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What changed in Chewy, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Chewy, Inc.'s 2023 and 2024 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 2024 report.

+366 added−372 removedSource: 10-K (2024-03-20) vs 10-K (2023-03-22)

Top changes in Chewy, Inc.'s 2024 10-K

366 paragraphs added · 372 removed · 309 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn 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.
Biggest changeAs of January 28, 2024, we have approximately 15,000 veterinary practices enrolled in the platform, representing an estimated 50% of all U.S. vet clinics. In 2022, we launched and expanded the CarePlus product suite of Insurance and Wellness plans to provide diversified offerings across price points and coverage options.
The scalability and integrated nature of our technology platform also allow us to run our operations in a cost-efficient manner by decreasing the number of operational personnel and automating many of our planning and fulfillment processes.
The scalability and integrated nature of our technology platform also allow us to run our operations in a cost-efficient manner by decreasing the number of our operational personnel and automating many of our planning and fulfillment processes.
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 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.
Similar to the resiliency shown during the 2008 to 2010 recession, the pet industry experienced a significant increase in demand as a result of the COVID-19 pandemic despite the overall economic downturn, particularly within the e-commerce channel. Pet adoptions and fostering surged with “stay-at-home” orders further increasing demand and the continued humanization of pets.
Similar to the resiliency shown during the 2008 to 2010 recession, the pet industry experienced a significant increase in demand as a result of the COVID-19 pandemic despite the overall economic downturn, particularly within the e-commerce channel. Pet adoptions and fostering surged with “stay-at-home” orders due to the COVID-19 pandemic, further increasing demand and the continued humanization of pets.
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.
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.
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.
The strategic placement of our fulfillment centers across the U.S. provides us with the capability to cost-efficiently ship to over 80% of the U.S. population overnight and almost 100% in two days.
In addition, we offer a wide range of free educational media (such as blogs, videos, and tutorials on our website, Be.Chewy.com) to enhance our product offering and the buying experience, helping pet parents choose the right product for their pet or find answers to commonly asked questions specific to their type of pet.
In addition, we offer a wide range of free educational media (such as blogs, videos, and tutorials on our website, Be.Chewy.com) to enhance our product offerings and the buying experience, helping pet parents choose the right product for their pet or find answers to commonly asked questions specific to their type of pet.
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.
By leveraging our extensive infrastructure of our supply chain consisting of sixteen 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 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.
We offer market-competitive compensation and benefits including life and health (medical, dental, and vision) insurance, health savings accounts, a 401(k) plan, voluntary supplemental benefits, paid time off, paid parental leave, family support services (including child adoption and surrogacy benefits and pet adoption reimbursement), and a discount for purchases made on Chewy.com.
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 also expect to continue to invest in technology and product innovation to continue scaling our platform, customer support, marketing efforts, and supply chain in order to drive growth and profitability. • Our technology platform is scalable.
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.
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 through a variety of initiatives and programs, including assessments of current processes and policies.
In 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.
In 2020, we launched “Connect with a Vet,” an industry-leading 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.
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.
Lyon’s,” “Frisco,” “Goody Box,” “Onguard,” “PetMD,” “PracticeHub,” “Tiny Tiger,” “True Acre Farms,” “Tylee’s,” “Vibeful,” and “The Zoo.” The current registrations of these trademarks are effective for varying periods of time and may be renewed periodically, provided that we, as the registered owner, or our licensees where applicable, comply with all applicable renewal requirements including, where necessary, the continued use of the trademarks in connection with similar goods and services.
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.
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 across health and retail categories—and we continue to grow that assortment—which we offer at competitive prices.
Customers have historically spent more per purchase on our website and mobile applications after their first year as they discover the wide range of our product and service offering and the value proposition we provide. Our exceptional customer service and “WOW” programs help us retain customers and increase their level of engagement and spending. • Acquire new customers.
Customers have historically spent more per purchase on our websites and mobile applications after their first year as they discover the wide range of our product and service offerings, and the value proposition we provide. Our exceptional customer service and “WOW” programs help us retain customers and increase their level of engagement and spending. 5 • Acquire new customers.
The high volume of our sales, high participation rate in our Autoship subscription program, and relatively low seasonality of our business allow us to optimize asset utilization across our network and lower our fixed and variable cost per unit and our inventory levels. • We deploy capital efficiently.
The high volume of our sales, high participation rate in our Autoship subscription program, and relatively low seasonality of our business allow us to optimize asset utilization across our network and lower our fixed and variable cost per unit and our inventory levels.
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 seek to continually develop innovative ways for our customers to engage with us, as our websites and mobile applications allow our pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to conveniently shop for our products.
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.
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 36% in 2023 with over $23 billion of pet food and treats sold online.
Our Industry We operate in a large and growing industry in the U.S., which consists of pet food and treats, pet supplies and pet medications, other pet-health products, and pet services.
Our Industry We operate in the large and growing pet industry, which consists of pet food and treats, pet supplies and pet medications, other pet-health products, and pet services.
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.
In 2020, we launched medication compounding capabilities within our Chewy Pharmacy business and launched our telehealth service called “Connect with a Vet.” In 2021, we expanded access to “Connect with a Vet” to all Chewy customers, with access remaining free of charge for our Autoship customers and in 2022, we further expanded this access to all registered Chewy customers.
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.
During fiscal year 2023, we donated $55 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.
We promptly make available on our investor relations website, free of charge, the reports that we file or furnish with the Securities and Exchange Commission (“SEC”), corporate governance information (including our Code of Business Conduct and Ethics) and select press releases.
We promptly make available on our investor relations website, free of charge, the reports that we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics) and select press releases.
We 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 carry approximately 3,500 carefully selected brands and approximately 115,000 products, representing many of the best and most popular products, and we regularly add new products as we strive to offer everything that pet parents may need or want for their pets.
“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.
“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, 96% of pet owners in the U.S. consider their pets to be a part of their family.
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.
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. Team Member Safety . We continue to take proactive and precautionary steps to protect the health and safety of our employees.
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.
During fiscal year 2023, we 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.
Competition The pet products and services industry is highly competitive and can be organized into the following categories: internet (including online sales by omnichannel players); pet specialty stores; mass merchandisers/discount stores/supercenters; food stores; wholesale clubs; farm/feed stores; independent pet channel; dollar stores; drug stores; natural food; and veterinary.
We serve pet parents across the U.S. and expanded into Canada in September 2023. 6 Competition The pet products and services industry is highly competitive and can be organized into the following categories: internet (including online sales by omnichannel players); pet specialty stores; mass merchandisers/discount stores/supercenters; food stores; wholesale clubs; farm/feed stores; independent pet channel; dollar stores; drug stores; natural food; and veterinary.
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.
Examples of our scalable technology include our rollout of PracticeHub 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 sponsored ads business which has evolved from a beta version in 2022 to increasing our sponsored product and sponsored brand offerings in 2023, which provide dedicated, premium placements on Chewy.com that promote specific products or brands from select vendors.
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.
Historical and projected growth in pet spending According to Packaged Facts, spending on the U.S. pet market has grown from $87 billion in 2017 to an estimated $144 billion in 2023, or at an 8.9% compounded annual growth rate (“CAGR”) over that time.
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.
Amongst dog owners, 93% agree that pets are central to their home life, with 90% of cat owners and 85% of other pet owners agreeing with that statement.
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.
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. Our net sales weight between quarters reflects the consistent nature of customer purchasing of our product assortment.
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.
In 2020, we also offered customers the ability to order compounding medications in the form of customized, pharmaceutical grade, prescription medications that meet their pets’ unique needs through our own Chewy Pharmacy. Today, Chewy operates the #1 pet pharmacy in America.
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 partner with approximately 3,500 of the best and most trusted brands in the pet industry, and we create and offer our own private brands. Through our websites and mobile applications, we offer our customers approximately 115,000 products and services offerings, to bring what we believe is a high-bar, customer-centric experience to our customers.
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.
As of March 13, 2024, none of our employees were represented by a labor union or covered by a collective bargaining agreement. We provide our employees with support resources and programs that advance employee engagement, communication, and feedback, such as an annual engagement survey and quarterly pulse surveys, which we use to assess and improve our practices and policies.
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.
Packaged Facts projects the U.S. pet market to grow at an estimated CAGR of approximately 7% from 2023 through 2027. Consistency of spending and resilience during economic downturns Spending on pets is a necessity and most customers purchase frequently and at regular intervals.
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.
In 2021, we launched PracticeHub, a complete e-commerce solution for veterinarians that can integrate with their existing management software, manage preapproved prescriptions, and enable practices to earn revenue with Chewy while we handle inventory, fulfillment, shipping, and customer service.
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.
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.
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.
We own a number of trademark registrations and applications in the U.S. and in foreign jurisdictions. These trademarks include, among others, “American Journey,” “Blue Box Event,” “Careplus,” “Chewy,” “Chewy.com,” “Chewy Vet Care,” “Dr.
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.
