed as a Delaware limited liability company. 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.
Item 1. Business Overview Chewy, Inc. began operating as Chewy.com 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.
Human Capital 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, motivating, and retaining employees who share our core values of delivering superior customer service and caring about the needs of pets and their parents.
Human Capital 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.
Chewy, Inc. completed the initial public offering (“IPO”) of its 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.
Chewy, Inc. completed the initial public offering of its 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.
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. • Leverage our technological and operational efficiencies.
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. 5 • Leverage our technological and operational efficiencies.
According to Packaged Facts, only 5% of dog and cat owners agreed that they were spending less on pet food as a result of the 2 COVID-19 pandemic and subsequent economic downturn.
According to Packaged Facts, only 5% of dog and cat owners agreed that they were spending less on pet food as a result of the COVID-19 pandemic and subsequent economic downturn.
Additionally, we 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. • Our technology platform is scalable.
Additionally, we 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 technology platform is scalable.
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. 5 Trademarks and Intellectual Property 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.
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. 6 Trademarks and Intellectual Property 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.
“Pet humanization” and premiumization driving higher spending per pet 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, 95% of dog or cat owners considered their pets to be a part of their family.
“Pet humanization” and premiumization driving higher spending per pet 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, 94% of dog or cat owners considered their pets to be a part of their family.
To continue our mission, and to compete and succeed in our highly competitive and rapidly evolving market, it is crucial that we continue to attract, develop, motivate, and retain well-qualified employees. We face significant competition for employees, which has increased as a result of constrained labor markets.
To continue our mission, and to compete and succeed in our highly competitive and rapidly evolving market, it is crucial that we continue to attract, develop, engage, and retain well-qualified employees. We face significant competition for employees, which has increased as a result of constrained labor markets.
We carry more than 3,000 carefully selected brands, representing many of the best and most popular products, and we regularly add new ones as we strive to offer everything that pet parents may need or want for their pets.
We carry more than 3,500 carefully selected brands, representing many of the best and most popular products, and we regularly add new ones as we strive to offer everything that pet parents may need or want for their pets.
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. 6 Team Member Safety . We are committed to the health and safety of our employees.
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. 7 Team Member Safety . We are committed to the health and safety of our employees.
Our net sales tend to grow throughout the fiscal year as we continue to acquire additional new customers and they continue to purchase from us. We recognized 24%, 24%, 25%, and 27% of our annual net sales during the first, second, third, and fourth quarters of fiscal year 2021, respectively.
Our net sales tend to grow throughout the fiscal year as we continue to acquire additional new customers and they continue to purchase from us. We recognized 24%, 24%, 25%, and 27% of our annual net sales during the first, second, third, and fourth quarters of fiscal year 2022, respectively.
We also 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 wellbeing. Community Involvement . Our Chewy Gives Back team works tirelessly at continuing our philanthropic mission of supporting animal shelters and rescues everywhere.
We also 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. Community Involvement . Our Chewy Gives Back team works tirelessly at continuing our philanthropic mission of supporting animal shelters and rescues everywhere.
We believe there is significant room to grow our proprietary brands through continued growth of our current brands and the launch of new ones. • Expand further into pet healthcare. We provide customers with a one-stop shop for their prescription and special diet needs with our over-the-counter and veterinarian diet offerings and Chewy Pharmacy products.
We believe there is significant room to grow our private brands through continued growth of our current brands and the launch of new ones. • Expand further into pet healthcare. We provide customers with what we believe is a one-stop shop for their prescription and special diet needs with our over-the-counter and veterinarian diet offerings and Chewy Pharmacy products.
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. as well as in certain foreign jurisdictions. These trademarks include, among others, “American Journey,” “Blue Box Event,” “Chewy,” “Chewy.com,” “Dr.
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 certain foreign jurisdictions. These trademarks include, among others, “American Journey,” “Blue Box Event,” “Careplus,” “Chewy,” “Chewy.com,” “Dr.
The expertise of our 3 CSRs, combined with the powerful 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 offer a wide assortment of pet products—and we continue to grow that assortment—which we offer at competitive prices.
The expertise of our CSRs, combined with the powerful 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. 4 • We offer a wide assortment of pet products and services—and we continue to grow that assortment—which we offer at competitive prices.
Our management team is committed to a disciplined use of capital designed to drive measurable improvements in unit economics and further improve our profitability. 4 • Continue to grow our proprietary brands. In 2016, we launched our first hardgoods proprietary brand, Frisco, followed by the launch of two consumables proprietary brands, American Journey and Tylee’s.
Our management team is committed to a disciplined use of capital designed to drive measurable improvements in unit economics and further improve our profitability. • Continue to grow our private brands. In 2016, we launched our first hardgoods private brand, Frisco, followed by the launch of two consumables private brands, American Journey and Tylee’s.
Lyon’s,” “Frisco,” “Goody Box,” “Onguard,” “Tiny Tiger,” “True Acre Farms,” and “Tylee’s.” 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.
Lyon’s,” “Frisco,” “Goody Box,” “Onguard,” “PetMD,” “Practice Hub,” “Tiny Tiger,” “True Acre Farms,” “Tylee’s,” and “Vibeful.” 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.
Our diversity, equity, and inclusion (“DEI”) mission is to hire, retain, and promote exceptional talent that values and is inclusive of all backgrounds and perspectives to deliver excellence. We are focused on this mission and on building an inclusive culture through a variety of diversity, equity, and inclusion initiatives and programs, including assessments of current processes and policies.
Our diversity, equity, and inclusion (“DEI”) mission is to hire, retain, and promote exceptional talent that values and is inclusive of diverse backgrounds and perspectives. We are focused on this mission and on building an inclusive culture through a variety of diversity, equity, and inclusion initiatives and programs, including assessments of current processes and policies.
According to Packaged Facts, 21% of pet parents surveyed in February 2021 used subscription-based purchasing for pet food in the prior 12 months, which was up from 12% in February 2020. Similarly, 15% of treat purchases were subscription-based, up from 7% the previous year.
According to Packaged Facts, 22% of pet parents surveyed in January 2023 used subscription-based purchasing for pet food in the prior 12 months, which was up from 12% in February 2020. Similarly, 21% of treat purchases were subscription-based, up from 15% the previous year.
The strategic placement of our fulfillment centers across the U.S. enables us to typically cost-efficiently ship to over 80% of the U.S. population overnight and almost 100% in two days.
The strategic placement of our fulfillment centers across the U.S. provides us the capability to cost-efficiently ship to over 80% of the U.S. population overnight and almost 100% in two days.
By leveraging our extensive infrastructure of our supply chain consisting of 14 fulfillment centers, we are typically able to offer our products in a localized manner by serving over 80% of the U.S. population overnight and almost 100% in two days.
By leveraging our extensive infrastructure of our supply chain consisting of seventeen fulfillment centers, 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.
We believe that we share a common goal of pet health and wellness along with the veterinarian community, and we will continue to utilize our strengths to enhance partnerships with customers and veterinarians alike. • Explore broader platform opportunities.
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.
We also enter into, and rely on, confidentiality and proprietary rights agreements with our employees, consultants, contractors and business partners to protect our trade secrets, proprietary technology and other confidential information.
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.
During the fiscal year ended January 30, 2022, we donated approximately $43 million in products and supplies to animal shelters and rescues. Diversity, Equity, and Inclusion . We recognize the significance of a diverse and inclusive workforce and fostering safe working environments in which our employees can be their authentic and best selves.
During the fiscal year ended January 29, 2023, we donated approximately $50 million in products and supplies to animal shelters and rescues. Diversity, Equity, and Inclusion . We recognize the importance of a diverse and inclusive workforce and fostering safe working environments in which our employees can be their authentic and best selves.
In fact, the share of pet-owning households who buy pet food online nearly doubled from 16% in the Fall 2019 tracking period to 29% as of Fall 2021, according to MRI-Simmons data cited by Packaged Facts.
In fact, the share of pet-owning households who buy pet food online nearly tripled from 16% in the Fall 2019 tracking period to 48% as of Summer 2022, according to MRI-Simmons data cited by Packaged Facts.
In 2019, e-commerce claimed the top spot of pet food sales by channel and online shopping continues to take market share from brick-and-mortar retail. Packaged Facts reports that online shopping grew from 8% of U.S. retail pet product sales in 2015 to an estimated 35% in 2021 with over $17 billion of pet food and treats sold online.
In 2019, e-commerce claimed the top spot of pet food sales by channel and online shopping continues to take market share from brick-and-mortar retail. Packaged Facts reports that online shopping grew from 16% of U.S. retail pet product sales in 2017 to an estimated 38% in 2022 with over $21 billion of pet food and treats sold online.
We offer market-competitive compensation and benefits including life and health (medical, dental, and vision) insurance, health savings accounts, paid time off, paid parental leave, a 401(k) plan, and a discount off purchases made on Chewy.com.
We offer market-competitive compensation and benefits including life and health (medical, dental, and vision) insurance, health savings accounts, paid time off, paid parental leave, family support services (including child adoption and surrogacy benefits and pet adoption reimbursement), a 401(k) plan, and a discount off purchases made on Chewy.com.
Historical and projected growth in pet spending According to Packaged Facts, spending on the U.S. pet market has grown from $77 billion in 2015 to an estimated $117 billion in 2021, or at a 6.9% compounded annual growth rate (“CAGR”) over that time.
Historical and projected growth in pet spending According to Packaged Facts, spending on the U.S. pet market has grown from $82 billion in 2016 to an estimated $138 billion in 2022, or at a 9.1% compounded annual growth rate (“CAGR”) over that time.
Our Strategy • Continue to grow sales from our existing customer base. 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.
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.
This method has become significantly more popular among consumers born between 1965 and 2020, who are increasingly becoming pet parents. Packaged Facts found that usage rates for pet product subscription-based purchasing are dramatically higher for Millennials/Gen Zers (49%) or Gen Xers (43%) than for Boomers (18%) or older seniors (7%).
This method has become significantly more popular among consumers born between 1965 and 2020, who are increasingly becoming pet parents. Packaged Facts found that usage rates for any type of pet product or service subscription are dramatically higher for Millennials/Gen Zers (71%) or Gen Xers (55%) than for Boomers or older seniors (34%).
We also encouraged our employees to obtain COVID-19 vaccinations once they became available. In addition, during fiscal year 2021, we continued to offer emergency sick pay and additional paid time off for hourly employees for absences related to COVID-19.
In addition, during fiscal year 2022, we continued to offer emergency sick pay and additional paid time off for hourly employees for absences related to COVID-19 and encouraged employees to obtain influenza and COVID-19 vaccinations.
During fiscal year 2021, we instituted company-wide unconscious bias training and launched four team member resource groups in support of our DEI mission. Available Information Our website address is www.chewy.com, and our investor relations website is investor.chewy.com.
During fiscal year 2022, we continued company-wide unconscious bias training, expanded our DEI course offerings, and provided five team member resource groups in support of our DEI mission. Available Information Our website address is www.chewy.com, and our investor relations website is investor.chewy.com.
We employed approximately 21,300 full-time and part-time employees as of January 30, 2022. Additionally, we use independent contractors and temporary personnel to supplement our workforce, primarily to support our corporate operations and information technology staff. As of March 22, 2022, none of our employees were represented by a labor union or covered by a collective bargaining agreement.
Additionally, we use independent contractors and temporary personnel to supplement our workforce, primarily to support our corporate operations and information technology staff. As of March 15, 2023, none of our employees were represented by a labor union or covered by a collective bargaining agreement.
