Ladies and gentlemen, thank you for standing by. Welcome to the Chewy First Quarter 2024 Earnings Call. All lines have been placed on mute during the presentation portion of the call, with an opportunity for question and answer at the end. If you'd like to ask a question, please press Star followed by one on your telephone keypad. I would now like to turn this conference call over to our host, Jennifer Hsu, VP of Investor Relations. Please go ahead. Thank you for joining us on the call today to discuss our first quarter results for fiscal year 2024. Joining me today are Chewy's CEO, Sumit Singh, and CFO, David Reeder. Our earnings release, which was filed with the SEC earlier today, has been posted to the investor relations section of our website. In addition to the earnings release, a presentation summarizing our results is also available on our website at investor.chewy.com. On our call today, we will be making forward-looking statements, including statements concerning Chewy's financial results and performance, industry trends, strategic initiatives, share repurchase program, and the environment that we operate in. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks, uncertainties and other factors described in the section titled Risk Factors in our quarterly report on Form 10-Q, filed earlier today, and in our other filings with the SEC, which could cause actual results to differ materially from those contemplated by our forward-looking statements. Reported results should not be considered an indication of future performance. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided on our investor relations website and in our earnings release, which was filed with the SEC today. These non-GAAP measures are not intended as a substitute for GAAP results. Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2023. Finally, this call in its entirety is being webcast on our investor relations website. A replay of the audio webcast will also be made available on our investor relations website shortly. I'd now like to turn the call over to Sumit. Thank you, Jen, and thank you all for joining us on today's call. We kicked off the year with strong performance, achieving solid top-line results, record-breaking profitability and robust free cash flow. First quarter success is a testament to the unwavering dedication and hard work of every Chewy team member, collectively delivering on our mission to be the most trusted and convenient destination for pet parents and partners everywhere. With that introduction, let's dive in into first quarter results. Q1 net sales exceeded the high end of our guidance range, increasing by approximately 3% to $2.8 billion. Two key factors contributed to this performance. First, our customers' loyalty in non-discretionary categories such as consumables and health, remained strong, accounting for approximately 85% of our Q1 2024 net sales. Second, Autoship customer sales achieved record levels, totaling $2.2 billion and representing 77.6% of net sales. The convenience and value of our Autoship program continues to resonate with customers, and Autoship customer sales growth outpaced our enterprise average, yet again, increasing 6.4%. Our Autoship customer base remains healthy and is continuing to grow. Further, on the topic of customers, this quarter, we saw some encouraging customer trends. The work we have been doing to sharpen our already strong value proposition, for example, through pet type personalization, began to pay off this quarter. Our efforts are driving higher response rates and had a positive effect on net new customers as well as reactivated customers, which were particularly strong in the quarter and up mid-teens relative to the prior year period. Notably, for the first time since 2022, both new customer acquisition and reactivation modestly exceeded our internal expectations in Q1. Progressing through the P&L, we set new records for the company across our profitability metrics. Gross margin for the quarter of 29.7% exceeded expectations as we benefited from the continued strength of our growing sponsored ads business, a higher mix shift into healthcare and a rational promotional environment. Additionally, there were some one-time items that benefited our P&L this quarter, which Dave will elaborate upon later in this call. We generated $163 million of adjusted EBITDA, representing a 5.7% margin, supported by our strong gross margin performance and rigorous OpEx management. Across the company, teams at Chewy are executing methodically on all the controllable elements of our business in a highly disciplined manner. Finally, we generated more than $50 million of free cash flow in the quarter. From both a profitability and cash generation perspective, we believe that we have reached an exciting inflection point in our business. Significant free cash flow generation, coupled with our strong balance sheet, enables us the financial flexibility to deploy our capital in a variety of areas. As we have always