Furthermore, according to Packaged Facts, pet parents look for products that improve their pet’s health and wellness, with 74% of pet parents willing to pay more for foods with extra health and wellness benefits.
This allows them to further hone their ability to deliver highly specialized, informed, and authentic advice to our customers. ◦ Engaging with customers on a personalized level. We empower our CSRs to go above and beyond for our customers, and they do so with the knowledge that our commitment to our customers is our number one priority.
We empower our CSRs to go above and beyond for our customers, and they do so with the knowledge that our commitment to our customers is our number one priority.
We 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 strive to further our mission by offering competitive compensation and benefits, focusing on employee safety, sharing opportunities for positive societal impact through participation in philanthropic endeavors, and fostering a workplace in which everyone feels empowered to do their best work. 7 We employed approximately 18,100 full-time and part-time employees as of January 28, 2024 and occasionally engage staffing agencies to supplement our workforce.
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.
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.
We operate customer service centers 24/7 to serve our customers every single day of the year.
Customers and Markets We serve customers through our websites and mobile applications and focus on delivering the best products with the best service at competitive prices. We operate customer service centers 24/7 to serve our customers every single day of the year.
From the moment they join Chewy, our CSRs receive extensive training from our knowledgeable team, learning the ins and outs of the world of pets and our product offering. Thereafter, they continue learning about brands and pets of all types via recurring training.
In addition, contacting us is easy, with virtually all customer calls being answered in less than ten seconds. From the moment they join Chewy, our CSRs receive extensive training from our knowledgeable team, learning the ins and outs of the world of pets and our product offering.
Our customer service representatives (“CSRs”) share a common bond - they love pets. This shared passion is evident in every interaction they have with our customers, whether via phone, email, or interactive live-chat. In addition, contacting us is easy, with virtually all customer calls being answered in less than ten seconds.
We provide competitive prices, customizable and convenient automatic reordering, fast and reliable order delivery, and innovative technology-driven services. ◦ Customer service expertise that is knowledgeable and empowered. Our customer service representatives (“CSRs”) share a common bond - they love pets. This shared passion is evident in every interaction they have with our customers, whether via phone, email, or interactive live-chat.
In 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.
In 2022, we also launched Careplus, our product suite of Insurance and Wellness plans offering comprehensive coverage options across varying price points. In 2023, we expanded our CarePlus suite of offerings, allowing us to meet the needs of a broader range of pet parents and increase access to affordable and high-quality pet healthcare offerings.
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.
This represents a 28% CAGR for online pet retail over that time frame. This shift to e-commerce well exceeds pre-COVID estimates as of 2019 of 25% channel share by 2023. According to Packaged Facts, 55% of pet product shoppers surveyed in February 2023 had purchased pet products online in the last 12 months.
We believe that the trend of increased subscription-based purchasing behavior within the broader secular trend toward online shopping supports higher levels of customer retention and revenue visibility. Our Strengths • Chewy’s commitment to customer service is the core of our brand. ◦ Customer centricity. Everything about our company is organized around our commitment to provide an exceptional customer experience.
Our Strengths • Our commitment to customer service is the core of our brand. ◦ Customer centricity. Everything about our company is organized around our commitment to provide an exceptional customer experience. We make the shopping experience easy and enjoyable, and that makes finding and buying the right product an amazing start to the customer journey.
We invest cash flow generated from our existing customer base to attract new customers and scale our platforms and fulfillment processes. Given the fast and consistent payback levels from our customers, we invest free cash flow in marketing to attract new customers.
Given the fast and consistent payback levels from our customers, we invest our free cash flow in marketing to attract new customers. Additionally, we expect to continue to invest in new growth areas across our business, including Chewy Health and international expansion following our 2023 launch in Canada.
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.
According to Packaged Facts, as of October 2023, only 7% of pet owners agreed that they were spending less on pet food compared to the preceding 12 months. Further, according to the U.S. Bureau of Labor Statistics, between 2013 and 2021, growth in pet-related spending outpaced spending in other consumer categories.
(“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.
In 2023, we expanded our CarePlus offering, allowing us to meet the needs of a broader range of pet parents. In 2022, we also completed our acquisition of Petabyte Technology Inc. (“Petabyte”), a provider of cloud-based technology solutions to the veterinary sector.
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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.
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Further, pet owners are increasingly focused on the health and wellness of their pet with 21% of dog owners and 22% of cat owners paying closer attention to their pet’s health and wellness because of COVID-19, according to Packaged Facts. 3 While the COVID-19 pandemic and subsequent economic downturn have impacted consumer spending broadly, the pet industry continues to demonstrate resiliency and the stickiness of pet care spending.
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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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Growing trend of subscription-based purchasing Additionally, according to a Packaged Facts survey conducted in February 2023, 39% of pet product shoppers had a current pet-related subscription for products including pet food, pet treats, litter and grooming products. Subscription-based purchasing has become significantly more popular among consumers born between 1965 and 2020, who are increasingly becoming pet parents.
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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.
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Packaged Facts found that usage rates for pet-related products including pet food, pet treats, litter and grooming products are dramatically higher for Millennials/Gen Zers (53%) or Gen Xers (24%) than for Boomers (14%). We believe that the trend of increased subscription-based purchasing behavior within the broader secular trend toward online shopping supports higher levels of customer retention and revenue visibility.
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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.
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Thereafter, they continue learning about brands and pets of all types via recurring training. This allows them to further hone their ability to deliver highly specialized, informed, and authentic advice to our customers. ◦ Engaging with customers on a personalized level.
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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.
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Additionally, we offer a wide range of pet health related products and services and operate the #1 pet pharmacy in America.
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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%).
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In 2023, we announced the forthcoming launch of our own veterinary clinics under the brand name “Chewy Vet Care,” offering pet health services including routine appointments, urgent care and surgery.
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We make the shopping experience easy and enjoyable, and that makes finding and buying the right product an amazing start to the customer journey. We provide competitive prices, customizable and convenient automatic reordering, fast and reliable order delivery, and innovative technology-driven services. ◦ Customer service expertise that is knowledgeable and empowered.
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Chewy Vet Care practices will be powered by our own custom-built technology platform offering a seamless and efficient experience for pet parents and vet care providers alike. • Our highly efficient and effective distribution network provides exceptional delivery with ongoing cost advantages and superior customer service.
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Finally, although we have exclusively focused on sales in the U.S. to date, we may expand our offering internationally in the future. Customers and Markets We serve customers through our website and mobile applications and focus on delivering the best products with the best service at competitive prices.
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Additionally, our investments in automation and artificial intelligence within our fulfillment centers drive efficiency across our distribution network. • We deploy capital efficiently. We invest cash flow generated from our existing customer base to attract new customers and scale our platforms.
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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.
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In 2023, we announced the forthcoming launch of our own veterinary clinics under the brand name “Chewy Vet Care,” offering pet health services including routine appointments, urgent care, and surgery.
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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.
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Chewy Vet Care practices will be powered by our own custom-built technology platform offering a seamless and efficient experience for pet parents and vet care providers alike. • Expand into new markets. In 2023, we launched Chewy Canada, bringing Chewy’s compelling value proposition to millions of pet parents in Canada.
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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.
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Canada has a large and growing pet market with over 9 million pet owning households. Our goal is to provide all pet parents with the same convenient delivery experience, broad assortment, and high-quality service that our U.S. customers enjoy.
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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.
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We believe Chewy’s value proposition and business model can extend beyond North America and believe there is an opportunity to expand into additional international markets in the future. We expect to remain highly thoughtful, deliberate and ROI-focused as we evaluate expansion into additional international markets. • Explore broader platform opportunities.
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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.
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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. For example, our trademark rights assist in our marketing efforts to develop brand recognition and differentiate our brands from our competitors.
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We recognized 25% of our annual net sales during each of the four quarters of fiscal year 2023. 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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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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.
Biggest changeAny significant interruptions or delays in service on our websites or mobile applications or any undetected errors or design faults could result in limited capacity, reduced demand, processing delays, and loss of customers or suppliers. • 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 websites, networks, and systems against cybersecurity incidents, or to otherwise protect our confidential information, could damage our reputation and brand and harm our business, financial condition, and results of operations. • 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 laws and regulations and we may incur material liabilities or costs related to complying with existing or future laws and regulations, and our failure to comply may result in enforcements, penalties, recalls, and other adverse actions. • We may inadvertently not comply with various state or federal laws and regulations covering our pet health business, which may subject us to reprimands, sanctions, probations, fines, suspensions, or the loss of one or more of our licenses. • Resistance from veterinarians to authorize prescriptions, or their efforts to discourage pet owners from purchasing from us, could cause our sales to decrease and could adversely affect our financial condition and results of operations. • Failure to comply with laws and regulations relating to privacy, data protection, cybersecurity, marketing and advertising and consumer protection, could adversely affect our business, financial condition, and results of operations. • 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.
We rely on a variety of marketing techniques, including email and social media marketing and postal mailings, and we are subject to various laws and regulations that govern such marketing and advertising practices.