Growing trend of subscription-based purchasing Additionally Packaged Facts research indicates that subscription-based purchasing rates for pet products, such as pet food, treats, litter, and flea/tick or heartworm medications, have doubled since March 2020.
Growing trend of subscription-based purchasing Additionally Packaged Facts research indicates that 58% of pet owners utilize subscription-based purchasing for pet products, such as pet food, treats, litter, and flea/tick or heartworm medications in 2022.
Our website and mobile app allow our pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to conveniently shop for our products.
We seek to continually develop innovative ways for our customers to engage with us, as our website and mobile app allow our pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to conveniently shop for our products.
We continually develop innovative ways for our customers to engage with us, and partner with more than 3,000 of the best and most trusted brands in the pet industry offering more than 100,000 products, to bring a high-bar, customer-centric experience to our customers.
We partner with more than 3,500 of the best and most trusted brands in the pet industry offering more than 110,000 products and services offerings, to bring what we believe is a high-bar, customer-centric experience to our customers.
We expect to pursue additional trademark registrations to the extent we believe they would be beneficial and cost-effective. In addition to trademark protection, we own numerous domain names, including www.chewy.com.
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.
This represents an over 38% CAGR for online pet retail over that time frame. Packaged Facts estimates the e-commerce channel to rapidly increase to 53% of total retail channel pet product sales by 2025, up from pre-pandemic estimates of 27% by 2024 while all other channels are projected to decline.
This represents an over 32% CAGR for online pet retail over that time frame. Packaged Facts estimates the e-commerce channel to rapidly increase to 48% of total retail channel pet product sales by 2026, while all other channels are projected to decline. This shift to e-commerce nearly doubles estimates of 25% channel share in 2019, pre-COVID.
We strive to offer a competitive compensation and benefits program, focus on employee safety, give employees the opportunity to have a positive impact on society by being a part of our philanthropic endeavors, and foster a workplace that is reflective of our society and where everyone feels empowered to do their best work.
We strive to offer competitive compensation and benefits, focus on employee safety, share opportunities for positive societal impact through participation in philanthropic endeavors, and foster a workplace that is reflective of our society and where everyone feels empowered to do their best work. We employed approximately 19,400 full-time and part-time employees as of January 29, 2023.
We provide our employees with support resources and programs that advance employee engagement, communication, and feedback, including an annual engagement survey, which we use to assess and improve our practices and policies. Compensation and Benefits Program . Our compensation and benefits are designed to enable us to attract, motivate, and retain highly-qualified talent.
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.
Millions of customers have tried and reordered at least one of our proprietary brands over the years. Our goal is to provide value to our customers by offering proprietary brands with compelling quality and pricing.
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.
Further, 34% of these individuals indicated a significant shift in “where or how” they bought pet products in 2020, which has resulted in a reduction in brick-and-mortar shopping and an increase in online shopping.
Further, 34% of these individuals indicated a significant shift in “where or how” they bought pet products in 2020, which has resulted in a reduction in brick-and-mortar shopping and an increase in online shopping. 3 According to Packaged Facts, 68% of consumers have been cutting back on household expenses in the last 12 months due to price inflation, economic uncertainty, or other factors.
During fiscal year 2021, as a result of the COVID-19 pandemic, we continued to take proactive and precautionary steps to protect the health and safety of our employees, including protocols regarding social distancing and face coverings, temperature checks, and enhanced cleanings. In addition, a vast majority of our corporate employees continue to work remotely.
During fiscal year 2022, as a result of the COVID-19 pandemic, we continued to take proactive and precautionary steps to protect the health and safety of our employees.
Packaged Facts projects the U.S. pet market to grow at a CAGR of over 7.5% from 2020 through 2025, with retail pet food and treats projected to grow at a CAGR of over 7.5% over that time.
Packaged Facts projects the U.S. pet market to grow at a CAGR of over 6.9% from 2022 through 2026, with retail pet food and treats projected to grow at a CAGR of over 6.5% over that time. Consistency of spending and resilience during economic downturns Spending on pets is a necessity and most customers purchase frequently and at regular intervals.
We further control the use of our proprietary technology and intellectual property through provisions in both our customer terms of use on our website and in our vendor terms and conditions. We believe that our intellectual property has substantial value and has significantly contributed to our success to date.
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.
In 2021, we expanded access to “Connect with a Vet” to all Chewy customers, with Autoship customers’ access remaining free of charge. • Our highly efficient and effective distribution network provides exceptional delivery with ongoing cost advantages and superior customer service.
In 2020, we launched a medication compounding and telehealth service, “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. In 2022, we further expanded this access to all registered Chewy customers, with access remaining free of charge.
We continually engage with manufacturers to develop and market better quality pet products under our brand names to better serve our customers at a lower price. Seasonality Seasonality in our business does not follow that of traditional retailers, such as typically high concentration of revenue in the holiday quarter.
We believe that our intellectual property has substantial value and has significantly contributed to our success to date. Seasonality Seasonality in our business does not follow that of traditional retailers, such as typically high concentration of revenue in the holiday quarter.
As we continue to grow, we expect that we will be able to further scale our fixed costs. For our healthcare business, in 2021, we began rollout of Practice Hub, an e-commerce solution for veterinarians that allows them to integrate their existing practice management software with our fulfillment and customer service capabilities, which enables scale across our ecosystem.
Examples of our scalable technology include our rollout of Practice Hub in 2021, an e-commerce solution for veterinarians that allows them to integrate their existing practice management software with our fulfillment and customer service capabilities, and our beta version of sponsored ads in 2022, which are dedicated product placements on Chewy.com that promote specific products from select vendors.
We plan to offer customers both preventative care wellness plans and comprehensive insurance plans for accidents, illnesses, and chronic conditions for purchase on our website. These service offerings advance our mission to be the most trusted resource for pet parents and veterinarians and our goal to make pet healthcare more affordable and accessible to pet parents.
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.
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During the fiscal year ended January 30, 2022, we expanded service innovations like our Connect with a Vet telehealth offering for veterinary care and our medication compounding services, demonstrating our adaptability and innovative spirit in helping to fulfill the health and wellness needs of pet parents and their pets.
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Amongst dog owners, 90% agree that pets are central to their home life, with 87% of cat owners and 85% of other pet owners being in agreement.
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Furthermore, according to Packaged Facts, 69% of pet parents are willing to spend more on pet foods with extra health and wellness benefits.
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Furthermore, according to Packaged Facts, 89% of pet owners agreed that they look for products to improve their pets’ health and wellness, with 61% willing to pay more for food customized for their pet’s specific dietary needs.
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Pet food and treat sales estimates from 2020 through 2024 were adjusted higher by over 2% compared to pre- COVID-19 pandemic sales estimates from Packaged Facts. Consistency of spending and resilience during economic downturns Spending on pets is a necessity and most customers purchase frequently and at regular intervals.
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However, only 15% of consumers cutting back are doing so in pet care and human medical care categories.
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According to Packaged Facts, 54% of dog and cat owners purchased pet products online in 2020, with 28% of pet owners shopping via a smartphone.
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In 2022, we also launched Careplus, a product suite of Insurance and Wellness plans across price points and coverage options with our goal to increase pet parents’ access to affordable and high-quality healthcare offerings for their pets. • Our highly efficient and effective distribution network provides exceptional delivery with ongoing cost advantages and superior customer service.
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In 2020, we also launched two innovative ventures that are valuable additions to our growing healthcare business and represent our first service-based offerings for pet parents: medication compounding and a telehealth service, “Connect with a Vet,” as part of our goal to make pet healthcare more affordable and accessible to pet parents.
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As we continue to grow, we expect that we will be able to further scale our fixed costs.
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This service allows pet parents to connect directly with a licensed veterinarian to get answers to commonly asked questions, receive advice, discuss concerns they might have regarding the health and wellness of their pet, and obtain referrals to their local veterinarians or emergency clinics.
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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. Our Strategy • Continue to grow sales from our existing customer base.
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During 2021, we expanded access to “Connect with a Vet” to our entire base of more than 20 million active customers and any new-to-Chewy customers on a pay-per-consult basis, with complimentary access for our Autoship customers. • Compounding Medications - In November 2020, we introduced an offering which provides pet owners the ability to order customized, pharmaceutical grade, prescription medications that meet their pets’ unique needs, that cannot otherwise be fulfilled by commercially available alternatives. • Practice Hub - In 2021, we began our rollout of Practice Hub, a complete e-commerce solution for veterinarians that can be integrated with their existing management software.
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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.
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Using our proprietary app, veterinarians can easily create and manage preapproved prescriptions all in one place.
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In 2021, we launched Practice Hub, 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 today, we have over 1,000 veterinary practices using the platform, an increase from approximately 300 in early 2022.
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Then they can earn revenue as a seller on our marketplace when customers place an order in clinic or purchase their items at home on chewy.com, and we handle inventory, fulfillment, shipping, and customer service. • Pet Insurance - Beginning in 2022, we intend to offer pet health wellness plans and pet health insurance to our customers, which will increase pet parents’ access to affordable and high-quality healthcare offerings for their pets.
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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. As of January 29, 2023, we have expanded into over 30 States, with a target nationwide launch of Lemonade offerings in spring of 2023. In 2022, we also completed our acquisition of Petabyte Technology Inc.
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(“Petabyte”), 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. • Explore broader platform opportunities.
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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. Compensation and Benefits Program . Our compensation and benefits are designed to enable us to attract, motivate, and retain highly-qualified talent.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks are more fully described in this “Risk Factors” section, including the following: Risks Related to Our Business and Operations • Our recent growth rates may not be sustainable or indicative of our future growth and we may not be able to successfully manage the challenges to our future growth. • The COVID-19 global pandemic and related government, private sector and individual consumer responsive actions may adversely affect our business operations, employee availability, financial performance, liquidity and cash flow for an unknown period of time. • The COVID-19 pandemic has had and may in the future have an adverse effect on our labor workforce availability and supply chain operations in ways that remain unpredictable. • If we fail to acquire and retain new customers, or fail to do so in a cost-effective manner, we may be unable to increase net sales, improve margins and achieve profitability. • The growth of our business depends on our ability to accurately predict consumer trends, successfully introduce new products and services, improve existing products and services, and expand into new offerings. • Our continued success is largely dependent on positive perceptions of our company. • We may be unable to accurately forecast net sales and appropriately plan our expenses in the future. • Our estimate of the size of our addressable market may prove to be inaccurate. • If we are not able to source additional, or strengthen our existing relationships with, suppliers, or if we lose any of our key suppliers, our business could be negatively impacted. • Any changes in, or disruptions to, our shipping arrangements could adversely affect our business, financial condition, and results of operations. • If we do not successfully optimize, operate and manage the expansion of the capacity of our fulfillment centers, our business, financial condition, and results of operations could be harmed. • Our business may be adversely affected if we are unable to provide our customers with a cost-effective platform that is able to respond and adapt to rapid changes in technology. • We are subject to risks related to online payment methods. • Any significant interruptions or delays in service on our website 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 website, networks, and systems against cybersecurity incidents, or otherwise to protect our confidential information, could damage our reputation and brand and substantially harm our business, financial condition, and results of operations. • Safety, quality, and health concerns could affect our business. • 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 governmental regulation and we may incur material liabilities under, or costs in order to comply with, existing or future laws and regulation, and our failure to comply may result in enforcements, recalls, and other adverse actions. • We may inadvertently fail to comply with various state or federal 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 attempts/efforts to discourage pet owners from purchasing from us could cause our sales to decrease and could adversely affect our financial condition and results of operations. • Failure to comply with federal and state laws and regulations relating to privacy, data protection, marketing and advertising and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection, advertising and consumer protection, could adversely affect our business, financial condition, and results of operations. 8 • Our ability to utilize net operating loss carryforwards may be subject to certain limitations. • We may be unable to adequately protect our intellectual property rights.