done, we will continue to invest in strategic initiatives across our business that support our long-term growth and margin objectives. Additionally, as Dave will describe in more detail, we believe we have the cash generation and surplus to begin returning a meaningful portion of our cash to our shareholders. Now, I'd like to provide an update on some of Chewy's strategic initiatives and innovations. I'm excited to share that earlier this month, we launched a compelling paid membership program, which we are calling Chewy Plus. Chewy Plus offers a range of benefits, including free shipping, cash accrual rewards, and exclusive member perks. The program is currently in its beta state, and throughout the year, we will explore different test and learn approaches to understand how it impacts discovery of our growing products and services, wallet consolidation, and NSPAC acceleration, all while maintaining economic sensibility. We are excited about the program and look forward to sharing more over the coming quarters. Turning to Chewy Health, we are excited to share that since our last earnings calls, where we announced the launch of our first Chewy Vet Care clinic, located near our company headquarters in Plantation, Florida, we have opened three additional Chewy Vet Care clinics, two locations in the Greater Atlanta, Georgia area, and one in Denver, Colorado. With 4 locations open today, we are excited to bring to market several more clinics later this year, reaching the high end of our stated range of 4-8 clinic openings in 2024. We remain focused on our ability to attract talent and our capacity to generate strong demand for our veterinary services. Although it is early days, we are pleased with the performance across both areas. Clinic staffing and vet NPS scores remain strong, suggesting to us that our unique value proposition is resonating with vets. As it relates to demand generation, we are encouraged by the early signs of success we are observing. Net new customers to Chewy and appointment utilization are both trending better than our modeled expectations. Moving to our Sponsored Ads business. Our ads business continues to ramp well, delivering on the planned product roadmap of new digital products, while offering our partners a compelling and high ROI channel to deploy their marketing dollars. As we articulated at our Investor Day, long-term, we see our sponsored ads business scaling to approximately 1%-3% of net sales at attractive flow-through to the bottom line. Lastly, our expansion into Canada continues to ramp in line with our expectations. We rolled out customer-facing features such as mobile app and additional payment options as planned this quarter. Additionally, we continue to expand our assortment, particularly in categories such as premium consumables. Customer awareness and demand continues to gradually build. Customer NPS remains high, and we remain focused on scaling a quality business underpinned by programs such as Autoship and personalized customer care. With the pet category continuing its migration online, we believe we are well positioned to become a meaningful player in the Canadian market over time. In closing, our Q1 outperformance underscores our ability to successfully navigate this period of normalization for the pet industry. Moreover, we are cautiously optimistic that pet household formation trends are progressing in the right direction. Based on data from our shelter and rescue partners, we saw healthy growth rates in Q1 adoption on a year-over-year basis, and for the first time since 2022, we observed a positive balance between adoptions and relinquishment. While it is premature to declare an industry turnaround, we maintain our perspective that the pet industry is on track towards normalization. Meanwhile, we remain confident in our ability to execute against our strategic roadmap and to deliver compelling results for our shareholders. With that, I will turn the call over to Dave. Thank you, Sumit. To start, I will take us through our Q1 financial results and then turn to our capital allocation strategy and outlook for the balance of the year. First quarter net sales grew 3.1% to $2.88 billion, exceeding the high end of our guidance range. Broadly in line with expectations, active customers declined marginally on a sequential basis to approximately 20 million, modestly exceeding our internal expectations. Importantly to note, we believe that we are seeing early but positive signals with respect to macro pet household formation, and we believe that our enhanced CRM initiatives are beginning to bear fruit. Net sales per active customer and NSPAC reached $562, reflecting an increase of 9.6%. NSPAC growth meaningfully outpaced our overall top-line growth, driven by our ability to increase wallet share as customer cohorts mature and continued strong engagement, particularly in programs like Autoship and expansion into new categories, namely within Chewy Health. Our scaled Autoship business continues to be a pillar