We rely on a variety of advertising and marketing techniques, including email and social media marketing and postal mailings and we are subject to various laws and regulations that govern such practices.
In addition, we also collect, store, and transmit employees’ health information for certain reasons, such as administering employee benefits; accommodating disabilities and injuries; complying with public health requirements; and maintaining employee safety in the workplace. 22 Laws and regulations relating to privacy, data protection, cybersecurity, marketing and advertising, and consumer protection are evolving and subject to potentially differing interpretations.
In addition, we also collect, store, and transmit employees’ health information for certain reasons, such as administering employee benefits; accommodating disabilities and injuries; complying with public health requirements; and maintaining employee safety in the workplace. 22 Laws and regulations relating to privacy, data protection, cybersecurity, advertising and marketing, and consumer protection are evolving and subject to potentially differing interpretations.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of the Company more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of our Class A common stock.
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.
If we are unable to maintain the licenses granted by relevant state authorities in connection with our insurance, pharmacy, and veterinary businesses, or if we become subject to actions by the FDA or other regulators, our dispensing of prescription medications to pet parents could cease and we may be subject to reprimands, sanctions, probations or fines, which could have a material adverse effect on our business, financial condition, and results of operations.
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.
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 the Company, changes in financial estimates or ratings by any securities analysts who follow the Company or our failure to meet these estimates or the expectations of investors; • 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; • 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 and may again experience extreme price and volume fluctuations.
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.
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. Safety, quality, and health concerns regarding our products could affect our business.
Additionally, there is an increasing focus from regulators, investors, and other stakeholders on environmental, social, and governance (“ESG”) matters. To the extent our products and services create ESG-related concerns, our reputation may be harmed. 13 We have a history of losses and may generate operating losses as we continue to expand our business.
Additionally, there is an increasing focus from regulators, investors, and other stakeholders on environmental, social, and governance (“ESG”) matters. To the extent our products and services create ESG-related concerns, our reputation may be harmed. We have a history of losses and may generate operating losses as we continue to expand our business.
We also compete with a number of specialty pet supply stores and independent pet stores, catalog retailers and other specialty e-tailers. Many of our current competitors have, and potential competitors may have, longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technical capabilities, significantly greater financial, marketing and other resources and larger customer bases than we do.
We also compete with a number of specialty pet supply stores and independent pet stores, catalog retailers and other specialty e-tailers. 27 Many of our current competitors have, and potential competitors may have, longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technical capabilities, significantly greater financial, marketing and other resources and larger customer bases than we do.
We compete directly and indirectly with veterinarians for the sale of pet medications and other pet health products. Veterinarians hold a competitive advantage over us because many pet parents may find it more convenient or preferable to purchase these products directly from their veterinarians at the time of an office visit.
We compete directly and indirectly with veterinarians for the sale of pet medications and other pet health products and services. Veterinarians hold a competitive advantage over us because many pet parents may find it more convenient or preferable to purchase these products directly from their veterinarians at the time of an office visit.
Our insurance and pharmacy businesses also involve the provision of professional services, that could expose us to professional liability claims. Our pharmacy business is subject to risks inherent in the dispensing, packaging and distribution of drugs and other health care products and services, including claims related to purported dispensing and other operational errors.
Our insurance, pharmacy, and veterinary businesses also involve the provision of professional services that could expose us to professional liability claims. Our pharmacy business is subject to risks inherent in the dispensing, packaging and distribution of drugs and other health care products and services, including claims related to purported dispensing and other operational errors.
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.
Breaches of our security measures or those of our third-party service providers or any cybersecurity incident could result in unauthorized access to our websites, networks and systems; unauthorized access to and misappropriation of consumer and/or employee information, including personally identifiable information, or other sensitive, confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our websites, networks or systems; deletion or modification of content or the display of unauthorized content on our websites; interruption, disruption or malfunction of operations; costs relating to cybersecurity incident remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third party experts and consultants; litigation, regulatory action and other potential liabilities.
Any similar litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition, and results of operations. The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
Any similar litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition, and results of operations. 31 The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
The increased costs of compliance with public company reporting requirements and our potential failure to satisfy these requirements can have a material adverse effect on our operations, business, financial condition or results of operations. Item 1B. Unresolved Staff Comments None. 35
The increased costs of compliance with public company reporting requirements and our potential failure to satisfy these requirements can have a material adverse effect on our operations, business, financial condition or results of operations. Item 1B. Unresolved Staff Comments None.
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.
In order to expand our customer base, we must, in part, acquire customers who have historically purchased their pet products and services from other retailers, such as traditional brick and mortar retailers, the websites of our competitors, or our suppliers’ own websites.
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.
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.
As a result of our services being web-based, we collect, process, transmit and store large amounts of data about our customers, employees, suppliers and others, including credit card information (which we don’t store) and personally identifiable information, as well as other confidential and proprietary information.
As a result of our services being primarily web-based, we collect, process, transmit and store large amounts of data about our customers, employees, suppliers and others, including credit card information (which we don’t store) and personally identifiable information, as well as other confidential and proprietary information.
Other than our CEO, CFO and certain other senior executives, all of our employees are at-will employees, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace.
Other than our CEO, CFO and certain other senior executives, all of our employees are at-will employees, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be difficult to replace.
Any failure, or perceived failure, by us to comply with our posted privacy policies or with any federal or state privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, liabilities, proceedings or actions against us by governmental entities, customers, suppliers or others, or may require us to change our operations and/or cease using certain data sets.
Any failure, or perceived failure, by us to comply with our posted privacy policies or with any privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, liabilities, proceedings or actions against us by governmental entities, customers, suppliers or others, or may require us to change our operations and/or cease using certain data sets.
Risks Related to Our Industry • Competition in the pet products and services health and retail industries, especially Internet-based competition, is strong and presents an ongoing threat to the success of our business. • 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. • Changes in tax treatment of companies engaged in e-commerce may adversely affect the commercial use of our website and mobile applications and our financial results.
Risks Related to Our Industry • Competition in the pet products and services health and retail industries, especially Internet-based competition, is strong and presents an ongoing threat to the success of our business. • 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. • Changes in tax treatment of companies engaged in e-commerce may adversely affect the commercial use of our websites and mobile applications and our financial results.
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.
The occurrence of a natural disaster, power loss, telecommunications failure, data loss, computer virus, ransomware attack, an act of terrorism, cyberattack, vandalism or sabotage, act of war or any similar event, or a decision to close our third-party data centers on which we normally operate or the facilities of any other third-party provider without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in the availability of our websites and mobile applications.
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.
The sale and delivery of prescription pet medications and the provision of pharmacy, veterinary, and telehealth services are generally governed by federal and state laws and regulations and are subject to extensive oversight by state and federal governmental authorities.
If we are unable to attract consumers to our website or mobile applications through these devices or are slow to develop a version of our website or mobile applications that is more compatible with alternative devices, we may fail to capture a significant share of consumers in the pet food and accessory market and could also lose customers, which could materially and adversely affect our business, financial condition, and results of operations.
If we are unable to attract consumers to our websites or mobile applications through these devices or are slow to develop a version of our websites or mobile applications that is more compatible with alternative devices, we may fail to capture a significant share of consumers in the pet food and accessory market and could also lose customers, which could materially and adversely affect our business, financial condition, and results of operations.
We are also subject to U.S. federal and state laws, regulations, and administrative practices that require us to collect information from our customers, vendors, merchants, and other third parties for tax reporting purposes and report such information to various government agencies. The scope of such requirements continues to expand, requiring us to develop and implement new compliance systems.
We are also subject to federal and state laws, regulations, and administrative practices that require us to collect information from our customers, vendors, merchants, and other third parties for tax reporting purposes and report such information to various government agencies. The scope of such requirements continues to expand, requiring us to develop and implement new compliance systems.
If our assumptions prove to be wrong, we may spend more than we anticipate acquiring and retaining customers or may generate lower net sales per active customer than anticipated, either of which could have a negative impact on our business, financial condition, and results of operations. Our estimate of the size of our addressable market may prove to be inaccurate.
If our assumptions prove to be wrong, we may spend more than we anticipate acquiring and retaining customers or may generate lower net sales per active customer than anticipated, either of which could have a negative impact on our business, financial condition, and results of operations. Our estimate of the size of our addressable markets may prove to be inaccurate.
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.
If our estimates of the size of our addressable markets are not accurate, our potential for future growth may be less than we currently anticipate, which could have a material adverse effect on our business, financial condition, and results of operations. We may be unable to source additional suppliers or strengthen our existing relationships with suppliers.
The versions of our website and mobile applications developed for these devices may not be compelling to consumers. Adapting our services and/or infrastructure to these devices, as well as other new Internet, networking or telecommunications technologies, could be time-consuming and could require us to incur substantial expenditures, which could adversely affect our business, financial condition, and results of operations.