Biggest changeIn addition, the loss of any of our key suppliers would negatively impact our business. • Shipping is a critical part of our business and any changes in, or disruptions to, our shipping arrangements could adversely affect our business, financial condition, and results of operations. • If we do not successfully optimize, operate and manage the expansion of the capacity of our fulfillment centers, our business, financial condition, and results of operations could be harmed. • Our business may be adversely affected if we are unable to provide our customers with a cost-effective platform that is able to respond and adapt to rapid changes in technology. • We are subject to risks related to online payment methods. • Any significant interruptions or delays in service on our website 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. • Disruptions to software-as-a-service technologies from third parties may adversely affect our business and results of operations. • Our failure or the failure of third-party service providers to protect our website, 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. • Safety, quality, and health concerns regarding our products could affect our business. • 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 governmental regulation and we may incur material liabilities, or costs related to complying with existing or future laws and regulation, and our failure to comply may result in enforcements, penalties, recalls, and other adverse actions. • We may inadvertently not comply with various state or federal 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 financial condition and results of operations. • We face significant competition from veterinarians and other retailers and may not be able to compete profitably with them. • Failure to comply with federal and state laws and regulations relating to privacy, data protection, marketing and advertising and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection, marketing and advertising and consumer protection, could adversely affect our business, financial condition, and results of operations. • Our ability to utilize net operating loss and tax credit carryforwards, and other tax attributes may be subject to certain limitations. • We may be unable to adequately protect our intellectual property rights.
If our estimates of the size of our addressable market 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 may be unable to source additional, or strengthen our existing relationships with, suppliers.
If our estimates of the size of our addressable market 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 may be unable to source additional suppliers, or strengthen our existing relationships with suppliers.
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 we may incur in connection with product liability claims.
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.
As a result, we are considered as a “controlled company” within the meaning of the corporate governance standards of the NYSE.
As a result, we are considered a “controlled company” within the meaning of the corporate governance standards of the NYSE.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships; • 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; 31 • require at least 75% of the votes that all of our stockholders would be entitled to cast in an annual election of directors in order to amend our amended and restated certificate of incorporation and amended and restated bylaws 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; • restrict the forum for certain litigation against us to Delaware; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; and • provide for a staggered board.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships; • 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; • require at least 75% of the votes that all of our stockholders would be entitled to cast in an annual election of directors in order to amend our amended and restated certificate of incorporation and amended and restated bylaws 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; • restrict the forum for certain litigation against us to Delaware; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; and • provide for a staggered board.
Breaches of our security measures or those of our third-party service providers or any cybersecurity incident could result in unauthorized access to our website, networks and systems; unauthorized access to and misappropriation of consumer and/or employee information, including personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our website, networks or systems; deletion or modification of content or the display of unauthorized content on our website; 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.
Breaches of our security measures or those of our third-party service providers or any cybersecurity incident could result in unauthorized access to our website, 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 website, networks or systems; deletion or modification of content or the display of unauthorized content on our website; 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.
Additionally, if affiliates of BC Partners sell their significant equity interest in our company, or if secured parties foreclose on any or all of the shares of Class B common stock beneficially owned by affiliates of BC Partners pursuant to the pledges that secure certain debt, including certain 29 of PetSmart’s credit facilities and indentures, we may become subject to the control of a presently unknown third party.
Additionally, if affiliates of BC Partners sell their significant equity interest in our company, or if secured parties foreclose on any or all of the shares of Class B common stock beneficially owned by affiliates of BC Partners pursuant to the pledges that secure certain debt, including certain of PetSmart’s credit facilities and indentures, we may become subject to the control of a presently unknown third party.
The U.S. government and state governments have enacted, have considered or are considering 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.
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.
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: 30 • actual or anticipated fluctuations in our revenue and results of operations; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations or capital commitments; • changes in operating performance and stock market valuations of other retail or technology companies generally, or those in our industry in particular; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • trading volume of our Class A common stock; • the inclusion, exclusion or removal of our Class A common stock from any indices; • changes in our board of directors or management; • transactions in our Class A common stock by directors, officers, affiliates and other major investors; • lawsuits threatened or filed against us; • changes in laws or regulations applicable to our business; • changes in our capital structure, such as future issuances of debt or equity securities; • short sales, hedging and other derivative transactions involving our capital stock; • general economic conditions in the U.S.; • other events or factors, including those resulting from war, incidents of terrorism or responses to these events; and • the other factors described in the sections of this report titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” The stock market has recently experienced extreme price and volume fluctuations.
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: • actual or anticipated fluctuations in our revenue and results of operations; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations or capital commitments; • 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; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • trading volume of our Class A common stock; • the inclusion, exclusion or removal of our Class A common stock from any indices; • changes in our board of directors or management; • transactions in our Class A common stock by directors, officers, affiliates and other major investors; • lawsuits threatened or filed against us; • changes in laws or regulations applicable to our business; • changes in our capital structure, such as future issuances of debt or equity securities; 31 • short sales, hedging and other derivative transactions involving our capital stock; • general economic conditions, industry trends, and market conditions in the U.S.; • other events or factors, including those resulting from war, incidents of terrorism or responses to these events; and • the other factors described in the sections of this report titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” The stock market has recently experienced extreme price and volume fluctuations.
In addition, we may produce new products in the future that may be subject to FDA pre-market review before we can market and sell such products. 20 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.
In addition, we may produce new products in the future 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.
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 22 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.
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.
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 or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.
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.
You should not rely on our historical rate of net sales growth as an indication of our future performance. The COVID-19 global pandemic and related government, private sector and individual consumer responsive actions may adversely affect our business operations, financial performance, liquidity and cash flow for an unknown period of time.
You should not rely on our historical rate of net sales growth as an indication of our future performance. The COVID-19 pandemic and related government, private sector and individual consumer responsive actions may adversely affect our business operations, financial performance, liquidity and cash flow for an unknown period of time.
Some veterinarians resist providing our customers with a copy of their pet’s prescription or resist 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 from Internet mail order pharmacies.
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.
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, proprietary technology and similar intellectual property as critical to our success.
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.
Shipping is a critical part of our business and any changes in, or disruptions to, our shipping arrangements could adversely affect our business, financial condition, and results of operations. We currently rely on third-party national, regional and local logistics providers to deliver the products we offer on our website and mobile applications.
Shipping is a critical part of our business and any changes in, or disruptions to, our shipping arrangements could adversely affect our business, financial condition, and results of operations. We currently rely on third-party national, regional and local logistics providers to ship and deliver the products we offer on our website and mobile applications.
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 substantially harm our business, financial condition, and results of operations.
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.
If we fail to retain talented senior management and other key personnel, or if we do not succeed in attracting highly-qualified employees or 24 motivating and retaining existing employees, our business, financial condition, and results of operations may be materially and adversely affected.
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.
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. If we fail to manage our growth effectively, our business, financial condition, and results of operations could 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. 12 If we fail to manage our growth effectively, our business, financial condition, and results of operations could be materially and adversely affected.
The CCPA requires companies that process information on 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.
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.
New legislation 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.
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.
We may sell Class A common stock, convertible securities and other equity securities in one or more transactions at prices and in a 33 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.
We may sell 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.
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.
Significant merchandise returns or refunds could harm our business. 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.
We have a history of losses and may generate operating losses as we continue to expand our business. We have a history of losses and may continue to generate operating losses in the near-term as we increase investment in our business. Furthermore, it is difficult for us to predict our future results of operations.
We have a history of losses and may continue to generate operating losses in the near-term as we increase investment in our business. Furthermore, it is difficult for us to predict our future results of operations.
In addition, various federal and state 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, consumer protection, and advertising.
In addition, various federal and state 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.
The occurrence of a natural disaster, power loss, telecommunications failure, data loss, computer virus, 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 website and mobile applications.
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 website and mobile applications.
We may experience fluctuations in our tax obligations and effective tax rate, which could materially and adversely affect our results of operations. We are subject to U.S. federal and state income taxes.
We may experience fluctuations in our tax obligations and effective tax rate, which could materially and adversely affect our results of operations. We are subject to U.S. federal, U.S. state income taxes and Chinese income taxes.
Resistance from veterinarians to authorize prescriptions, or their attempts/efforts to discourage pet owners from purchasing from us could cause our sales to decrease and could adversely affect our 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 financial condition and results of operations.
Liabilities under, and/or costs of compliance, and the impacts on us of any non-compliance, with any such laws and regulations could materially and adversely affect our business, financial condition, and results of operations.
Liabilities or costs of compliance, and the impacts on us of any non-compliance, with any such laws and regulations could materially and adversely affect our business, financial condition, and results of operations.
If we are unable to maintain the licenses granted by relevant state authorities in connection with our pharmacy business, 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.
If we are unable to maintain the licenses granted by relevant state authorities in connection with our insurance and pharmacy 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.
The sale and delivery of prescription pet medications and the provision of telehealth services are generally governed by federal and state laws and regulations, and are subject to extensive oversight by state and federal governmental authorities.
The sale and delivery of prescription pet medications and the provision of pharmacy 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.
We have incurred and may continue to incur higher shipping costs due to various surcharges by third- party delivery agents on retailers related to the increased shipping demand resulting from the COVID-19 outbreak and any future pandemic, epidemic or similar outbreak. If we are unable to recover these additional costs, our margins and profitability may be adversely affected.
We have incurred and may continue to incur higher shipping costs due to various surcharges by third- party delivery agents related to the increased shipping demand resulting from the COVID-19 pandemic and any future pandemic, epidemic or similar outbreak. If we are unable to recover these additional costs, our margins and profitability may be adversely affected.
Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure.
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.
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, or amortization expenses related to intangible assets, any of which could reduce our profitability and harm our business.
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.
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 a material 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 insurance industry.
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.
In addition, changes in the laws and regulations to which we are subject 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 specific claims in pet food labeling.
In addition, changes in the laws and regulations to which we are subject 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.
Our operations, including our outsourced proprietary brand manufacturing partners, are subject to regulation by the Occupational Safety and Health Administration (“OSHA”), the Food and Drug Administration (the “FDA”), the Department of Agriculture (the “USDA”) and by various other federal, state, local and foreign authorities regarding the processing, packaging, storage, distribution, advertising, labeling and export of our products, including food safety standards.
Our operations, including our outsourced private brand manufacturing partners, are subject to regulation by the Occupational Safety and Health Administration (“OSHA”), the Food and Drug Administration (the “FDA”), the Department of Agriculture (the “USDA”) and various other federal, state, local and foreign authorities regarding the processing, packaging, storage, distribution, advertising, labeling and export of our products, including food safety standards.
We believe that our continued growth in net sales will depend upon, among other factors, our ability to: • acquire new customers who purchase products from us at the same rate and of the same type as our existing customer base; • retain our customers and have them continue to purchase products from us at rates and in a manner consistent with their prior purchasing behavior; • encourage customers to expand the categories of products they purchase from us, leading to increased net sales per active customer; • increase the number of customers that use our Autoship subscription program; • attract new vendors to supply quality products that we can offer to our customers at attractive prices; • retain our existing vendors and have them supply additional quality products that we can offer to our customers at attractive prices; • expand our proprietary brand product offering, including the launch of new brands and expansion into new offerings; • increase the awareness of our brand; • provide our customers and vendors with a superior experience; • develop new features to enhance the consumer experience on our website and our mobile and tablet applications; • respond to changes in consumer access to and use of the Internet and mobile devices; • react to challenges from existing and new competitors; • 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; • fulfill and deliver orders in a timely way and in accordance with customer expectations, which may change over time; • respond to macroeconomic trends and their impact on consumer spending patterns; • hire, integrate and retain talented personnel; • leverage our technological and operational efficiencies; • invest in the infrastructure underlying our website and other operational systems, including with respect to data protection and cybersecurity; and • expand into new offerings or new lines of business in which we do not have prior, or sufficient, operating experience, including sustaining continued expansion of Chewy Pharmacy or our pet healthcare category more generally.