of strength and differentiation for Chewy, driving predictable subscription-like revenue. Autoship customer sales came in at $2.2 billion in Q1, representing 77.6% of our total net sales in the quarter, up 240 basis points on a year-over-year basis. We reported Q1 gross margin of 29.7%, representing a 130 basis point increase year over year, and a 150 basis point increase sequentially. As Sumit previewed, Q1 gross margin benefited from certain one-time items, such as the timing of vendor reimbursements, lower fuel costs, and lower than expected promotionality. Adjusted for one-time items, Q1 gross margin would have landed at approximately 29%, reflecting approximately 60 and 80 basis points of year-over-year and sequential improvement, respectively. On a year-over-year basis, our sponsored ads program was the largest driver of our gross margin improvement, followed by product mix as Chewy Health and premium consumables net sales penetration expanded. These benefits were partially offset by a normalized discounting environment. It is worth a reminder that in Q1 2023, the promotional environment was operating below historical levels. Moving to OpEx, please note that my discussion of SG&A includes share-based compensation, expense, and related taxes.... OpEx in the quarter continued to scale nicely with revenue. First quarter SG&A totaled $533.1 million, or 18.5% of net sales, representing 50 basis points of improvement on a year-over-year basis, and 150 basis points of improvement sequentially. This leverage was driven by our continued disciplined management of payroll, with headcount across both our corporate and fulfillment network team members moderating favorably throughout the quarter and ending Q1 lower than planned. Additionally, we drove greater efficiency from our personnel in areas such as customer service and delivered improved cost management of G&A expenditures. First quarter advertising and marketing expense was $186.8 million, or 6.5% of net sales. I would note that we expect our advertising and marketing expense to run closer to the high end of our stated 6%-7% target throughout the balance of the year, due to the timing of certain marketing campaigns. First quarter adjusted net income was $137.1 million, representing a 56% increase year over year and a 71% increase sequentially. Finally, we reported an adjusted EBITDA margin of 5.7% for the quarter, or 170 basis points of margin expansion relative to Q1 2023, and 260 basis points of margin expansion sequentially. Adjusted EBITDA margin for the quarter exceeded our expectations due to better-than-expected gross margin and lower OpEx in the quarter, as I described earlier. Overall, we are incredibly encouraged by the operating leverage we are unlocking in the business, which demonstrates the scalability of our cost structure. In turn, this leverage enables us to invest in accretive growth and profit initiatives. In the first quarter, we reported free cash flow of $52.6 million, reflecting $81.9 million of net cash provided by operating activities and $29.3 million of capital expenditures. We ended the quarter with more than $1.1 billion in cash, cash equivalents, and marketable securities, and we remain debt-free with a strong liquidity position of $1.9 billion. In light of our expanding free cash flow generation, I would like to share an update with you regarding our capital allocation strategy. Reinvesting back into the business towards high ROI opportunities remains our first priority. Our strong balance sheet further provides us with sufficient firepower to pursue value accretive acquisitions and strategic investments if and when such opportunities arise. Having taken all of this into account, we believe our growing cash position affords us the ability to further enhance shareholder returns by way of implementing a share repurchase program. Today, I am excited to share that our board of directors has authorized Chewy's first-ever share repurchase program of up to $500 million. In light of our strong balance sheet, track record of margin expansion, and long-term strategy, which we expect will continue to deliver incremental profitability, we believe share repurchases offer a compelling and accretive use of capital, while also enabling us to mitigate the dilutive impact related to share-based compensation. We intend to commence repurchasing shares this quarter and look forward to providing you with updates as we progress through the program. Now, I'd like to turn to our second quarter and updated full year 2024 guidance. While we are seeing certain green shoots and demand trends, we believe it is premature to revise our view on the pet industry's overall outlook for the balance of the year. We are, however, incredibly pleased with our team's execution, irrespective of environment, and our ability to exceed expectations with respect to profitability. With that, we anticipate second quarter net sales of between $2.84 billion-$2.86 billion, or approximately 2%-3% year-over-year