The versions of our websites and mobile applications developed for these devices may not be compelling to consumers. Adapting our services and/or infrastructure to these devices, as well as other new Internet, networking or telecommunications technologies, could be time-consuming and could require us to incur substantial expenditures, which could adversely affect our business, financial condition, and results of operations.
We have spent and expect to continue to spend substantial amounts on data centers, including cloud providers, and equipment and related network infrastructure to handle the traffic on our website and mobile applications. The operation of these systems is complex and we have experienced minor interruptions, which could increase in severity and result in operational failures.
We have spent and expect to continue to spend substantial amounts on data centers, including cloud providers, and equipment and related network infrastructure to handle the traffic on our websites and mobile applications. The operation of these systems is complex and we have experienced minor interruptions, which could increase in severity and result in operational failures.
We are currently and may in the future continue to be subject to routine administrative inquiries related to our pharmacy and telehealth services businesses.
We are currently and may in the future continue to be subject to routine administrative inquiries related to our pharmacy, veterinary, and telehealth services businesses.
Factors such as inflation and rising interest rates can adversely affect us by increasing costs of materials and labor. In a highly inflationary environment, we may be unable to raise the price of our products and services at or above the rate of inflation, which could reduce our profitability.
Factors such as inflation and rising interest rates have affected us and can adversely affect us by increasing costs of materials and labor. In a highly inflationary environment, we may be unable to raise the price of our products and services at or above the rate of inflation, which could reduce our profitability.
Our ability to expand our fulfillment center capacity, including our ability to secure suitable facilities and recruit qualified employees, may be affected by unforeseen circumstances and macroeconomic impacts. Many of the expenses and investments with respect to our fulfillment centers are fixed, and any expansion of such fulfillment centers will require additional investment of capital.
Our ability to operate and potentially expand our fulfillment center capacity, including our ability to secure suitable facilities and recruit qualified employees, may be affected by unforeseen circumstances and macroeconomic impacts. Many of the expenses and investments with respect to our fulfillment centers are fixed, and any expansion of such fulfillment centers will require additional investment of capital.
Most recently, on August 16, 2022, legislation commonly known as the Inflation Reduction Act (the “IRA”) was signed into law. Among other things, the IRA includes a 1% excise tax on corporate stock repurchases, applicable to repurchases after December 31, 2022, and also a new minimum tax based on book income.
On August 16, 2022, legislation commonly known as the Inflation Reduction Act (the “IRA”) was signed into law. Among other things, the IRA includes a 1% excise tax on corporate stock repurchases, applicable to repurchases after December 31, 2022, and also a new minimum tax based on book income.
Moreover, a search engine could, for competitive or other purposes, alter its search algorithms or results, causing our website to place lower in search query results. We also drive a significant amount of traffic to our website via social networking or other e-commerce channels used by our current and prospective customers.
Moreover, a search engine could, for competitive or other purposes, alter its search algorithms or results, causing our websites to place lower in search query results. We also drive a significant amount of traffic to our websites via social networking or other e-commerce channels used by our current and prospective customers.
If we are unable to manage the growth of our organization effectively, our business, financial condition, and results of operations may be materially and adversely affected. The growth of our business depends on our ability to accurately predict consumer trends, successfully introduce new products and services, improve existing products and services, and expand into new offerings.
If we are unable to manage the growth of our organization effectively, our business, financial condition, and results of operations may be materially and adversely affected. The growth of our business depends on our ability to accurately predict and timely respond to consumer trends, successfully introduce new products and services, improve existing products and services, and expand into new offerings.
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.
Significant interruptions or delays in these systems, whether due to system failures, computer viruses, physical or electronic break-ins, undetected errors, design faults or other unexpected events or causes, could affect the security or availability of our websites and mobile applications and prevent our customers from accessing our websites and mobile applications.
Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our website and mobile applications by consumers and suppliers and may result in the imposition of monetary liabilities.
Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our websites and mobile applications by consumers and suppliers and may result in the imposition of monetary liabilities.
As social networking and e-commerce channels continue to rapidly evolve, we may be unable to develop or maintain a presence within these channels. If we are unable to cost-effectively drive traffic to our website, our ability to acquire new customers and our financial condition would be materially and adversely affected.
As social networking and e-commerce channels continue to rapidly evolve, we may be unable to develop or maintain a presence within these channels. If we are unable to cost-effectively drive traffic to our websites, our ability to acquire new customers and our financial condition would be materially and adversely affected.
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.
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 after the date on which the outstanding shares of Class B common stock represent less than 50% of the combined voting power of our Class A common stock and Class B common stock; • require the affirmative vote of at least 75% of the voting power of the Company’s outstanding shares of Class A common stock and Class B common stock in order to amend (i) certain provisions in our amended and restated certificate of incorporation and (ii) our amended and restated bylaws, in each case, after the date on which the outstanding shares of Class B common stock represent less than 50% of the combined voting power of our Class A common stock and Class B common stock; • eliminate the ability of our stockholders to call special meetings of stockholders after the date on which the outstanding shares of Class B common stock represent less than 50% of the combined voting power of our Class A common stock and Class B common stock; • prohibit stockholder action by written consent, instead requiring stockholder actions to be taken at a meeting of our stockholders, when the outstanding shares of our Class B common stock represent less than 50% of the combined voting power of our Class A common stock and Class B common stock; • permit our board of directors, without further action by our stockholders, to fix the rights, preferences, privileges and restrictions of preferred stock, the rights of which may be greater than the rights of our Class A common stock; • restrict the forum for certain litigation against us; • 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.
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.
Any significant interruptions or delays in service on our websites or mobile applications or any undetected errors or design faults could result in limited capacity, reduced demand, processing delays, and loss of customers or suppliers. An element of our strategy is to generate a high volume of traffic on, and use of, our websites and mobile applications.
In the event that the volume of traffic of our customers exceeds the capacity of our current network infrastructure or in the event that our customer base or the amount of traffic on our website and mobile applications grows more quickly than anticipated, we may be required to incur significant additional costs to enhance the underlying network infrastructure.
In the event that the volume of traffic of our customers exceeds the capacity of our current network infrastructure or in the event that our customer base or the amount of traffic on our websites and mobile applications grows more quickly than anticipated, we may be required to incur significant additional costs to enhance the underlying network infrastructure.
DDoS attacks, viruses, malicious software, break-ins, phishing attacks, ransomware, social engineering, security breaches or other cybersecurity incidents and similar disruptions that may jeopardize the security of information stored in or transmitted by our website, networks and systems or that we or our third-party service providers otherwise maintain, including payment card systems, may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods.
DDoS attacks, viruses, malicious software, break-ins, phishing attacks, ransomware, social engineering, cyber-attacks, security breaches or other cybersecurity incidents and similar disruptions that may jeopardize the security of information stored in or transmitted by our websites, networks and systems or that we or our third-party service providers otherwise maintain, including payment card systems, may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods.
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.
We may encounter certain challenges in manufacturing our products, including the loss of key suppliers and product recalls. Maintaining consistent product quality, competitive pricing, and availability of our products and services for our customers is essential to developing and maintaining customer loyalty and brand awareness.
In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our website, we could lose customers and fail to attract new customers.
In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, we could lose customers and fail to attract new customers.
We have experienced unavailability of our website and mobile applications, primarily due to DDoS events, and increased unavailability of our website or of our mobile applications or reduced order fulfillment performance would reduce the volume of goods sold and could also materially and adversely affect consumer perception of our brand.
We have experienced unavailability of our websites and mobile applications, primarily due to DDoS events, and increased unavailability of our websites or of our mobile applications or reduced order fulfillment performance would reduce the volume of goods sold and could also materially and adversely affect consumer perception of our brand.
We have experienced telecommunication issues and increased failures by our telecommunications providers may interrupt our ability to provide phone support to our customers and distributed denial-of-service (“DDoS”) attacks directed at our telecommunication service providers could prevent customers from accessing our website.
We have experienced telecommunication issues and increased failures by our telecommunications providers may interrupt our ability to provide phone support to our customers and distributed denial-of-service (“DDoS”) attacks directed at our telecommunication service providers could prevent customers from accessing our websites.
Other states in which we operate have also enacted laws similar to CPRA and similar laws have been proposed in other states and at the federal level, and if passed, such laws may have potentially conflicting requirements that would make compliance challenging.
Other states in which we operate have also enacted laws similar to CPRA and similar laws have been proposed in other states and at the federal level in the U.S., and if passed, such laws may have potentially conflicting requirements that would make compliance challenging.
The satisfactory performance, reliability and availability of our website, mobile applications, transaction processing systems and technology infrastructure are critical to our reputation and our ability to acquire and retain customers, as well as to maintain adequate customer service levels.
The satisfactory performance, reliability and availability of our websites, mobile applications, transaction processing systems and technology infrastructure are critical to our reputation and our ability to acquire and retain customers, as well as to maintain adequate customer service levels.
We are subject to extensive governmental regulation and we may incur material liabilities or costs related to complying with existing or future laws and regulations, and our failure to comply may result in enforcements, penalties, recalls, and other adverse actions.