We believe that our continued growth in net sales will depend upon, among other factors, our ability to: • acquire new customers who purchase products and services from us at the same rate and of the same type as our existing customer base; • retain our customers and have them continue to purchase products and services from us at rates and in a manner consistent with their prior purchasing behavior; • encourage customers to expand the categories of products and services they purchase from us, leading to increased net sales per active customer; • increase the number of customers that use our Autoship subscription program; • attract new vendors to supply quality products that we can offer to our customers at attractive prices; • retain our existing vendors and have them supply additional quality products that we can offer to our customers at attractive prices; • expand our private brand product offering, including the launch of new brands and expansion into new offerings; • expand into new territories; • increase the awareness of our brand; • provide our customers and vendors with a superior experience; • develop new features to enhance the consumer experience on our website and our mobile and tablet applications; • respond to changes in consumer access to and use of the Internet and mobile devices; • react to challenges from existing and new competitors; • 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; • fulfill and deliver orders in a timely way and in accordance with customer expectations, which may change over time; • respond to macroeconomic trends and their impact on consumer spending patterns; • hire, integrate and retain talented personnel; • leverage our technological and operational efficiencies; • invest in the infrastructure underlying our website and other operational systems, including with respect to data protection and cybersecurity; and • expand into new offerings or new lines of business in which we do not have prior, or sufficient, operating experience, including sustaining continued expansion of our pet healthcare, insurance and wellness categories more generally.
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 website and mobile applications and prevent our customers from 16 accessing our website and mobile applications.
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 website and mobile applications and prevent our customers from accessing our website and mobile applications.
One or more of our suppliers, including manufacturers of our proprietary 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.
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.
Our ability to improve margins and achieve 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 could cause our net sales growth to decline and may adversely affect our margins and profitability.
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 could cause our net sales growth to decline and may adversely affect our margins and profitability.
If we cannot successfully manage the unique challenges presented by international markets, we may not be successful in expanding our operations outside the U.S. Our strategy may include the expansion of our operations to international markets. Although some of our executive officers have experience in international business from prior positions, we have little experience with operations outside the U.S.
If we cannot successfully manage the unique challenges presented by international markets, we may not be successful in expanding our operations outside the U.S. Our strategy may include the 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.
Any significant interruptions or delays in service on our website 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. A key element of our strategy is to generate a high volume of traffic on, and use of, our website and mobile applications.
Any significant interruptions or delays in service on our website 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 website and mobile applications.
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 through our outsourced proprietary brand manufacturing partners) material costs to comply with current or future laws and regulations or in any required product recalls.
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 through our outsourced private brand manufacturing partners) material costs to comply with current or future laws and regulations or in any required product recalls.
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. 7 Summary Risk Factors Our business faces significant risks.
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. 8 Summary Risk Factors Our business faces significant risks.
We may encounter certain challenges in manufacturing our proprietary brand products, including the loss of key suppliers and product recalls. Maintaining consistent product quality, competitive pricing, and availability of our proprietary brand and healthcare products and services for our customers is essential to developing and maintaining customer loyalty and brand awareness.
We may encounter certain challenges in manufacturing our private brand products, including the loss of key suppliers and product recalls. Maintaining consistent product quality, competitive pricing, and availability of our private brand and healthcare products and services for our customers is essential to developing and maintaining customer loyalty and brand awareness.
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 drive a significant amount of traffic to our website via search engines and, therefore, rely on search engines.
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 rely on search engines to drive a significant amount of traffic to our website.
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 center could adversely affect our sales and results of operations.
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 growth depends, in part, on our ability to meet the requirements of our customers and the needs of their pets by successfully introducing new products and services, including our proprietary brand products, improving and repositioning our existing products and services, and expanding into new offerings.
Our growth depends, in part, on our ability to meet the requirements of our customers and the needs of their pets by successfully introducing new products and services, including our private brand products, improving and repositioning our existing products and services, and expanding into new offerings.
If for any reason our arrangements with our data centers, cloud storage solution 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.
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.
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 retail industry, in particular Internet-based competition, generally to continue to increase.
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.
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 if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective.
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.
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 pet parents and their needs.
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.
In addition, we and our outsourced proprietary brand manufacturing partners are subject to additional regulatory requirements, including environmental, health and safety laws and regulations administered by the U.S.
In addition, we and our outsourced private brand manufacturing partners are subject to additional regulatory requirements, including environmental, health and safety laws and regulations administered by the U.S.
We face significant competition from veterinarians and other retailers and may not be able to compete profitably with them. We compete directly and indirectly with veterinarians for the sale of pet medications and other health products.
We face significant competition from veterinarians and other retailers and may not be able to compete profitably with them. We compete with veterinarians for the sale of pet medications and other health products.
The pet products and services retail industry is 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.
The pet products and services health and retail industries is 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.
If we fail to compete successfully, our business, financial condition, and results of operations could be materially and adversely affected. 27 Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business, financial condition, and results of operations.
If we fail to compete successfully, our business, financial condition, and results of operations could be materially and adversely affected. 28 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.
In addition, the conflict between Russia and Ukraine could lead to disruption, instability and volatility in the global markets and industries that could negatively impact our operations. The U.S. government and other governments have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls.
In addition, the conflict between Russia and Ukraine has led to disruption, instability and volatility in the global markets and industries that could negatively impact our operations. The U.S. government and other governments have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls.
In order to expand our customer base, we must appeal to, and acquire, customers who have historically purchased their pet food and other pet products from other retailers, such as traditional brick and mortar retailers, the websites of our competitors, or our suppliers’ own websites.
In order to expand our customer base, we must 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.
While we have some limited disaster recovery 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.
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.
As a result, we may face interruptions to our systems, reputational damage, claims under privacy 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. Safety, quality, and health concerns could affect our business.
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. 19 Safety, quality, and health concerns regarding our products could affect our business.
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 will become increasingly complex and operating it will become more challenging.
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.
Similarly, if one or more of our suppliers were to offer these incentives, including preferential pricing, to our competitors, our competitive advantage would be reduced, which could materially and adversely affect our business, financial condition, and results of operations.
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.
Cloud computing, in particular, is dependent upon having access to an Internet connection in order to retrieve data. If a natural disaster, pandemic (such as the COVID-19 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.
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.
In addition, the failure of our third-party data centers, including cloud storage solution providers, or any other third-party providers to meet our capacity requirements could result in interruption in the availability or functionality of our website and mobile applications.
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 website and mobile applications.
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. Our business results could be adversely affected if our entry into the pet insurance market is unsuccessful. We intend to expand our business into the pet insurance market.
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. Our business results could be adversely affected if our entry into the pet insurance market is unsuccessful. We have expanded our business into the pet insurance market.
If a company’s income in any year is less than the annual limitation prescribed by Section 382 of the Code, the unused portion of such limitation amount may be carried forward to increase the limitation (and net operating loss carryforward utilization) in subsequent tax years.
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.
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 products through our website and mobile applications, which would adversely affect our business, financial condition, and results of operations.
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.
Our disaster recovery and data redundancy plans may be inadequate, and our business interruption insurance may not be sufficient to compensate us for the losses that 17 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.
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.
As a new entrant, we may be faced with many competitive challenges including competing successfully with incumbent pet insurance providers who have long operating histories, large customer bases, high brand recognition and greater financial, technical, marketing and other resources than we do.
As a new entrant, we face many competitive challenges including competing successfully with incumbent pet insurance providers who have long operating histories, large customer bases, high brand recognition and greater financial, technical, marketing and other resources than we do.
We are a “controlled company” within the meaning of the rules of NYSE and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. As of March 22, 2022, affiliates of BC Partners control a majority of the voting power of our outstanding common stock.
We are a “controlled company” within the meaning of the rules of NYSE and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. As of March 15, 2023, affiliates of BC Partners control a majority of the voting power of our outstanding common stock.
These actions or other actions that we may take in response to the COVID-19 pandemic that have the effect of delaying or canceling orders could negatively impact our ability to maintain, protect or enhance our brand. Further, the COVID-19 pandemic has caused disruptions to our supply chain operations and labor workforce availability.
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. 15 Further, the COVID-19 pandemic has caused and may continue to cause disruptions to our supply chain operations and labor workforce availability.
The spread of COVID-19 and its variant strains has disrupted the global supply chain and may cause disruptions to our operations. Employee availability may be affected if a significant number of employees are quarantined or if they are otherwise limited in their ability to work at our locations or travel.
The spread of COVID-19 and its variant strains has disrupted the global supply chain and has caused disruptions, and may continue to cause disruptions, to our 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.
In addition to the aforementioned federal income tax implications pursuant to Section 382 of the Code, most states follow the general provisions of Section 382 of the Code, either explicitly or implicitly resulting in separate state net operating loss limitations. We may be unable to adequately protect our intellectual property rights.
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.
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 utilize net operating loss carryforwards may be subject to certain limitations.
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. 23 Our ability to utilize net operating loss and tax credit carryforwards, and other tax attributes may be subject to certain limitations.
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, operating results and financial condition.
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, operating results and financial condition.
Regulation of the sale of medical insurance for cats and dogs is subject to change, and future regulations could harm our business, operating results, and financial condition. The laws and regulations governing the offer, sale and purchase of medical insurance for cats and dogs are subject to change, and future changes may be adverse to our business.
Regulation of the sale of insurance for pets is subject to change, and future regulations could harm our business, operating results, and financial condition. 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.
Our proprietary brand products on average provide us with higher gross margins than the comparable third-party brand products that we sell. Accordingly, our inability to sustain the growth and sales of our proprietary brand offerings may materially and adversely affect our projected growth rates, business, financial condition, and results of operations.
Our private brand products generally provide us with higher gross margins than the comparable third-party brand products that we sell. Accordingly, our inability to sustain the growth and sales of our private brand offerings may materially and adversely affect our projected growth rates, business, financial condition, and results of operations.
We could be adversely affected if consumers lose confidence in the safety and quality of our vendor supplied and proprietary brand food and hardgood products. All of our suppliers are required to comply with applicable product safety laws and we are dependent upon them to ensure such compliance.
We could be adversely affected if consumers lose confidence in the safety and quality of our vendor supplied or private brand 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.
Our reliance on software-as-a-service (“SaaS”) technologies from third parties may adversely affect our business and results of operations. We rely on 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.