growth, and we are maintaining our full year 2024 net sales outlook of between $11.6 billion-$11.8 billion, or approximately 4%-6% year-over-year growth. As noted last quarter, this range includes the impact of a 53-week 2024 fiscal year, and the 53rd week will be fully reflected in the fourth quarter of 2024. Moving to profitability guidance, we are raising our full year 2024 adjusted EBITDA margin guidance to a range of 4.1%-4.3%. This reflects 20%+ adjusted EBITDA flow through at the midpoint of our guidance ranges, notably above the average of 15% flow through that we expected to deliver on a per annum basis. Similar to the 2023 quarterly profile, we expect first quarter results to represent the high point of 2024 adjusted EBITDA margin, and we expect margin to decline sequentially throughout the year, averaging to the aforementioned guidance range. We continue to expect full-year capital expenditures in the range of 1.5%-2% of net sales and free cash flow conversion to remain above 80%. Before we open the call to questions, I'd like to reiterate that we are incredibly proud of our strong start to the year. We continue to believe that Chewy is exceptionally well equipped to execute against our strategic roadmap, deliver compelling results, and drive shareholder value. I'd like to thank all of our dedicated Chewy team members for their collective efforts and execution in the quarter as we advance our enduring mission of being the most trusted and convenient destination for pet parents and partners everywhere. With that, I will turn the call over to the operator for questions. Thank you. If you would like to register a question, please press Star followed by one on your telephone keypad, ensuring your line is unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing Star followed by two. In the interest of time, we ask that you limit yourself to one question and one follow-up, please. Our first question comes from the line of Trevor Young of Barclays. Your line is now open. Please go ahead. Great, thanks. First one on the net adds, improving a bit Q on Q versus the prior trends, and appreciate some of the commentary on the, the improving macro. Should we still contemplate kind of a softer 1H and a back half inflection? And is that really a, kind of a 2H uptick, or is it more so a 4Q story? That's my first question. Morning, Trevor. Yes, similar to the guidance or consistent with the guidance that we provided last quarter. Year-over-year, we expect active customers to be pretty flat, slightly down in the first half, with some recovery in the second half, but very consistent with what we said last quarter. Did you have a follow-up? Oh, yeah. And on the launch of the four vet centers, how should we think about measuring progress there? What sort of guideposts are you gonna give us in the coming quarters to kind of track that ramp? And how many quarters do you expect a typical center to get to EBITDA breakeven? Hey, Trevor, this is Sumit. I'll start and give my take here. So, yeah, as we've articulated in the past, there are a few dimensions that we are viewing success from. You know, the inputs that we will be highly focused on are, A, customer satisfaction scores, both across sort of key customers to Chewy or customers to Chewy and to vets and for the veterinarian community. Number two is our ability to recruit, staff and retain veterinarians. So it's demand generation, vet retention, and, and, and recruitment. And the third one is, operational execution throughout these clinics. And so far, what we are seeing, we're actually happy with. Our clinics are fully staffed. We have a good building pipeline for future clinics that we're contemplating at this point. And so, you know, as we roll these through, the initial returns, as we sort of mentioned in the earnings script around net new customer acquisition traffic or demand generation trends or vet recruitment trends, are all trending positive. In terms of returns, you know, this is not a multiyear observation period. This is likely a few quarter observation period, and we'll be back with more. Dave? Yeah, I'd reiterate what Sumit said, and I would just add that, you know, as we're currently running ahead of our internal models, and we do still expect, you know, towards the end of this year to release some type of white paper after we get a little bit more learning through the testing process here. But I would say cautiously optimistic on the initial clinics that we've launched. Great. Thank you both. Thank you. The next question comes from Rupesh Parikh of Oppenheimer. Your line is now open. Please go ahead. Good morning, and thanks for taking the question. So first, just on the share buyback program. I'm just curious how you approach share buybacks. You know, is it more of an opportunistic strategy or more of a consistent cadence to offset dilution? Sure. Good morning, Rupesh. From a share repurchase perspective, I think I'd start with, you know, we're gonna be in the market this quarter, here