We are subject to extensive laws and regulations and we may incur material liabilities or costs related to complying with existing or future laws and regulations, and our failure to comply may result in enforcements, penalties, recalls, and other adverse actions.
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.
In addition, the failure of our third-party data centers, including cloud service providers, or any other third-party providers to meet our capacity requirements could result in interruption in the availability or functionality of our websites and mobile applications.
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.
In addition, various legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection, cybersecurity, consumer protection, and advertising.
In addition, our cost of capital, labor and materials can increase, which could have an adverse impact on our business, financial condition, and results of operations. Deflation could cause an overall decrease in spending and borrowing capacity, which could lead to deterioration in economic conditions and employment levels. Deflation could also cause the value of our inventories to decline.
In addition, our costs of capital, labor and materials can materially increase, which could have an adverse impact on our business, financial condition, and results of operations. Deflation could cause an overall decrease in spending and borrowing capacity, which could lead to deterioration in economic conditions and employment levels. Deflation could also cause the value of our inventories to decline.
Search engines frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our website can be negatively affected.
Search engines frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our websites can be negatively affected.
As our customer base and the amount of information shared on our website and mobile applications continue to grow, we are likely to need an increasing amount of network capacity and computing power.
As our customer base and the amount of information shared on our websites and mobile applications continue to grow, we are likely to need an increasing amount of network capacity and computing power.
Any web or mobile platform interruption or inadequacy that causes performance issues or interruptions in the availability of our website or mobile applications could reduce consumer satisfaction and result in a reduction in the number of consumers using our products and services. We depend on the development and maintenance of the Internet and mobile infrastructure.
Any web or mobile platform interruption or inadequacy that causes performance issues or interruptions in the availability of our websites or mobile applications could reduce consumer satisfaction and result in a reduction in the number of consumers using our products and services. 17 We depend on the development and maintenance of the Internet and mobile infrastructure.
Federal and state governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes.
Governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes.
Any slowdown or failure of our website, mobile applications or the underlying technology infrastructure could harm our business, reputation and our ability to acquire, retain and serve our customers.
Any slowdown or failure of our websites, mobile applications or the underlying technology infrastructure could harm our business, reputation and our ability to acquire, retain and serve our customers.
Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition, and results of operations.
Alternatively, if a court were to find the exclusive forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition, and results of operations.
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.
In addition, changes in these laws and regulations could impose significant limitations and require changes to our business, which may increase our compliance expenses, make our business more costly and less efficient to conduct, and compromise our growth strategy. Among other regulatory requirements, the FDA reviews the inclusion of certain claims in pet food labeling.
To manage our growth effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base. To support our continued growth, we must effectively integrate, develop and motivate our employees.
To manage our growth effectively, we must continue to, among other things, implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base. To support our continued growth, we must effectively integrate, develop and motivate our employees.
Uncertainties in economic conditions, industry trends, and market conditions, and their impact on the pet products market, could adversely impact our business, financial condition, and results of operations. Our results of operations are sensitive to changes in certain macro-economic conditions that impact the pet products market, which could adversely impact our business, financial condition, and results of operations.
Uncertainties in economic conditions, industry trends, and market conditions, and their impact on the pet market, could adversely impact our business, financial condition, and results of operations. Our results of operations are sensitive to changes in certain macroeconomic conditions that impact the pet market, which could adversely impact our business, financial condition, and results of operations.
So long as BC Partners and/or its affiliates remain our controlling stockholder they will be able to control, directly or indirectly, and subject to applicable law, all matters affecting us, including: • any determination with respect to our business direction and policies, including the appointment and removal of officers and directors; • any determinations with respect to mergers, business combinations or disposition of assets; • compensation and benefit programs and other human resources policy decisions; • the payment of dividends on our common stock; and • determinations with respect to tax matters.
So long as the BCP Stockholder Parties remain our controlling stockholder they will be able to control, directly or indirectly, and subject to applicable law, all matters affecting us, including: • any determination with respect to our business direction and policies, including the appointment and removal of officers and directors; • any determinations with respect to mergers, business combinations or disposition of assets; • compensation and benefit programs and other human resources policy decisions; • the payment of dividends on our common stock; and • determinations with respect to tax matters.
We cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans.
We cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans.
A variety of federal and state laws and regulations govern the collection, use, retention, sharing and security of consumer data, particularly in the context of online advertising which we rely upon to attract new customers.
A variety of applicable laws and regulations govern the collection, use, retention, sharing and security of consumer data, particularly in the context of online advertising which we rely upon to attract new customers.
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.
We could be adversely affected if consumers lose confidence in the safety and quality of our food or other products. All of our suppliers are required to comply with applicable product safety laws and we are dependent upon them to ensure such compliance.
Failure to successfully address such challenges in a cost-effective and timely manner could impair our ability to timely deliver our customers’ purchases and could harm our reputation and ultimately, our business, financial condition, and results of operations. We anticipate the need to add additional fulfillment center capacity as our business continues to grow and our offerings expand.
Failure to successfully address such challenges in a cost-effective and timely manner could impair our ability to timely deliver our customers’ purchases and could harm our reputation and ultimately, our business, financial condition, and results of operations. 15 We may add additional fulfillment center capacity as our business continues to grow and our offerings expand.
To the extent such natural disasters or weather events do become more frequent or severe, disruptions to our business and costs to repair facilities or maintain or resume operations could increase. The long-term impacts of climate change, whether involving physical risks or transition risks, may be widespread and unpredictable.
To the extent such natural disasters or weather events do become more frequent or severe, disruptions to our business and costs to repair facilities or maintain or resume operations could increase. The long-term impacts of climate change may be widespread and unpredictable.
We may seek to grow our business through acquisitions of, or investments in, new or complementary businesses, facilities, technologies, offerings or products, or through strategic alliances, and the failure to manage these acquisitions, investments or other strategic alliances, or to integrate them with our existing business, could have a material adverse effect on us.
We may seek to grow our business through acquisitions or investments in new or complementary businesses, technologies, or offerings, or through other strategic transactions, and the failure to manage these acquisitions, investments, or strategic transactions, or to integrate them with our existing business, could have a material adverse effect on us.
We have 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 again generate operating losses in the future as we continue investment in our business. Furthermore, it is difficult for us to predict our future results of operations.
Any significant damage to, or failure of, our systems or the systems of our third-party data centers, including cloud service providers, or our other service providers could result in prolonged interruptions to the availability or functionality of our website and mobile applications.
Any significant damage to, or failure of, our systems or the systems of our third-party data centers, or our other service providers could result in prolonged interruptions to the availability or functionality of our websites and mobile applications.
Pursuant to our amended and restated certificate of incorporation, none of our non-employee directors have a duty, to the fullest extent permitted by law, to refrain from engaging in the same or similar business activities or lines of business in which we are now engaged in or from otherwise competing with us.
Pursuant to our amended and restated certificate of incorporation, the BCP Stockholder Parties and non-employee directors have no duty, to the fullest extent permitted by law, to refrain from engaging in the same or similar business activities or lines of business in which we are now engaged in or from otherwise competing with us.
Our 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.
Our operations 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 other federal, state, local and foreign authorities regarding the processing, packaging, storage, distribution, advertising, labeling and export of our products, including food safety standards.
In addition, we and our outsourced private 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 partners are subject to additional regulatory requirements, including environmental, health and safety laws and regulations administered by the U.S.
Risks Related to Ownership of Our Class A Common Stock • Our stock price has been, and may continue to be, volatile and may decline regardless of our operating performance. • The dual class structure of our common stock may adversely affect the trading market for our Class A common stock. • Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock. • Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. • Affiliates of BC Partners control the direction of our business and the concentrated ownership of our common stock will prevent other stockholders from influencing significant decisions. • We are a “controlled company” within the meaning of the rules of NYSE and, as a result, we rely on exemptions from certain corporate governance requirements.
Risks Related to Ownership of Our Class A Common Stock • Our stock price has been, and may continue to be, volatile and may decline regardless of our operating performance. • The dual class structure of our common stock may adversely affect the trading market for our Class A common stock. • Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of the Company more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of our Class A common stock. • Our amended and restated certificate of incorporation includes exclusive forum provisions, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. • The BCP Stockholder Parties control the direction of our business and the concentrated ownership of our common stock will prevent other stockholders from influencing significant decisions. • We are a “controlled company” within the meaning of the rules of NYSE and rely on exemptions from certain corporate governance requirements.
Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may materially and adversely affect our business, financial condition, and results of operations. In addition, our technology platform may use open-source software.
Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may materially and adversely affect our business, financial condition, and results of operations.
We recognize that the frequency and intensity of severe weather events, sea-level rise, and other climatic changes may continue to increase, and as a result, our exposure to these events may increase. A potential result of climate change is more frequent or severe natural disasters or weather events.
We recognize that the frequency and intensity of natural disasters and severe weather events may continue to increase, and as a result, our exposure to these events may increase. A potential result of climate change is more frequent or severe natural disasters or weather events.