Disruptions to software-as-a-service (“SaaS”) technologies from third parties may adversely affect our business and results of operations. 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeSunrise Boulevard, Plantation, FL 33322 221,597 Corporate office (1) 1855 Griffin Road, Dania Beach, FL 33004 113,832 Corporate office 343 Congress Street, Boston, MA 02210 75,009 Corporate office 1110 112th Ave NE, Bellevue, WA 98004 43,509 Corporate office 1624 Normac Road, Woburn, MA 01801 30,000 Fulfillment center 600 New Commerce Boulevard, Wilkes-Barre, PA 18706 808,160 Fulfillment center 255 S. 143rd Avenue, Goodyear, AZ 85338 801,424 Fulfillment center 15999 South Outer Road, Belton, MO 64012 796,013 Fulfillment center 100 Goodman Drive, Etters, PA 17319 732,000 Fulfillment center 3280 Lightner Road, Dayton, OH 45377 690,500 Fulfillment center 255 Front Creek Road, Salisbury, NC 28146 690,500 Fulfillment center 37 Archbald Heights Road, Jessup, PA 18434 690,500 Fulfillment center 7243 Grady Niblo Road, Dallas, TX 75236 663,000 Fulfillment center 3380 N.W. 35 Avenue Road, Ocala, FL 34475 611,676 Fulfillment center 40 Dauphin Drive, Mechanicsburg, PA 17050 604,333 Fulfillment center 1974 Innovation Boulevard, Clayton, IN 46118 597,844 Fulfillment center 385 Milan Drive, McCarran, NV 89434 566,866 Fulfillment center 360 Research Drive, Pittston, Pennsylvania 18640 155,000 Fulfillment center 11403 Bluegrass Parkway, Suite 650, Louisville, KY 40299 40,668 Customer service center 3251 Hollywood Boulevard, Hollywood, FL 33021 100,928 Customer service center 930 E.
Biggest changeJuliet, TN 37122 691,920 Fulfillment center 3280 Lightner Road, Dayton, OH 45377 690,500 Fulfillment center 255 Front Creek Road, Salisbury, NC 28146 690,500 Fulfillment center 37 Archbald Heights Road, Jessup, PA 18434 690,500 Fulfillment center 13250 Crosby Fwy, Houston, TX 77049 687,902 Fulfillment center 7243 Grady Niblo Road, Dallas, TX 75236 663,000 Fulfillment center 3380 N.W. 35 Avenue Road, Ocala, FL 34475 611,676 Fulfillment center 40 Dauphin Drive, Mechanicsburg, PA 17050 604,333 Fulfillment center 1974 Innovation Boulevard, Clayton, IN 46118 597,844 Fulfillment center 385 Milan Drive, McCarran, NV 89434 566,866 Fulfillment center 360 Research Drive, Pittston, PA 18640 155,000 Fulfillment center 11403 Bluegrass Parkway, Suite 650, Louisville, KY 40299 40,668 Customer service center 3251 Hollywood Boulevard, Hollywood, FL 33021 100,928 Customer service center 930 E.
Campbell Road, Suite 200, Richardson, TX 75081 57,120 Customer service center 1950 N. Stemmons Freeway, Dallas, TX 75207 51,934 Customer service center 3621 Fern Valley Road, Louisville, KY 40219 25,274 (1) During Fiscal Year 2022, we intend to transition corporate functions from Dania Beach, Florida to Plantation, Florida, which will serve as our new corporate co-headquarters.
Campbell Road, Suite 200, Richardson, TX 75081 57,120 Customer service center 1950 N. Stemmons Freeway, Dallas, TX 75207 51,934 Customer service center 3621 Fern Valley Road, Louisville, KY 40219 25,274 (1) During Fiscal Year 2022, we transitioned corporate functions from Dania Beach, Florida to Plantation, Florida, which serves as our corporate co-headquarters.
Item 2. Properties Our co-headquarters are located in Florida and Massachusetts. In addition, we lease and operate fulfillment centers in fourteen locations, at which we receive products from vendors, ship products to customers, and receive and process returns from customers. We also lease and operate customer service centers in four locations.
Item 2. Properties We lease and operate our corporate offices in five locations, including our co-headquarters in Florida and Massachusetts. In addition, we lease and operate fulfillment centers in seventeen locations, at which we receive products from vendors, ship products to customers, and receive and process returns from customers. We also lease and operate customer service centers in four locations.
The following table sets forth the location, use and size of certain of our properties as of March 22, 2022: Use Location Square Footage Corporate office (1) 7600 W.
The following table sets forth the location, use, and size of certain of our properties as of March 15, 2023: Use Location Square Footage Corporate office (1) 7700 W.
Added
Sunrise Boulevard, Plantation, FL 33322 221,597 Corporate office 343 Congress Street, Boston, MA 02210 75,009 Corporate office 1110 112th Ave NE, Bellevue, WA 98004 43,509 Corporate office 150 South 5th Street, Suite 800, Minneapolis, MN 55402 39,678 Corporate office 1624 Normac Road, Woburn, MA 01801 30,000 Fulfillment center 600 New Commerce Boulevard, Wilkes-Barre, PA 18706 808,160 Fulfillment center 255 S. 143rd Avenue, Goodyear, AZ 85338 801,424 Fulfillment center 15999 South Outer Road, Belton, MO 64012 796,013 Fulfillment center 8001 N Virginia Street, Reno, NV 89506 795,926 Fulfillment center 100 Goodman Drive, Etters, PA 17319 732,000 Fulfillment center 1281 Couchville Pike, Mt.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeHelfrick has served as our General Counsel since December 2014 and as our Secretary since October 2015. From February 2009 to July 2014, Ms. Helfrick served as the General Counsel Americas and Executive Vice President at GfK. Ms.
Biggest changeMehta 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. Susan Helfrick Ms. Helfrick has served as our General Counsel since December 2014 and as our Secretary since October 2015. From February 2009 to July 2014, Ms.
Mehta served as Vice President—Data and Analytics Solutions for UnitedHealth Group. Prior to that, Mr. Mehta served in various capacities at Staples Inc., including serving as their Vice President, Price—Data & Analytics, Omni-Channel and Innovation Labs from January 2014 to July 2017. 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 their Vice President, Price—Data & Analytics, Omni-Channel and Innovation Labs from January 2014 to July 2017. Mr.
Helfrick’s experience also includes serving as a Director at UBS from May 2000 to May 2005, an Associate at Skadden, Arps, Slate, Meagher & Flom LLP from May 1997 to May 2000, and as a staff attorney at the Securities and Exchange Commission from May 1995 to May 1997. Ms.
Helfrick’s experience also includes serving as a Director at UBS Group AG from May 2000 to May 2005, an Associate at Skadden, Arps, Slate, Meagher & Flom LLP from May 1997 to May 2000, and as a staff attorney at the Securities and Exchange Commission from May 1995 to May 1997. Ms.
Singh held senior leadership positions at Amazon, Inc., where from 2015 to 2017, he served as Worldwide Director of Amazon’s Consumables businesses (fresh and pantry) and, from 2013 to 2015, as General Manager for Amazon’s North American merchant fulfillment and third-party businesses. Prior to Amazon, Inc., Mr. Singh served in senior management positions at Dell Technologies, Inc. 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.
Marte previously served as the Vice President—Financial Planning & Analysis for Hilton Worldwide Holdings, Inc., and in various other roles at Hilton Worldwide, American Airlines and Accenture LLC. Mr. Marte has served on the board of directors of Best Buy Co., Inc. (NYSE “BBY”) since January 2021. Mr.
Marte previously served as the Vice President—Financial Planning & Analysis for Hilton Worldwide Holdings, Inc. (“Hilton”), and in various other roles at Hilton, American Airlines Group Inc. and Accenture LLC. Mr. Marte has served on the board of directors of Best Buy Co., Inc. since January 2021. Mr.
Singh holds a Bachelor of Technology degree from Punjab Technical University and a Master’s in Engineering from the University of Texas at Austin, where, in 2019, he was inducted into the Academy of Distinguished Alumni for outstanding achievement and now serves on the University of Texas Engineering Advisory Board.
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 and currently serves on the University of Texas Engineering Advisory Board.
He also holds a Master of Business Administration degree from the University of Chicago, Booth School of Business. Mario Marte Mr. Marte has served as the Chief Financial Officer of Chewy, Inc. since September 2018. Mr. Marte joined Chewy in April 2015 and had previously been serving as Chewy’s Vice President—Finance & Treasurer. Mr.
He also holds a Master of Business Administration degree from the University of Chicago, Booth School of Business. Mario Marte Mr. Marte has served as our Chief Financial Officer since September 2018. Mr. Marte joined Chewy in April 2015 and previously served as Vice President—Finance & Treasurer. Mr.
Item 4. Mine Safety Disclosures Not applicable. 36 Information About Our Executive Officers The following information relates to our executive officers: Name Age Position Sumit Singh 42 Chief Executive Officer and Director Mario Marte 46 Chief Financial Officer Satish Mehta 57 Chief Technology Officer Susan Helfrick 55 General Counsel and Secretary Sumit Singh Mr.
Item 4. Mine Safety Disclosures Not applicable. 36 Information About Our Executive Officers The following information relates to our executive officers: Name Age Position Sumit Singh 43 Chief Executive Officer and Director Mario Marte 47 Chief Financial Officer Satish Mehta 58 Chief Technology Officer Susan Helfrick 56 General Counsel and Secretary Sumit Singh Mr.
Helfrick previously served as the Assistant General Counsel and Vice President of Goldman Sachs from August 2007 to January 2009, as well as the Managing Director and Associate General Counsel of HSBC Securities from May 2005 to August 2007. Ms.
Helfrick served as the General Counsel Americas and Executive Vice President at GfK SE. Ms. Helfrick previously served as Assistant General Counsel and Vice President of The Goldman Sachs Group, Inc. from August 2007 to January 2009, as well as Managing Director and Associate General Counsel of HSBC Holdings plc from May 2005 to August 2007. Ms.
Singh has served as the Chief Executive Officer of Chewy, Inc. since March 2018, following a seven-month stint in his role as Chief Operating Officer, and has served on Chewy’s board of directors since April 2019. In 2020, he was inducted into the prestigious Bloomberg 50 List of Global Leaders. Prior to joining Chewy, 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.
Mehta’s experience also includes over eight years of service, from November 2005 to January 2014, at Yahoo!, in various positions including as their Senior Director, Global Data and Ad Tech. 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. Susan Helfrick Ms.
Mehta’s experience also includes over eight years of service, from November 2005 to January 2014, at Yahoo!, in various positions including as their Senior Director, Global Data and Ad Tech. Mr. Mehta has served on the board of directors of Express, Inc. since December 2022. Mr.
Added
Singh has served on the board of directors of Booking Holdings Inc. since April 2022. Mr.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock.
Biggest changeThe comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock. Item 6. [Reserved] 39
Issuer Purchases of Equity Securities There were no repurchases of equity securities during the thirteen weeks ended January 30, 2022. 38 Cumulative Stock Performance Graph 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.
Issuer Purchases of Equity Securities There were no repurchases of equity securities during the thirteen weeks ended January 29, 2023. 38 Cumulative Stock Performance Graph 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.
In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock. Use of Proceeds and Issuer Purchases of Equity Securities Unregistered Sales of Equity Securities There were no sales of unregistered equity securities during the thirteen weeks ended January 30, 2022.
In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock. Use of Proceeds and Issuer Purchases of Equity Securities Unregistered Sales of Equity Securities There were no sales of unregistered equity securities during the thirteen weeks ended January 29, 2023.
An investment of $100 is assumed to have been made in our Class A common stock and in the indices on June 14, 2019, the date our Class A common stock began trading on the NYSE, and their relative performance is tracked through January 30, 2022.
An investment of $100 is assumed to have been made in our Class A common stock and in the indices on June 14, 2019, the date our Class A common stock began trading on the NYSE, and their relative performance is tracked through January 29, 2023.
Holders of Common Stock As of the close of business on March 22, 2022, there were 112 stockholders of record of our Class A common stock and 3 stockholders of our Class B common stock.
Holders of Common Stock As of the close of business on March 15, 2023, there were 131 stockholders of record of our Class A common stock and 3 stockholders of our Class B common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFree Cash Flow 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 (used in) operating activities less capital expenditures (which consist of purchases of property and equipment, capitalization of labor related to our website, mobile applications, and software development, and leasehold improvements).