in second quarter. We're very pleased with our cash generation. Last year, we delivered well over 80% conversion of adjusted EBITDA to cash. We've guided again for this year to do the same. So very happy with our current balance sheet position of cash, $1.1 billion, and our future cash generation. With respect to how we'll be in the market, we think this is an attractive valuation, at this stage. So we have plenty of capital. We have the authorization from the board. We have the willingness to enter the market, and I think you'll see us enter the market on the share repurchase side, both opportunistically as well as somewhat consistently and methodically. So we'll do both. Did you have a follow-up, Rupesh? Yeah, yeah, just one follow-up question. So as we look at the hard goods category, so it declined this quarter. As you look at the category, are you guys seeing any green shoots in hard goods at this point, or is it... or do you expect challenges to continue in the near term? Hey, Rupesh, this is Sumit. So yes, your observation is correct about, you know, us being able to arrest sort of declining trends that we've been seeing. So we saw a couple of things. From an industry point of view, you know, this is sort of the encouragement that we pushed through in the script as well. You know, search volume for hard goods was up, intent was up, and after a long period, we saw, you know, consumers, you know, return with specific categories that they're declaring intent for. This is likely tied to the adoption and relinquishment trend that was mentioned in the script, so these inputs kind of move together. On our side, you know, we saw traffic, you know, our traffic has continued to increase in the low- to mid-single-digit every period this year, and year to date, we're up about mid-single digits as well. You know, secondly, we saw, you know, the rate of hardgoods decline, you know, arrested inside the company. We've actually cut it by to the tune of high teens, you know, and, and to the, to the low thirties percent, starting from where we started the year. So it's encouraging. And, you know, we're not sort of resting. We know the, the environment will take a little bit of time to normalize here, so everything that is controllable on our side, you know, we've put, you know, our best talent on this type of stuff. We are looking at, you know, turning all knobs and levers while being economically sensible about how we both generate demand as well as maximize demand conversion for our categories. That's a general comment for the way that we're gonna play through 2024 and especially true for hard goods. Great. Thank you for all the color. Sure. The next question comes from Doug Anmuth of J.P. Morgan. Your line is now open. Please go ahead. ... Thanks so much for taking the questions. Sumit, you talked about sponsored ads being the biggest driver of gross margin upside. Maybe you can just talk a little bit about the early feedback that you're hearing from marketers, and if you have any thoughts on quantifying the impact here early on. And then second, just on Chewy Plus, anything you can add on how the rollout might proceed going forward and how that kind of interacts with Autoship? Thanks. Sure. I'll make the gross margin question a bit longer, Doug, so just kind of fair warning. But let's start with the question that you asked. So sponsored ads, you know, we're seeing good response curve. Last quarter, I mentioned us bringing forward even more products to life, such as branded, you know, branded, search ads on the platform. We've done that now. We've improved and increased the inventory, as well as improved on the efficacy of return that we're seeing internally. And the demand, you know, that flowed through in first quarter were stronger than our forecast. And so, you know, all of that is positive. We're on track to, you know, exit the year with the low end of the 1%-3% range that we've guided for, which is consistent with what we communicated a few months ago. So all's good on this side. In terms of just if you back out and sort of look at the forest from the trees here, so to say, you know, gross margin improvement has been a journey over the last few years, right? And we've consistently talked about the building blocks of gross margin, starting from, you know, strong Netback development, you know, premiumizing the business, achieving stability in the economies of scale, improving freight and logistics. All of that, you know, the work that we've been working through sort of the last three, four years is starting to culminate. And then there are these newer green shoots, such as Sponsored Ads, which are now starting to compound, you know, the yield that you're seeing, pass through. Right, so overall, we remain bullish on the gross margin story. We haven't yet started talking about our private brands business credibility, which is something that we're excited about. You know, our other components of our health businesses are native or