Acquisitions, investments and other strategic alliances involve numerous risks, including: • problems integrating the acquired business, facilities, technologies or products, including issues maintaining uniform standards, procedures, controls and policies; • unanticipated costs associated with acquisitions, investments or strategic alliances; • losses we may incur as a result of declines in the value of an investment or as a result of incorporating an investee’s financial performance into our financial results; • diversion of management’s attention from our existing business; • adverse effects on existing business relationships with suppliers, outsourced private brand manufacturing partners, retail partners and distribution customers; • risks associated with entering new markets in which we may have limited or no experience; • potential loss of key employees of acquired businesses; • the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our other businesses face; • potential unknown liabilities associated with a business we acquire or in which we invest; and • increased legal and accounting compliance costs. 26 Our ability to successfully grow through strategic transactions depends upon our ability to identify, negotiate, complete and integrate suitable target businesses, facilities, technologies and products and to obtain any necessary financing.
Acquisitions, investments and other strategic alliances involve numerous risks, including: • problems integrating the acquired business, facilities, technologies or products, including issues maintaining uniform standards, procedures, controls and policies; • unanticipated costs associated with acquisitions, investments or strategic alliances; • losses we may incur as a result of declines in the value of an investment or as a result of incorporating an investee’s financial performance into our financial results; • diversion of management’s attention from our existing business; • adverse effects on existing business relationships with suppliers, outsourced private brand manufacturing partners, retail partners and distribution customers; • risks associated with entering new markets in which we may have limited or no experience; • potential loss of key employees of acquired businesses; • the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our other businesses face; • potential unknown liabilities associated with a business we acquire or in which we invest; and • increased legal and accounting compliance costs.
If we are unable to attract and retain suppliers, we may be unable to maintain and/or expand our supplier network, which would negatively impact our business. We purchase significant amounts of products from a number of suppliers with limited supply capabilities.
In addition, the loss of any of our key suppliers would negatively impact our business. If we are unable to attract and retain suppliers, we may be unable to maintain and/or expand our supplier network, which would negatively impact our business. We also purchase significant amounts of products from a number of suppliers with limited supply capabilities.
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.
As a new entrant, we expect to face many competitive challenges including competing successfully with incumbent providers who may have longer operating histories, large customer bases, high brand recognition and greater financial, technical, marketing and other resources than we do.
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.
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 federal, U.S. state income taxes, Canadian federal and provincial income tax, Chinese income taxes, and may be subject to additional income tax depending on our operations.
To compete effectively, we may need to invest significant resources to create brand awareness and build our reputation in the market, and our efforts at building, maintaining and enhancing our reputation could fail.
To compete effectively, we may need to invest significant resources to create brand awareness and build our reputation in these markets and categories, and our efforts at building, maintaining and enhancing our reputation could fail.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that all of our properties have been adequately maintained, are in good condition, and are generally suitable and adequate for our current needs.
Biggest changeCampbell Road, Suite 200, Richardson, TX 75081 57,120 Customer service center 3621 Fern Valley Road, Louisville, KY 40219 25,274 We believe that all of our properties have been adequately maintained, are in good condition, and are generally suitable and adequate for our current needs.
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.
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 sixteen 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 three locations.
Juliet, 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.
Juliet, 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 1974 Innovation Boulevard, Clayton, IN 46118 597,844 Fulfillment center 12333 Airport Road, Kleinburg, Ontario, Canada L7C 2X3 190,000 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.
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.
The following table sets forth the location, use, and size of certain of our properties as of March 13, 2024: Use Location Square Footage Corporate office 7700 W.
Removed
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 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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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.
Biggest changeMehta has served on the board of directors of Express, Inc. since December 2022. 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. 38 PART II
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.
Prior to that, Mr. Mehta served in various capacities at Staples Inc., including serving as Vice President, Price—Data & Analytics, Omni-Channel and Innovation Labs from January 2014 to July 2017. Mr. Mehta also served at Yahoo Inc. from November 2005 to January 2014, in various positions including as Senior Director, Global Data and Ad Tech. 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.
Item 4. Mine Safety Disclosures Not applicable. 37 Information About Our Executive Officers The following information relates to our executive officers: Name Age Position Sumit Singh 44 Chief Executive Officer and Director David Reeder 49 Chief Financial Officer Satish Mehta 59 Chief Technology Officer Sumit Singh Mr.
Marte holds a Bachelor of Science degree in Computer Engineering from the University of South Florida, and a Master of Business Administration degree from Duke University’s Fuqua School of Business. Satish Mehta Mr. Mehta has served as our Chief Technology Officer since June 2018. From July 2017 to June 2018, Mr.
Reeder holds a Bachelor of Science degree in Chemical Engineering from the University of Arkansas, and a Master of Business Administration degree from Southern Methodist University. Satish Mehta Mr. Mehta has served as our Chief Technology Officer since June 2018. From July 2017 to June 2018, Mr. Mehta served as Vice President—Data and Analytics Solutions for UnitedHealth Group Incorporated.
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.
He also holds a Master of Business Administration degree from the University of Chicago, Booth School of Business. David Reeder Mr. Reeder has served as our Chief Financial Officer since February 2024. From 2020 to 2024, he served as Chief Financial Officer of GlobalFoundries Inc. (“GFI”) and oversaw GFI’s initial public offering in 2021. Mr.
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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.
Added
Reeder served as Chief Executive Officer of Tower Hill Insurance Group from 2017 to 2020 and as President and Chief Executive Officer of Lexmark International Inc. from 2015 to 2017. Mr. Reeder has also served as Chief Financial Officer of Electronics for Imaging, Inc. and has held executive roles at Cisco Systems, Inc., Broadcom Inc., and Texas Instruments Incorporated. Mr.
Removed
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
Reeder has served as a director on the board of directors of Entegris, Inc. since March 2024 and on the board of directors of Alphawave IP Group plc since September 2023. He was previously a member of the board of directors of Milacron Holdings Corp from 2017 until November 2019. Mr.
Removed
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.
Removed
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.
Removed
Helfrick holds a Master of Laws degree from Georgetown University Law Center, a Master of Business Administration degree from Cornell Jonson Graduate School of Management, a Juris Doctor degree from the Dickinson School of Law at Pennsylvania State University, and a Bachelor of Arts degree from the University of Pittsburgh. 37 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders 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.
Biggest changeHolders of Common Stock As of the close of business on March 13, 2024, there were 150 stockholders of record of our Class A common stock and 2 stockholders of our Class B common stock.
The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock. Item 6. [Reserved] 39
The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock. Item 6. [Reserved] 40
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.
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 28, 2024.
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.
Issuer Purchases of Equity Securities There were no repurchases of equity securities during the thirteen weeks ended January 28, 2024. 39 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.
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.
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 28, 2024.

Item 7. Management's Discussion & Analysis

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

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Biggest changeFiscal 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.
Biggest changeFiscal Year % change % of net sales (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 2023 2022 2021 Consolidated Statements of Operations Net sales $ 11,147,720 $ 10,119,000 $ 8,967,407 10.2 % 12.8 % 100.0 % 100.0 % 100.0 % Cost of goods sold 7,986,202 7,284,505 6,581,936 9.6 % 10.7 % 71.6 % 72.0 % 73.4 % Gross profit 3,161,518 2,834,495 2,385,471 11.5 % 18.8 % 28.4 % 28.0 % 26.6 % Operating expenses: Selling, general and administrative 2,442,683 2,128,688 1,840,135 14.8 % 15.7 % 21.9 % 21.0 % 20.5 % Advertising and marketing 742,460 649,386 618,902 14.3 % 4.9 % 6.7 % 6.4 % 6.9 % Total operating expenses 3,185,143 2,778,074 2,459,037 14.7 % 13.0 % 28.6 % 27.4 % 27.4 % (Loss) income from operations (23,625) 56,421 (73,566) (141.9) % 176.7 % (0.2) % 0.6 % (0.8) % Interest income (expense), net 58,501 9,290 (1,641) n/m n/m 0.5 % 0.1 % — % Other income (expense), net 13,354 (13,166) — 201.4 % n/m 0.1 % (0.1) % — % Income (loss) before income tax provision 48,230 52,545 (75,207) (8.2) % 169.9 % 0.4 % 0.5 % (0.8) % Income tax provision 8,650 2,646 — 226.9 % n/m 0.1 % — % — % Net income (loss) $ 39,580 $ 49,899 $ (75,207) (20.7) % 166.3 % 0.4 % 0.5 % (0.8) % n/m - not meaningful Net Sales Fiscal Year 2023 vs. 2022 2022 vs. 2021 (in thousands, except percentages) 2023 2022 2021 $ Change % Change $ Change % Change Consumables $ 8,014,645 $ 7,145,414 $ 6,102,367 $ 869,231 12.2 % $ 1,043,047 17.1 % Hardgoods 1,209,161 1,215,689 1,305,937 (6,528) (0.5) % (90,248) (6.9) % Other 1,923,914 1,757,897 1,559,103 166,017 9.4 % 198,794 12.8 % Net sales $ 11,147,720 $ 10,119,000 $ 8,967,407 $ 1,028,720 10.2 % $ 1,151,593 12.8 % 47 Net sales for Fiscal Year 2023 increased by $1.0 billion, or 10.2%, to $11.1 billion compared to $10.1 billion for Fiscal Year 2022.