Biggest change(in thousands, except per share data) Fiscal Year Reconciliation of Net Income (Loss) to Adjusted Net Income 2022 2021 2020 Net income (loss) $ 49,232 $ (73,817) $ (92,486) Add: Share-based compensation expense and related taxes 163,211 85,308 129,208 Change in fair value of equity warrants 13,340 — — Adjusted net income $ 225,783 $ 11,491 $ 36,722 Weighted-average common shares used in computing adjusted earnings (loss) per share: Basic 422,331 417,218 407,240 Effect of dilutive share-based awards (1) 5,439 10,068 12,937 Diluted (1) 427,770 427,286 420,177 Earnings (loss) per share attributable to common Class A and Class B stockholders Basic $ 0.12 $ (0.18) $ (0.23) Diluted (1) $ 0.12 $ (0.18) $ (0.23) Adjusted basic $ 0.53 $ 0.03 $ 0.09 Adjusted diluted (1) $ 0.53 $ 0.03 $ 0.09 (1) For Fiscal Year 2021 and Fiscal Year 2020, our calculation of adjusted diluted earnings per share attributable to common Class A and Class B stockholders requires an adjustment to the weighted-average common shares used in the calculation to include the weighted-average dilutive effect of share-based awards. 43 Free Cash Flow 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 (used in) operating activities less capital expenditures (which consist of purchases of property and equipment, capitalization of labor related to our website, mobile applications, and software development, and leasehold improvements).
Some of these limitations are: 41 • 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.
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.
For additional information, see Note 7 – Stockholders’ Equity (Deficit), in the “Notes to Consolidated Financial Statements” included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
For additional information, see 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 10-K Report.
Because of these limitations, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, including various cash flow metrics, net loss, net margin, and our other GAAP results.
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 (loss), net margin, and our other GAAP results.
Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy; • adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital; • adjusted EBITDA does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and • other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy; • adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital; • adjusted EBITDA does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include changes in the fair value of equity warrants, litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and • other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
The following table presents a reconciliation of net loss to adjusted EBITDA, as well as the calculation of net margin and adjusted EBITDA margin, for each of the periods indicated.
The following table presents a reconciliation of net income (loss) to adjusted EBITDA, as well as the calculation of net margin and adjusted EBITDA margin, for each of the periods indicated.
Cost of Goods Sold Cost of goods sold consists of the cost of third-party brand and proprietary 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.
Cost of Goods Sold 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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 2021 (“10-K Report”).
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 2022 (“10-K Report”).
Financing activities Net cash provided by financing activities was $41.3 million for Fiscal Year 2021 primarily consisting of $43.7 million received pursuant to the tax sharing agreement with related parties, partially offset by the payment of debt modification costs and principal repayments of finance lease obligations.
Net cash provided by financing activities was $41.3 million for Fiscal Year 2021, which primarily consisted of $43.7 million received pursuant to the tax sharing agreement with related parties, partially offset by the payment of debt modification costs and principal repayments of finance lease obligations.
Sales of third-party brand and proprietary brand pet food, pet products and shipping revenues are recorded when products are shipped, net of promotional discounts and refund allowances. Taxes collected from customers are excluded from net sales.
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 refund allowances. Taxes collected from customers are excluded from net sales.
We view Autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention. 43 Components of Results of Consolidated Operations Net Sales We derive net sales primarily from sales of both third-party brand and proprietary brand pet food, pet products, pet medications and other pet health products, and related shipping fees.
We view Autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention. Components of Results of Consolidated Operations Net Sales 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.
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 around-the-clock convenience that only e-commerce can offer.
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.
Presentation of Results of Consolidated Operations and Liquidity and Capital Resources The following discussion and analysis of our Results of Consolidated Operations and Liquidity and Capital Resources includes a comparison of Fiscal Year 2021 to Fiscal Year 2020.
Presentation of Results of Consolidated Operations and Liquidity and Capital Resources The following discussion and analysis of our Results of Consolidated Operations and Liquidity and Capital Resources includes a comparison of Fiscal Year 2022 to Fiscal Year 2021.
Non-GAAP Financial Measures Adjusted EBITDA and Adjusted EBITDA Margin 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 (loss) excluding depreciation and amortization; share-based compensation expense and related taxes; income tax provision; interest income (expense), net; management fee expense; transaction related costs; and litigation matters and other items that we do not consider representative of our underlying operations.
Non-GAAP Financial Measures Adjusted EBITDA and Adjusted EBITDA Margin 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 (loss) excluding depreciation and amortization; share-based compensation expense and related taxes; income tax provision; interest income (expense), net; management fee expense; transaction related costs; changes in the fair value of equity warrants; and litigation matters and other items that we do not consider representative of our underlying operations.
Investing Activities Net cash used in investing activities was $193.3 million for Fiscal Year 2021, primarily consisting of $183.2 million of capital expenditures and $10.1 million for the acquisition of rights to developed technology intangible assets.
Net cash used in investing activities was $193.3 million for Fiscal Year 2021, which primarily consisted of $183.2 million of capital expenditures and $10.1 million for the acquisition of rights to developed technology intangible assets.
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/), Securities and Exchange Commission (the “SEC”) filings, press releases, public conference calls and webcasts.
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/), SEC filings, press releases, public conference calls and webcasts.
Cash increases from working capital were primarily driven by an increase in other current liabilities and payables, partially offset by an increase in inventories, receivables, and other current assets.
Cash increases from working capital were primarily driven by an increase in payables, partially offset by an increase in inventories and other current assets.
For additional information, see Note 7 – Stockholders’ Equity (Deficit), in the “Notes to Consolidated Financial Statements” included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report. 46 2020 Equity Offering During Fiscal Year 2020, we issued and sold 5,865,000 shares of Class A common stock at a public offering price of $54.40 per share, raising $318.4 million in net proceeds after deducting offering costs of $0.6 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. 2020 Equity Offering During Fiscal Year 2020, we issued and sold 5,865,000 shares of Class A common stock at a public offering price of $54.40 per share, raising $318.4 million in net proceeds after deducting offering costs of $0.6 million.
($ in thousands) Fiscal Year Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow 2021 2020 2019 Net cash provided by operating activities $ 191,739 $ 132,755 $ 46,581 Deduct: Capital expenditures (183,186) (130,743) (48,636) Free Cash Flow $ 8,553 $ 2,012 $ (2,055) 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, customer service centers, 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.
(in thousands) Fiscal Year Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow 2022 2021 2020 Net cash provided by operating activities $ 349,572 $ 191,739 $ 132,755 Deduct: Capital expenditures (230,290) (183,186) (130,743) Free Cash Flow $ 119,282 $ 8,553 $ 2,012 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, customer service centers, 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.
Our 2019 fiscal year ended February 2, 2020 and included 52 weeks (“Fiscal Year 2019”). 40 Key Financial and Operating Data We measure our business using both financial and operating data and use the following metrics and measures to assess the near-term and long-term performance of our overall business, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies, and monitoring our business.
Our 2020 fiscal year ended January 31, 2021 and included 52 weeks (“Fiscal Year 2020”). 40 Key Financial and Operating Data We measure our business using both financial and operating data and use the following metrics and measures to assess the near-term and long-term performance of our overall business, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies, and monitoring our business.
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.
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.
We believe it is useful to exclude income tax provision; interest income (expense), net; transaction related costs; and litigation matters and other items which are not components of our core business operations.
We believe it is useful to exclude income tax provision; 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.
(2) Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures. See “Non-GAAP Financial Measures” below. We define net margin as net loss divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.
(2) Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP financial measures. See “Non-GAAP Financial Measures” below. We define net margin as net income (loss) divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.
Gross profit for Fiscal Year 2021 increased by $552.8 million, or 30.4%, to $2.4 billion compared to $1.8 billion in Fiscal Year 2020. This increase was primarily due to the year-over-year increase in net sales as described above.
Gross profit for Fiscal Year 2022 increased by $457.3 million, or 19.3%, to $2.8 billion compared to $2.4 billion in Fiscal Year 2021. This increase was primarily due to the year-over-year increase in net sales as described above.
We believe it is useful to exclude non-cash charges, such as depreciation and amortization, share-based compensation expense and management fee 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 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.
As of January 30, 2022, we had no outstanding borrowings under the ABL Credit Facility. For additional information with respect to our ABL Credit Facility, see Note 5 – Debt in the Notes to Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
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.
We believe that we are the preeminent destination for pet parents as a result of our broad selection of high-quality products, 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 continually develop innovative ways for our customers to engage with us.
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.
Net cash provided by operating activities was $132.8 million for Fiscal Year 2020, which primarily consisted of $92.5 million of net loss, non-cash adjustments such as depreciation and amortization expense of $35.7 million and share-based compensation expense of $121.3 million, and a cash increase of $56.8 million from the management of working capital.
Net cash provided by operating activities was $191.7 million for Fiscal Year 2021, which primarily consisted of $73.8 million of net loss, non-cash adjustments such as depreciation and amortization expense of $55.0 million and share-based compensation expense of $77.8 million, and a cash increase of $141.7 million from the management of working capital.
($ in thousands, except percentages) Fiscal Year Reconciliation of Net Loss to Adjusted EBITDA 2021 2020 2019 Net loss $ (73,817) $ (92,486) $ (252,370) Add (deduct): Depreciation and amortization 55,009 35,664 30,645 Share-based compensation expense and related taxes 85,308 129,208 136,237 Interest expense (income), net 1,639 2,022 (356) Management fee expense (1) — 1,300 1,300 Transaction related costs 2,423 2,369 1,396 Other 7,990 7,080 2,123 Adjusted EBITDA $ 78,552 $ 85,157 $ (81,025) Net sales $ 8,890,773 $ 7,146,264 $ 4,846,743 Net Margin (0.8) % (1.3) % (5.2) % Adjusted EBITDA margin 0.9 % 1.2 % (1.7) % (1) Management fee expense allocated to us by PetSmart LLC (“PetSmart”) for organizational oversight and certain limited corporate functions provided by its sponsors.
(in thousands, except percentages) Fiscal Year Reconciliation of Net Income (Loss) to Adjusted EBITDA 2022 2021 2020 Net income (loss) $ 49,232 $ (73,817) $ (92,486) Add: Depreciation and amortization 83,307 55,009 35,664 Share-based compensation expense and related taxes 163,211 85,308 129,208 Interest (income) expense, net (9,291) 1,639 2,022 Change in fair value of equity warrants 13,340 — — Income tax provision 2,646 — — Transaction related costs 3,953 2,423 2,369 Other (460) 7,990 7,080 Management fee expense (1) — — 1,300 Adjusted EBITDA $ 305,938 $ 78,552 $ 85,157 Net sales $ 10,098,939 $ 8,890,773 $ 7,146,264 Net margin 0.5 % (0.8) % (1.3) % Adjusted EBITDA margin 3.0 % 0.9 % 1.2 % (1) Management fee expense allocated to us by PetSmart LLC (“PetSmart”) for organizational oversight and certain limited corporate functions provided by its sponsors.
Fulfillment costs represent costs incurred in operating and staffing fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories; picking, packaging and preparing customer orders for shipment; payment processing; 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.
Fulfillment costs represent costs incurred in operating and staffing fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, payment processing, and related transaction costs and responding to inquiries from customers.