nascent. Well, they're both native and they're nascent. And you know, we're excited about the potential that they might contribute in the future. So there's a lot of irons in the fire, and we're excited about the gross margin journey here. Number two, Chewy Plus rollout and how it interacts, is that Autoship? Okay. So that's a great question and a very insightful one. You know, we believe, first of all, we're being very thoughtful. We've invited, you know, in beta, a cohort of customers, which is well represented across, you know, their buying kind of behavior and their pet type. You know, and we've also sort of diversified the thinking around across Autoship and non-Autoship customers. We see these two really nested and complementary to each other. I mean, think of—I mean, why, why wouldn't you be attracted to a message that says, "Hey, here's a paid membership program that gives you all of these perks. And oh, by the way, if you want even greater savings and, and convenience, subscribe to Autoship," and the whole thing just compounds on, on itself. And vice versa, Autoship can be an attractive funnel of entry, which it currently is. And then you essentially approach pro-, you know, customers with saying, "Look, like, price of the program is less than what you pay for a latte. And, you know, for all of this, you get, you get all these great benefits." So we believe, you know, the behaviors that we want to sort of incent and observe are consistent in terms of, repeat purchase rate, Netback, basket building engagement, so forth and so on. Lots to learn in front of us, but so far we're, we're, we're thinking of these as complementary programs. Thank you, Sumit. Sure. The next question comes from the line of Eric Sheridan of Goldman Sachs. Your line is now open. Please go ahead. Thank you, so much. Maybe if I could just ask a two-parter. When you see the environment you're characterizing with respect to customer dynamics, can you give us a little bit better sense of what your priorities are on the marketing side when you think about the skew of either acquisition of new net customers versus retention or incentivizing, behavior among existing customers that might maximize for ROI against those marketing investments? And then the second part would be, you talked about marketing being towards the upper band of what you've historically talked about in terms of a range. Is that brand spend, is that lined up against Plus, following up on Doug's question? Or, how would you characterize what's pushing the upper band of that spend as we go through this year, just so we know what that's sort of aimed at? Thank you so much. Sure, Eric, this is Sumit. I'll start, and Dave might add as pertinent. So good question on the current dynamic and marketing priorities. Think of it this way: we're focused on... First of all, you know, these are two independent efforts around new customer acquisition, as well as the CRM reactivation or retention of cohorts. They're led by two teams, and the redundancies are avoided when we make sure that we're not passing the same customer back and forth to each other, right? So we're being careful about that. So now, when you look at, you know, the marketing efforts, you could essentially think of this as a full funnel marketing effort. So we are building awareness up in the upper funnel, and our awareness and our familiarity levels have increased, you know, several hundred basis points, particularly as it comes to Gen Z and the millennial segment, which is something that we were internally focused on and something that we're happy about. So, you know, as a result of that, you know, we want to capture incremental traffic that comes to the website, so we are spending to capture that incremental traffic. And once you come to the website, or when customers declare, you know, kind of intent at the lower funnel, then they're primed for conversion, which, you know, the efforts that we're putting across our site then allows you to sort of say: What type of conversion do we want? Is it a net new conversion, or is it an existing customer that wants to come back? LTV type of category. So it's the full funnel effort that we're essentially spending money across. You'll recall a couple of quarters ago, perhaps two quarters ago, I'd mentioned to you that we now have the ability to segment and target, you know, our cohorts because we've rebuilt the entire customer content platform internally inside the company. And so that allows us, you know, more precise targeting once we identify a customer, even with the loss of kind of targeting, because we have fingerprinting ID that we can sort of associate the customer back to an account, you know, or back to their browse behavior per se. So this type of work is exciting to us in the future. As the market kind of recuperates or shows signs of recovery, you know, we hope and we believe that this will compound and generate greater returns. In terms of the marketing spend, you know, look, I mean, it's a tight range, 