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.
The following table presents a reconciliation of net income (loss) to adjusted net income, as well as the calculation of adjusted basic and diluted earnings (loss) per share, for each of the periods indicated.
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.
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.
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.
Unless the context requires otherwise, references in this 10-K Report to “Chewy,” the “Company,” “we,” “our,” or “us” refer to Chewy, Inc. and its consolidated subsidiaries. Investors and others should note that we may announce material information to our investors using our investor relations website (https://investor.chewy.com/), filings with the SEC, press releases, public conference calls and webcasts.
We 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.
We continue to monitor conditions closely and adapt aspects of our logistics, transportation, supply chain, and purchasing processes accordingly to meet the needs of our growing community of pets, pet parents and partners. As our customers react to these economic conditions, we will adapt our business accordingly to meet their evolving needs.
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.
Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy; • adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital; • adjusted EBITDA does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction or initiative and include changes in the fair value of equity warrants, severance and exit costs, litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and • other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
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 view net sales per active customer as a key indicator of our customers’ purchasing patterns, including their initial and repeat purchase behavior. 45 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.
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”).
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 2023 (“10-K Report”).
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.
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. 42 We believe it is useful to exclude non-cash charges, such as depreciation and amortization and share-based compensation expense from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.
Operating and real estate lease obligations relate to fulfillment and customer service centers, corporate offices and certain equipment under non-cancelable operating leases, which expire at various dates through 2034. Real estate obligations include legally binding minimum lease payments for operating lease arrangements which have not yet commenced.
Operating and real estate lease obligations relate to fulfillment and customer service centers, corporate offices and certain equipment under non-cancelable operating leases, which expire at various dates through 2038. Real estate obligations include legally binding minimum lease payments for operating lease arrangements which have not yet commenced.
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.
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; transaction related costs; changes in the fair value of equity warrants; severance and exit costs; and litigation matters and other items that we do not consider representative of our underlying operations.
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.
Advertising and Marketing Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities. 46 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.
Our marketing expenses increased due to additional investment in our upper funnel marketing channels as well as expansion into new channels, contributing to new customer acquisition and an increase in wallet share from our large and stable customer base during Fiscal Year 2022.
Our marketing expenses increased due to additional investment in our upper funnel marketing channels as well as expansion into new channels, contributing to new customer acquisition and an increase in wallet share from our large and stable customer base during Fiscal Year 2023.
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.
We are the trusted source for pet parents and partners and continually develop innovative ways for our customers to engage with us. We partner with approximately 3,500 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding private brands.
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.
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 2023 to Fiscal Year 2022.
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.
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 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.
We calculate adjusted net income (loss) as net income (loss) excluding share-based compensation expense and related taxes, changes in the fair value of equity warrants, and severance and exit costs. 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.
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.
A similar discussion and analysis which compares Fiscal Year 2022 to Fiscal Year 2021 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 22, 2023, and is incorporated herein by reference.
Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the IRS, as well as actual operating results that may vary significantly from anticipated results.
Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the Internal Revenue Service, as well as actual operating results that may vary significantly from anticipated results.
The change in active customers in a reporting period captures both the inflow of new customers as well as the outflow of customers who have not made a purchase in the last 364 days.
The change in active customers in a reporting period captures both the inflow of new customers and the outflow of customers who have not made a purchase in the last 364 days.
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).
ABL Credit Facility We have a senior secured asset-based credit facility (the “ABL Credit Facility”) which matures on August 27, 2026 and provides for non-amortizing revolving loans in the aggregate principal amount of up to $800 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves).
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.
This was primarily due to an increase of $151.7 million in facilities expenses and other general and administrative expenses, principally due to business growth and new initiatives as well as the expansion of operations at corporate offices in Plantation, Florida, and Seattle, Washington.
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.
For additional information on derivative financial instruments, see Note 4 – Financial Instruments, in the “Notes to Consolidated Financial Statements” included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
(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.
(in thousands) Fiscal Year Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow 2023 2022 2021 Net cash provided by operating activities $ 486,211 $ 349,777 $ 191,743 Deduct: Capital expenditures (143,282) (230,310) (183,186) Free Cash Flow $ 342,929 $ 119,467 $ 8,557 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.
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.
Marketable securities consist primarily of U.S. treasury securities, certificates of deposit, and commercial paper and totaled $531.8 million as of January 28, 2024, an increase of $184.8 million from January 29, 2023. 48 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.
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.
Based on our borrowing base as of January 28, 2024, which is reduced by standby letters of credit, we had $759.0 million of borrowing capacity under the ABL Credit Facility. As of January 28, 2024, we had no outstanding borrowings under the ABL Credit Facility.
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.
This also included an increase of $77.0 million in fulfillment costs largely attributable to investments to support the overall growth of our business, including the costs associated with the launch of operations in Canada and the opening and operating of fulfillment centers in Reno, Nevada and Nashville, Tennessee, as well as an increase of $85.3 million in non-cash share-based compensation expense and related taxes.
Selling, General and Administrative Selling, general and administrative expenses for Fiscal Year 2022 increased by $298.9 million, or 16.4%, to $2.1 billion compared to $1.8 billion in Fiscal Year 2021.
Selling, General and Administrative Selling, general and administrative expenses for Fiscal Year 2023 increased by $314.0 million, or 14.8%, to $2.4 billion compared to $2.1 billion in Fiscal Year 2022.
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.
For additional information on deferred tax assets and liabilities, see Note 12 – Income Taxes, in the “Notes to Consolidated Financial Statements” included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report. 50 Financial Instruments We hold derivative asset financial instruments in the form of equity warrants in other companies.
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. 48 Investing Activities Net cash used in investing activities was $615.5 million for Fiscal Year 2022, which primarily consisted of $343.8 million for the purchase of marketable securities, net of proceeds from maturities, $230.3 million of capital expenditures, and $40.0 million for cash paid for acquisitions of businesses, net of cash acquired.
Net cash used in investing activities was $615.5 million for Fiscal Year 2022, which primarily consisted of $343.8 million for the purchase of marketable securities, net of proceeds from maturities, $230.3 million of capital expenditures, and $40.0 million for cash paid for acquisitions of businesses, net of cash acquired.
(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).
(in thousands, except per share data) Fiscal Year Reconciliation of Net Income (Loss) to Adjusted Net Income 2023 2022 2021 Net income (loss) $ 39,580 $ 49,899 $ (75,207) Add (deduct): Share-based compensation expense and related taxes 248,543 163,211 85,308 Change in fair value of equity warrants (13,079) 13,340 — Severance costs 14,348 — — Exit costs 6,839 — — Adjusted net income $ 296,231 $ 226,450 $ 10,101 Weighted-average common shares used in computing adjusted earnings (loss) per share: Basic 429,457 422,331 417,218 Effect of dilutive share-based awards (1) 2,583 5,439 10,068 Diluted (1) 432,040 427,770 427,286 Earnings (loss) per share attributable to common Class A and Class B stockholders Basic $ 0.09 $ 0.12 $ (0.18) Diluted (1) $ 0.09 $ 0.12 $ (0.18) Adjusted basic $ 0.69 $ 0.54 $ 0.02 Adjusted diluted (1) $ 0.69 $ 0.53 $ 0.02 (1) For Fiscal Year 2021, 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. 44 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 websites, mobile applications, software development, and leasehold improvements).
We believe it is useful to exclude changes in the fair value of equity warrants, because the associated variable gains and losses are not a component of our core business operations.
We believe it is useful to exclude changes in the fair value of equity warrants because the variability of equity warrant gains and losses is not representative of our underlying operations.
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.
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.
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.
Recent Accounting Pronouncements Information regarding recent accounting pronouncements is included in Note 2 – Basis of Presentation and Significant Accounting Policies, in the “Notes to Consolidated Financial Statements” included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
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.
Liquidity and Capital Resources We finance our operations and capital expenditures primarily through cash flows generated by operations. Our principal sources of liquidity are expected to be our cash and cash equivalents, marketable securities, and our revolving credit facility. Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market funds, U.S.
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.
Advertising and Marketing Advertising and marketing expenses for Fiscal Year 2023 increased by $93.1 million, or 14.3%, to $742.5 million compared to $649.4 million in Fiscal Year 2022.
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.
This increase was primarily due to the year-over-year increase in net sales as described above. Gross profit as a percentage of net sales for Fiscal Year 2023 increased by approximately 40 basis points compared to Fiscal Year 2022, primarily due to margin expansion across our healthcare, hardgoods, and private brands businesses.