Cash Flows Fiscal Year ($ in thousands) 2021 2020 2019 Net cash provided by operating activities $ 191,739 $ 132,755 $ 46,581 Net cash used in investing activities $ (193,272) $ (123,695) $ (49,861) Net cash provided by financing activities $ 41,267 $ 342,197 $ 127,037 Operating Activities Net cash provided by operating activities was $191.7 million for Fiscal Year 2021, which primarily consisted of $73.8 million of net loss, non-cash adjustments such as depreciation and amortization expense of $55.0 million and share-based compensation expense of $77.8 million, and a cash increase of $141.7 million from the management of working capital.
Cash Flows Fiscal Year (in thousands) 2022 2021 2020 Net cash provided by operating activities $ 349,572 $ 191,739 $ 132,755 Net cash used in investing activities $ (615,484) $ (193,272) $ (123,695) Net cash (used in) provided by financing activities $ (6,726) $ 41,267 $ 342,197 Operating Activities Net cash provided by operating activities was $349.6 million for Fiscal Year 2022, which primarily consisted of $49.2 million of net income, non-cash adjustments such as depreciation and amortization expense of $83.3 million and share-based compensation expense of $158.1 million, and a cash increase of $27.2 million from the management of working capital.
We view our Autoship subscription program as a key driver of recurring net sales and customer retention.
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.
Net Sales Per Active Customer 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.
Net Sales Per Active Customer 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.
See Note 2 – Summary of 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.
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. 49 Income Taxes 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.
Fiscal Year % change (in thousands, except net sales per active customer and percentages) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Financial and Operating Data Net sales $ 8,890,773 $ 7,146,264 $ 4,846,743 24.4 % 47.4 % Net loss (1) $ (73,817) $ (92,486) $ (252,370) 20.2 % 63.4 % Net margin (1) (0.8) % (1.3) % (5.2) % Adjusted EBITDA (2) $ 78,552 $ 85,157 $ (81,025) (7.8) % 205.1 % Adjusted EBITDA margin (2) 0.9 % 1.2 % (1.7) % Net cash provided by operating activities $ 191,739 $ 132,755 $ 46,581 44.4 % 185.0 % Free cash flow (2) $ 8,553 $ 2,012 $ (2,055) n/m 197.9 % Active customers 20,663 19,206 13,459 7.6 % 42.7 % Net sales per active customer $ 430 $ 372 $ 360 15.6 % 3.3 % Autoship customer sales $ 6,245,011 $ 4,889,485 $ 3,362,835 27.7 % 45.4 % Autoship customer sales as a percentage of net sales 70.2 % 68.4 % 69.4 % n/m - not meaningful (1) Includes share-based compensation expense, including related taxes, of $85.3 million, $129.2 million, and $136.2 million, for Fiscal Year 2021, Fiscal Year 2020, and Fiscal Year 2019, respectively.
Fiscal Year % change (in thousands, except net sales per active customer, per share data, and percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Financial and Operating Data Net sales $ 10,098,939 $ 8,890,773 $ 7,146,264 13.6 % 24.4 % Net income (loss) (1) $ 49,232 $ (73,817) $ (92,486) 166.7 % 20.2 % Net margin (1) 0.5 % (0.8) % (1.3) % Adjusted EBITDA (2) $ 305,938 $ 78,552 $ 85,157 289.5 % (7.8) % Adjusted EBITDA margin (2) 3.0 % 0.9 % 1.2 % Adjusted net income (2) $ 225,783 $ 11,491 $ 36,722 n/m (68.7) % Earnings (loss) per share, basic and diluted (1) $ 0.12 $ (0.18) $ (0.23) 166.7 % 21.7 % Adjusted earnings per share, basic and diluted (2) $ 0.53 $ 0.03 $ 0.09 n/m (66.7) % Net cash provided by operating activities $ 349,572 $ 191,739 $ 132,755 82.3 % 44.4 % Free cash flow (2) $ 119,282 $ 8,553 $ 2,012 n/m n/m Active customers 20,405 20,663 19,206 (1.2) % 7.6 % Net sales per active customer $ 495 $ 430 $ 372 15.1 % 15.6 % Autoship customer sales $ 7,370,416 $ 6,245,011 $ 4,889,485 18.0 % 27.7 % Autoship customer sales as a percentage of net sales 73.0 % 70.2 % 68.4 % n/m - not meaningful (1) Includes share-based compensation expense, including related taxes, of $163.2 million, $85.3 million, and $129.2 million, for Fiscal Year 2022, Fiscal Year 2021, and Fiscal Year 2020, respectively.
Fiscal Year % change % of net sales ($ in thousands) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 2021 2020 2019 Consolidated Statements of Operations Net sales $ 8,890,773 $ 7,146,264 $ 4,846,743 24.4 % 47.4 % 100.0 % 100.0 % 100.0 % Costs of goods sold 6,517,191 5,325,457 3,702,683 22.4 % 43.8 % 73.3 % 74.5 % 76.4 % Gross profit 2,373,582 1,820,807 1,144,060 30.4 % 59.2 % 26.7 % 25.5 % 23.6 % Operating expenses: Selling, general and administrative 1,826,858 1,397,969 969,890 30.7 % 44.1 % 20.5 % 19.6 % 20.0 % Advertising and marketing 618,902 513,302 426,896 20.6 % 20.2 % 7.0 % 7.2 % 8.8 % Total operating expenses 2,445,760 1,911,271 1,396,786 28.0 % 36.8 % 27.5 % 26.7 % 28.8 % Loss from operations (72,178) (90,464) (252,726) 20.2 % 64.2 % (0.8) % (1.3) % (5.2) % Interest (expense) income, net (1,639) (2,022) 356 18.9 % n/m — % — % — % Loss before income tax provision (73,817) (92,486) (252,370) 20.2 % 63.4 % (0.8) % (1.3) % (5.2) % Income tax provision — — — — % — % — % — % — % Net loss $ (73,817) $ (92,486) $ (252,370) 20.2 % 63.4 % (0.8) % (1.3) % (5.2) % n/m - not meaningful Net Sales Fiscal Year 2021 vs. 2020 2020 vs. 2019 ($ in thousands) 2021 2020 2019 $ Change % Change $ Change % Change Consumables $ 6,102,367 $ 4,967,673 $ 3,596,778 $ 1,134,694 22.8 % $ 1,370,895 38.1 % Hardgoods 1,305,937 1,153,639 705,087 152,298 13.2 % 448,552 63.6 % Other 1,482,469 1,024,952 544,878 457,517 44.6 % 480,074 88.1 % Net sales $ 8,890,773 $ 7,146,264 $ 4,846,743 $ 1,744,509 24.4 % $ 2,299,521 47.4 % Net sales for Fiscal Year 2021 increased by $1.7 billion, or 24.4%, to $8.9 billion compared to $7.1 billion for Fiscal Year 2020.
Fiscal Year % change % of net sales (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 2022 2021 2020 Consolidated Statements of Operations Net sales $ 10,098,939 $ 8,890,773 $ 7,146,264 13.6 % 24.4 % 100.0 % 100.0 % 100.0 % Cost of goods sold 7,268,034 6,517,191 5,325,457 11.5 % 22.4 % 72.0 % 73.3 % 74.5 % Gross profit 2,830,905 2,373,582 1,820,807 19.3 % 30.4 % 28.0 % 26.7 % 25.5 % Operating expenses: Selling, general and administrative 2,125,766 1,826,858 1,397,969 16.4 % 30.7 % 21.0 % 20.5 % 19.6 % Advertising and marketing 649,386 618,902 513,302 4.9 % 20.6 % 6.4 % 7.0 % 7.2 % Total operating expenses 2,775,152 2,445,760 1,911,271 13.5 % 28.0 % 27.4 % 27.5 % 26.7 % Income (loss) from operations 55,753 (72,178) (90,464) 177.2 % 20.2 % 0.6 % (0.8) % (1.3) % Interest income (expense), net 9,291 (1,639) (2,022) n/m 18.9 % 0.1 % — % — % Other expense, net (13,166) — — n/m — % (0.1) % — % — % Income (loss) before income tax provision 51,878 (73,817) (92,486) 170.3 % 20.2 % 0.5 % (0.8) % (1.3) % Income tax provision 2,646 — — n/m — % — % — % — % Net income (loss) $ 49,232 $ (73,817) $ (92,486) 166.7 % 20.2 % 0.5 % (0.8) % (1.3) % n/m - not meaningful Net Sales Fiscal Year 2022 vs. 2021 2021 vs. 2020 (in thousands, except percentages) 2022 2021 2020 $ Change % Change $ Change % Change Consumables $ 7,145,414 $ 6,102,367 $ 4,967,673 $ 1,043,047 17.1 % $ 1,134,694 22.8 % Hardgoods 1,215,689 1,305,937 1,153,639 (90,248) (6.9) % 152,298 13.2 % Other 1,737,836 1,482,469 1,024,952 255,367 17.2 % 457,517 44.6 % Net sales $ 10,098,939 $ 8,890,773 $ 7,146,264 $ 1,208,166 13.6 % $ 1,744,509 24.4 % 46 Net sales for Fiscal Year 2022 increased by $1.2 billion, or 13.6%, to $10.1 billion compared to $8.9 billion for Fiscal Year 2021.
A similar discussion and analysis which compares Fiscal Year 2020 to Fiscal Year 2019 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 30, 2021, and is incorporated herein by reference. 44 Results of Consolidated Operations 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.
A similar discussion and analysis which compares Fiscal Year 2021 to Fiscal Year 2020 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 29, 2022, and is incorporated herein by reference.
There are limitations to using non-GAAP financial measures, including that other companies, including companies in our industry, may calculate free cash flow differently. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used in) operating activities, capital expenditures and our other GAAP results.
Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used in) operating activities, capital expenditures and our other GAAP results. The following table presents a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated.
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. 42 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.
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.
Gross profit as a percentage of net sales for Fiscal Year 2021 increased by approximately 120 basis points compared to Fiscal Year 2020, primarily due to margin expansion across our consumables, hardgoods, and healthcare businesses. 45 Selling, General and Administrative Selling, general and administrative expenses for Fiscal Year 2021 increased by $428.9 million, or 30.7%, to $1.8 billion compared to $1.4 billion in Fiscal Year 2020.
Gross profit as a percentage of net sales for Fiscal Year 2022 increased by approximately 130 basis points compared to Fiscal Year 2021, primarily due to margin expansion across our consumables and hardgoods businesses.
ABL Credit Facility On June 18, 2019, we entered into a 5-year senior secured asset-backed credit facility (the “ABL Credit Facility”) which provides for non-amortizing revolving loans, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves).
ABL Credit Facility On January 26, 2023, we amended our senior secured asset-based credit facility (the “ABL Credit Facility”) which matures on August 27, 2026 and now 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).
We believe that our cash and cash equivalents 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.
Marketable fixed income securities consist primarily of U.S. treasury securities, certificates of deposit, and commercial paper and totaled $346.9 million as of January 29, 2023. 47 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.
We partner with more than 3,000 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding proprietary brands. Through our website and mobile applications, we offer our customers more than 100,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.
Through our website and mobile applications, we offer our customers more than 110,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.
Autoship and Autoship Customer Sales 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 net sales per active customer as a key indicator of our customers’ purchasing patterns, including their initial and repeat purchase behavior. 44 Autoship and Autoship Customer Sales 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 are still unable to predict the duration of the COVID-19 pandemic and its ultimate impact on the broader economy or our operations and liquidity. As such, risks and uncertainties regarding COVID-19 remain. Please refer to the “Cautionary Note Regarding Forward-Looking Statements” in this 10-K Report and in the section titled “Risk Factors” in Item 1A of this 10-K Report.
We are unable to predict the duration and ultimate impact of the COVID-19 pandemic and evolving macroeconomic conditions on the broader economy or our operations and liquidity. As such, risks and uncertainties regarding COVID-19 remain.