6%-7%, and so the variance is not that much. There's a lot of year to play through, and we want to retain the option value, you know, of A, making sure that all of the nascent efforts that we've got going on, if we see the need to invest, we can essentially lean in and do that, or if we see the market change in one direction or the other, then we can respond to that. Yeah, and perhaps just for clarification of the guidance, you know, in 2023, advertising and marketing was about 6.7% of sales. We've historically guided from 6%-7% of net sales. First quarter, just due to some timing of some marketing campaigns, was a little bit lower. It was about 6.5%. And so for the remainder of the year, what we articulated in our prepared commentary was that we would be towards the higher end of the 6%-7% range for the rest of the year, landing ultimately probably in a spot that's somewhat similar to 2023. Great. Thank you. The next question comes from the line of Nathan Feather of Morgan Stanley. Your line is now open. Please go ahead. Hey, everyone. Thanks for the question. So in 1Q, sales came in a bit above your guidance. Where did you see that outsized strength? Anything you can share on how that evolved over the quarter, given the green shoots you called out along with 2Q quarter date? Thanks. Sure. Let me start and then, Sumit, if there's anything you wanna, you wanna highlight, feel free. First quarter, as you, as you highlighted, we ended up, you know, from an EBITDA margin perspective at 5.7%, gross margin percentage of 29.7%. So due to some one-time items, and primarily in gross margin, if you excluded those items, we would have ended at about 29%, and that's what we articulated in the prepared commentary. When you think about the underlying drivers, that's driving the gross margin increase from Q1 of last year to really, let's call it a normalized Q1 of this year, it's really our improvement in product mix, which we expect to continue as, as we work through time here. We are mixing up our business, being led by sponsored ads, also being led by healthcare and within healthcare, pharmacy. So we do continue to continue to accrete product margin and product mix, which is averaging up our business, which, of course, gives us that confidence that that we presented at Capital Markets Day in December of last year. To ultimately, over time, get to that 10% EBITDA margin marker that that we placed out there. So on a go-forward basis, you know, really, I would summarize by saying continued improvement in product mix, continued scaling of the business, and the scaling of the business is really associated, one, with our fixed cost infrastructure, which is at scale, and more of a kind of run, maintain mode at this stage, although with ongoing productivity improvements. Our digital infrastructure, which is also at scale, albeit with continued improvements in rollouts and capabilities and features. Improving product mix, scaling infrastructure, increasing margin, and profitability. Did you have a follow-up, Nathan? Yeah, just... and as we think about the top-line guidance, what we exceeded there for 1Q, and then anything you can share kind of quarter-to-date and 2Q, how those green shoots are kind of flowing into your progress? Sure. So from a top-line perspective, I would say broadly in line with our guidance, obviously at the high end of the range or slightly above the high end of the range. As we look across the outlook for this year, I would say that our sentiment is pretty much very much in line with what we communicated last quarter for the full year, which is why we held our guidance for the year of $11.6 billion-$11.8 billion. And as we take a step back and we say, well, what did we see that leads to the commentary that we think the industry is continuing to normalize, and maybe there's, you know, a precursor to green shoots that we're seeing in the market. Number 1, for the first time since 2022, we had more adoptions versus relinquishments in our pet shelter data that we received from the many pet shelters around the U.S. that we collect data from. So that was a positive signal. And then also internally specific to Chewy, for the first time since 2022 as well, we actually exceeded our own internal models and forecasts for active customers, and that was really driven by net new customers as well as by reactivations of prior customers. So those are the two metrics that we're kind of looking at, that we're seeing, I would say, some signs of normalization in the industry. It's probably premature to determine that the industry is gonna be fully normalized this year, but certainly we're seeing what we think are signs of green shoots. The next question comes from the line of Stephen Forbes of Guggenheim Partners. Your line is now open, please go ahead. Good morning, Sumit, David. Hey, Sumit, realizing it's probably early, but you sound pretty optimistic about the veterinary care clinics. So I was curious if you could maybe speak to what you're seeing in