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.
Net cash provided by operating activities was $349.8 million for Fiscal Year 2022, which primarily consisted of $49.9 million of net income, non-cash adjustments such as depreciation and amortization expense of $83.4 million and share-based compensation expense of $158.1 million, and a cash increase of $26.6 million from the management of working capital.
Interest Income (Expense), net Interest income for Fiscal Year 2022 increased by $10.9 million, to $9.3 million compared to interest expense of $1.6 million in Fiscal Year 2021. This increase was due to interest income generated by cash and cash equivalents and marketable securities exceeding interest expenses incurred.
Interest Income (Expense), net Interest income for Fiscal Year 2023 increased by $49.2 million, to $58.5 million compared to interest income of $9.3 million in Fiscal Year 2022. This increase was due in large part to interest income generated by investment of proceeds from the parent reorganization transaction, cash and cash equivalents, and marketable securities exceeding interest expenses incurred.
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.
Cash Flows Fiscal Year (in thousands) 2023 2022 2021 Net cash provided by operating activities $ 486,211 $ 349,777 $ 191,743 Net cash used in investing activities $ (287,363) $ (615,504) $ (193,272) Net cash provided by (used in) financing activities $ 71,598 $ (6,734) $ 41,261 Operating Activities Net cash provided by operating activities was $486.2 million for Fiscal Year 2023, which primarily consisted of $39.6 million of net income, non-cash adjustments such as depreciation and amortization expense of $109.7 million and share-based compensation expense of $239.1 million, and a cash increase of $105.7 million from the management of working capital.
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 are unable to predict the duration and ultimate impact of evolving macroeconomic conditions on the broader economy or our operations and liquidity. As such, macroeconomic risks and uncertainties remain. Please refer to the “Cautionary Note Regarding Forward-Looking Statements” and the section titled “Risk Factors” in Item 1A of this 10-K Report.
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.
The increase in cost of goods sold was lower than the increase in net sales on a percentage basis, reflecting supply chain efficiency gains across our fulfillment network. Gross profit for Fiscal Year 2023 increased by $327.0 million, or 11.5%, to $3.2 billion compared to $2.8 billion in Fiscal Year 2022.
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 (in thousands, except net sales per active customer, per share data, and percentages) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Financial and Operating Data Net sales $ 11,147,720 $ 10,119,000 $ 8,967,407 10.2 % 12.8 % Net income (loss) (1) $ 39,580 $ 49,899 $ (75,207) (20.7) % 166.3 % Net margin (1) 0.4 % 0.5 % (0.8) % Adjusted EBITDA (2) $ 368,068 $ 306,739 $ 77,474 20.0 % 295.9 % Adjusted EBITDA margin (2) 3.3 % 3.0 % 0.9 % Adjusted net income (2) $ 296,231 $ 226,450 $ 10,101 30.8 % n/m Earnings (loss) per share, basic (1) $ 0.09 $ 0.12 $ (0.18) (25.0) % 166.7 % Earnings (loss) per share, diluted (1) $ 0.09 $ 0.12 $ (0.18) (25.0) % 166.7 % Adjusted earnings per share, basic (2) $ 0.69 $ 0.54 $ 0.02 27.8 % n/m Adjusted earnings per share, diluted (2) $ 0.69 $ 0.53 $ 0.02 30.2 % n/m Net cash provided by operating activities $ 486,211 $ 349,777 $ 191,743 39.0 % 82.4 % Free cash flow (2) $ 342,929 $ 119,467 $ 8,557 187.0 % n/m Active customers 20,083 20,405 20,663 (1.6) % (1.2) % Net sales per active customer $ 555 $ 496 $ 434 11.9 % 14.3 % Autoship customer sales $ 8,493,199 $ 7,407,930 $ 6,324,145 14.7 % 17.1 % Autoship customer sales as a percentage of net sales 76.2 % 73.2 % 70.5 % n/m - not meaningful (1) Includes share-based compensation expense, including related taxes, of $248.5 million, $163.2 million, and $85.3 million, for Fiscal Year 2023, Fiscal Year 2022, and Fiscal Year 2021, respectively.
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.
For additional information related to this restatement, see section titled Basis of Presentation in Note 2 – Basis of Presentation and Significant Accounting Policies, in the “Notes to Consolidated Financial Statements” included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report. 41 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.
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.
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. 49 Financing Activities Net cash provided by financing activities was $71.6 million for Fiscal Year 2023, and consisted of $60.6 million of proceeds from the parent reorganization transaction and $22.0 million of capital contributions from the parent reorganization transaction, partially offset by $10.3 million of payments made pursuant to the tax sharing agreement with related parties, principal repayments of finance lease obligations, and payment of debt modification costs.
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.
Through our websites and mobile applications, we offer our customers approximately 115,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service. Macroeconomic Considerations Evolving macroeconomic conditions, including rising inflation and interest rates, have affected, and continue to affect, our business and consumer shopping behavior.
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.
Cost of Goods Sold and Gross Profit Cost of goods sold for Fiscal Year 2023 increased by $701.7 million, or 9.6%, to $8.0 billion compared to $7.3 billion in Fiscal Year 2022. This increase was primarily due to an increase in associated product, outbound freight, and shipping supply costs.
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.
This increase was primarily driven by growth in customer spending from both new and existing customers, and the frequency with which customers purchase and subscribe to our Autoship subscription program. Net sales per active customer increased $59, or 11.9%, to $555 in Fiscal Year 2023 compared to Fiscal Year 2022, driven by growth across our consumables and healthcare businesses.
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.
As of January 28, 2024, operating and real estate lease obligations included legally binding minimum lease payments of $900.4 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.
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.
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 2023 fiscal year ended January 28, 2024 and included 52 weeks (“Fiscal Year 2023”). Our 2022 fiscal year ended January 29, 2023 and included 52 weeks (“Fiscal Year 2022”).
Other Income (Expense), net Other expenses for Fiscal Year 2022 were $13.2 million and consisted of a change in the fair value of equity warrants, partially offset by foreign currency transaction gains. Liquidity and Capital Resources We finance our operations and capital expenditures primarily through cash flows generated by operations and equity offerings.
Other Income (Expense), net Other income for Fiscal Year 2023 increased by $26.5 million, to $13.4 million compared to other expense of $13.2 million. This increase consisted of changes in the fair value of equity warrants and investments as well as foreign currency transaction gains.
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.
Investing Activities Net cash used in investing activities was $287.4 million for Fiscal Year 2023, primarily consisting of $143.7 million for the purchase of marketable securities, net of maturities and $143.3 million for capital expenditures related to the launch of new and future fulfillment centers and additional investments in technology hardware and software.
(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.
(in thousands, except percentages) Fiscal Year Reconciliation of Net Income (Loss) to Adjusted EBITDA 2023 2022 2021 Net income (loss) $ 39,580 $ 49,899 $ (75,207) Add (deduct): Depreciation and amortization 109,693 83,440 55,319 Share-based compensation expense and related taxes 248,543 163,211 85,308 Interest (income) expense, net (58,501) (9,290) 1,641 Change in fair value of equity warrants (13,079) 13,340 — Income tax provision 8,650 2,646 — Severance costs 14,348 — — Exit costs 6,839 — — Transaction related costs 7,827 3,953 2,423 Other 4,168 (460) 7,990 Adjusted EBITDA $ 368,068 $ 306,739 $ 77,474 Net sales $ 11,147,720 $ 10,119,000 $ 8,967,407 Net margin 0.4 % 0.5 % (0.8) % Adjusted EBITDA margin 3.3 % 3.0 % 0.9 % 43 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.
Removed
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.
Added
Our 2021 fiscal year ended January 30, 2022 and included 52 weeks (“Fiscal Year 2021”). We have provided restated financial and operating data for the historical comparative periods in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this 10-K Report.
Removed
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”).
Added
We believe it is useful to exclude severance and exit costs because these expenses represent temporary initiatives to realign resources and enhance operational efficiency, which are not components of our core business operations.
Removed
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.
Added
We believe it is useful to exclude severance and exit costs because these expenses represent temporary initiatives to realign resources and enhance operational efficiency, which are not components of our core business operations.
Removed
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.
Added
Treasury securities, certificates of deposit, and commercial paper. Cash and cash equivalents totaled $602.2 million as of January 28, 2024, an increase of $270.6 million from January 29, 2023.
Removed
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.
Added
Cash increases from working capital were primarily driven by an increase in other current liabilities and payables, partially offset by an increase in other current assets, inventories, and receivables.
Removed
Cash and cash equivalents totaled $330.4 million as of January 29, 2023, a decrease of $272.6 million from January 30, 2022, primarily driven by our investment in marketable securities during Fiscal Year 2022.
Added
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.
Removed
As of January 29, 2023, operating and real estate lease obligations included legally binding minimum lease payments of $877.5 million.
Removed
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.
Removed
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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed4 unchanged
Biggest changeAny 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
Biggest changeAny 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. 51

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