We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes. 48 Recent Accounting Pronouncements Information regarding recent accounting pronouncements is included in Item 8 of Part II, “Financial Statements and Supplementary Data”, Note 2 in the “Notes to Consolidated Financial Statements” of this 10-K Report.
For additional information on derivative financial instruments, see Item 8 of Part II, “Financial Statements and Supplementary Data”, Note 4 – Financial Instruments. Recent Accounting Pronouncements Information regarding recent accounting pronouncements is included in Item 8 of Part II, “Financial Statements and Supplementary Data”, Note 2 in the “Notes to Consolidated Financial Statements” of this 10-K Report.
The increase in cost of goods sold was lower than the increase in net sales on a percentage basis, primarily as a result of a change in mix of sales and continued gains in supply chain efficiencies as we scale.
The increase in cost of goods sold was lower than the increase in net sales on a percentage basis and lower as a percentage of net sales compared to Fiscal Year 2021, reflecting pricing strength, favorable changes in our mix of sales, and supply chain efficiency gains across our fulfillment network.
For additional information on deferred tax assets and liabilities, see Item 8 of Part II, “Financial Statements and Supplementary Data”, Note 9 – Income Taxes. We also recognize liabilities for uncertain tax positions based on the two-step process prescribed by the accounting guidance for uncertainty in income taxes.
For additional information on deferred tax assets and liabilities, see Item 8 of Part II, “Financial Statements and Supplementary Data”, Note 12 – Income Taxes. Financial Instruments We hold derivative asset financial instruments in the form of equity warrants in other companies.
COVID-19 The COVID-19 pandemic has been a disruptive economic and societal event that has affected our business and consumer shopping behavior.
COVID-19 and Macroeconomic Considerations The COVID-19 pandemic and evolving macroeconomic conditions, including rising inflation and interest rates, have been disruptive economic and societal events that have affected, and continue to affect, our business and consumer shopping behavior.
Capital expenditures were related to the launch of new fulfillment centers, the expansion of corporate and customer service offices, and additional investments in IT hardware and software.
Capital expenditures were related to the launch of new fulfillment centers, the launch and expansion of corporate offices, and the capitalization of labor and license costs associated with software development for internal use.
Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our consolidated financial statements during Fiscal Year 2020 and Fiscal Year 2019, respectively.
Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our consolidated financial statements during Fiscal Year 2020. 42 Adjusted Net Income (Loss) and Adjusted Basic and Diluted Earnings (Loss) per Share To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this 10-K Report adjusted net income (loss) and adjusted basic and diluted earnings (loss) per share, which represent non-GAAP financial measures.
Advertising and Marketing Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities.
Advertising and Marketing Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities. 45 Interest Income (Expense), net We generate interest income from our cash and cash equivalents and marketable securities. We incur interest expense from our credit facilities and finance leases.
As this crisis unfolded, we monitored conditions closely and adapted aspects of our logistics, transportation, supply chain and purchasing processes accordingly to meet federal, state, and local standards and to ensure the safety and well-being of our team members, while continuing to meet the needs of our rapidly growing community of pets and pet parents.
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 rapidly 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.
In addition, the amendments resulted in a fixed 0.25% commitment fee with respect to the undrawn portion of the commitments. The ABL Credit Facility now matures in August 2026. Based on our borrowing base as of January 30, 2022, which is reduced by standby letters of credit, we had $462.9 million of borrowing capacity under the ABL Credit Facility.
Based on our borrowing base as of January 29, 2023, which is reduced by standby letters of credit, we had $749.9 million of borrowing capacity under the ABL Credit Facility. As of January 29, 2023, we had no outstanding borrowings under the ABL Credit Facility.
Cost of Goods Sold and Gross Profit Cost of goods sold for Fiscal Year 2021 increased by $1.2 billion, or 22.4%, to $6.5 billion compared to $5.3 billion in Fiscal Year 2020. This increase was primarily due to a 21.9% increase in orders shipped and associated product, outbound freight, and shipping supply costs.
This increase was primarily due to a 4.2% increase in orders shipped as well as an increase in associated product, outbound freight, and shipping supply costs.
Fiscal Year End 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 2021 fiscal year ended January 30, 2022 and included 52 weeks (“Fiscal Year 2021”). Our 2020 fiscal year ended January 31, 2021 and included 52 weeks (“Fiscal Year 2020”).
Please refer to the “Cautionary Note Regarding Forward-Looking Statements” in this 10-K Report and in the section titled “Risk Factors” in Item 1A of this 10-K Report. Fiscal Year End We have a 52- or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that year.
Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market funds, U.S. Treasury securities, certificates of deposit, and commercial paper. Cash and cash equivalents totaled $603.1 million as of January 30, 2022, an increase of $39.7 million from January 31, 2021.
Our principal sources of liquidity are expected to be our cash and cash equivalents, marketable fixed income securities, and our revolving credit facility. Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market funds, U.S. Treasury securities, certificates of deposit, and commercial paper.
These increases were partially offset by a $43.5 million reduction in non-cash share-based compensation expense. Advertising and Marketing Advertising and marketing expenses for Fiscal Year 2021 increased by $105.6 million, or 20.6%, to $618.9 million compared to $513.3 million in Fiscal Year 2020.
Advertising and Marketing Advertising and marketing expenses for Fiscal Year 2022 increased by $30.5 million, or 4.9%, to $649.4 million compared to $618.9 million in Fiscal Year 2021.
The following table presents a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated.
The following table presents a reconciliation of net income (loss) to adjusted net income (loss), as well as the calculation of adjusted basic and diluted earnings (loss) per share, for each of the periods indicated.
In addition, net sales per active customer increased $58, or 15.6%, to $430 in Fiscal Year 2021 compared to Fiscal Year 2020, driven by ongoing catalog expansion and growth led by our consumables and healthcare businesses.
This increase was primarily due to increases in spending per customer from our large and stable customer base. Net sales per active customer increased $65, or 15.1%, to $495 in Fiscal Year 2022 compared to Fiscal Year 2021, driven by growth across our consumables and healthcare businesses, partially offset by a decline in sales in discretionary products, mainly hardgoods.
Facilities expenses and other general and administrative expenses increased by $192.3 million, primarily due to the opening of a new corporate office in Seattle, Washington, increased headcount as a result of business growth, and expenses related to ongoing IT initiatives to support our customers and team members, including the migration to cloud-based IT systems.
This was primarily due to an increase of $165.7 million in facilities expenses and other general and administrative expenses, principally due to business growth and new initiatives as well as the opening and operating of new corporate offices in Plantation, Florida, and Seattle, Washington.
The ABL Credit Facility provides the right to request incremental commitments and add incremental asset-based revolving loan facilities subject to customary conditions. 47 On August 27, 2021, we amended the ABL Credit Facility to increase the aggregate principal amount to be up to $500 million and increase the amount available for incremental asset-based revolving loan facilities to $300 million.
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.
Net cash provided by financing activities was $342.2 million for Fiscal Year 2020, primarily consisting of $318.4 million of proceeds from our equity offering in September 2020, net of offering costs and $23.2 million received pursuant to the tax sharing agreement with related parties.
Financing activities Net cash used in financing activities was $6.7 million for Fiscal Year 2022, which primarily consisted of $2.8 million of payments made pursuant to the tax sharing agreement with related parties, $2.5 million for payments of tax withholdings related to vesting of share-based compensation awards, payment of debt modification costs, and principal repayments of finance lease obligations.
This increase was primarily due to growth of our active customer base and increased spending per customer. Our active customer base increased by 1.5 million, or 7.6%, year-over-year.
Additionally, our active customer base decreased by 0.3 million, or 1.2%, year-over-year. Cost of Goods Sold and Gross Profit Cost of goods sold for Fiscal Year 2022 increased by $750.8 million, or 11.5%, to $7.3 billion compared to $6.5 billion in Fiscal Year 2021.
This increase was primarily due to an increase of $280.1 million in fulfillment costs largely attributable to increased investments to support the overall growth of our business, including the costs associated with the opening and operating of new fulfillment centers in Archbald, Pennsylvania, Belton, Missouri, Lewisberry, Pennsylvania, and Salisbury, North Carolina, a customer service center in Dallas, Texas, growth of fulfillment and customer service headcount, as well as expanded investments in wages and benefits and higher recruiting costs for fulfillment and customer service team members.
This also included an increase of $77.9 million in non-cash share-based compensation expense and related taxes as well as an increase of $55.3 million in fulfillment costs largely attributable to investments to support the overall growth of our business, including the costs associated with the opening and operating of three fulfillment centers and two healthcare fulfillment centers.
Removed
We continue to monitor the impact of the COVID-19 pandemic and adapt our business accordingly. As reflected in the discussion below, we have seen customers shift more of their total shopping spend to online channels since the COVID-19 outbreak, which has led to increased sales and order activity for our business.
Added
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 more than 3,500 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding private brands.
Removed
Labor markets, particularly as they pertain to our fulfillment centers, have been, and remain, challenging. We expect this labor supply and demand imbalance to continue over the foreseeable future, resulting in increased competition for personnel.
Added
Our 2022 fiscal year ended January 29, 2023 and included 52 weeks (“Fiscal Year 2022”). Our 2021 fiscal year ended January 30, 2022 and included 52 weeks (“Fiscal Year 2021”).
Removed
In addition, global supply chain shortages and disruptions and inflation have emerged, which have impacted, and continue to impact, sales, margins and the pace of economic recovery.
Added
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. 41 We believe it is useful to exclude non-cash charges, such as depreciation and amortization, share-based compensation expense and management fee 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.
Removed
While conditions do appear to be improving as vaccination levels rise and state and local economies have, for the most part, re-opened, the positive or negative impacts that the COVID-19 outbreak will ultimately have on our business remain difficult to predict, particularly as vaccine efforts face challenges and new variants of the virus continue to emerge.
Added
We calculate adjusted net income (loss) as net income (loss) excluding share-based compensation expense and related taxes as well as changes in the fair value of equity warrants. We calculate adjusted basic and diluted earnings (loss) per share by dividing adjusted net income (loss) attributable to common stockholders by the weighted-average shares outstanding during the period.
Removed
The period-to-period comparison of financial results is not necessarily indicative of future results.
Added
We have provided a reconciliation below of adjusted net income (loss) to net income (loss), the most directly comparable GAAP financial measure.
Removed
The increase was primarily due to higher advertising and marketing spend in existing channels, due in part to an increase in advertising input costs since the pandemic-lows seen in the first half of Fiscal Year 2020, as well as expanding our advertising and marketing to new channels.
Added
We have included adjusted net income (loss) and adjusted basic and diluted earnings (loss) 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.
Removed
Our marketing efforts and investments led to the addition of 1.5 million active customers during Fiscal Year 2021. Liquidity and Capital Resources We finance our operations and capital expenditures primarily through cash flows generated by operations and equity offerings. Our principal sources of liquidity are expected to be our cash and cash equivalents and our revolving credit facility.
Added
In particular, the exclusion of certain expenses in calculating adjusted net income and adjusted basic and diluted earnings (loss) 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.
Removed
As of January 30, 2022, operating and real estate lease obligations included legally binding minimum lease payments of $943.3 million. For additional information related to real estate and operating leases, see Note 6 – Leases, in the “Notes to Consolidated Financial Statements” included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+1 added−0 removed2 unchanged
Biggest changeThe fair value of our cash and cash equivalents would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of these instruments.
Biggest changeThe 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. 49
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. 50
Added
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.

Other CHWY 10-K year-over-year comparisons