regards to the customer journey in new versus existing Chewy.com account members, repeat trends, transfer rate right over to other product categories. I mean, what's sort of underpinning the excitement and the optimism around maybe a more accelerated rollout? Hey, Steve, I'll try to satisfy your curiosity, might not be able to get into it in too much detail, but let's look at it. So, you know, why I sound optimistic is, you know, because we believe the inputs are thoughtfully planned and designed, and the outputs are responding, you know, as expected or better than our plan. So what are these inputs? You know, as you know, we've very thoughtfully designed the clinic, both the infrastructure as well as the experience that we're providing to the customers. It's modern, it's customer forward, it's veterinarian forward. And so, you know, it's just a we expect to be able to cash in on that tailwind. And you're seeing that, right? Response rates have been really good, customer NPS is really strong, vet NPS is really strong. Number two, you know, what plagues the industry is really vet recruiting, and in parallel or very next to it is vet retention. You know, vets are stressed, capacity is going to continue to outrun, you know, or underrun the vet demand. And so from that standpoint, you know, getting a team that is motivated is very important, and we believe we have the right, you know, attractive value proposition to be able to attract vets. And then three, when we look at demand generation trends, when we look at, you know, the sell-through rate of the membership plans in the clinic, when we look at new customer versus existing customer mix, when we look at the repeat purchase rate of appointments that have been signed up, you know, these are all indicative, kind of, metrics that suggest, you know, a future, you know, larger building, and more profitable business. So, it's a bit of a long-winded answer, but hopefully you understand sort of the how we're evaluating the inputs and then what our expectations are. No, that's great to hear. And then maybe just a quick follow-up for David. Maybe if you could expand on the expectation. I think your comments for margins to decline sequentially throughout the year, if I heard you correctly. I get the step up in advertising expenses that you guys have called out very specifically, but maybe just help us on what would be the, like, incremental pressure on margins 3Q over 4Q, 4Q over 3Q. Sure. And for clarity, you're referring to EBITDA margin, or at least I was referring to EBITDA margin in the prepared commentary. So first, let me kind of start at a high level. You know, we're just incredibly excited about our ability to drive continued auto ship penetration, as well as continuing to provide product mix shift into areas such as sponsored ads and healthcare. And if we continue to perform and execute as we did in the first quarter, then we're gonna have a very good year, and we would expect to be aligned more towards the high end of our range, versus the lower end of our range. And from a seasonality perspective, if you look at 2023, we did guide that the profile this year would look similar to that. So I think kind of a step down in EBITDA margin from kind of the, you know, the first part of the year, all the way through the, you know, the fourth quarter of the year would be somewhat normal and and customary of a normalized market, and so that's what we've kind of indicated. And then finally, you know, talking about the lower part of the range. You know, the lower end of the range would really require something significant softening in either macroeconomic environment or the pet industry or, you know, perhaps the more aggressive promotional environment, which are all things that that we're not currently seeing. And so we feel good about what we delivered in first quarter. We feel good about the long-term trends for us to continue to product mix up our business, both in sponsored ads, into healthcare and pharmacy, ultimately into vet clinics as well. And we think the year, from a profile perspective, looks pretty similar in 2024 to what it looked like in 2023. Thank you. The next question comes from the line of Michael Lasser of UBS. Your line is now open, please go ahead. Thank you for taking the question. This is Sachin Verma on behalf of Michael Lasser. The question is: when do you expect your year-over-year customer counts to turn positive, and longer term, what will drive higher e-commerce penetration in the category, given the growth that has seen in the last few years? Maybe I'll start on year-over-year customer counts, and Sumit, please chime in if you have anything to add. And so, as we mentioned last quarter, we did expect this year to be relatively flat from an active customer account with a little bit weaker, kind of flat, slightly down, maybe in the first half, flat, slightly up in the second half, but ultimately for the full year period looking pretty flat 2024 to 2023. In terms of what we saw in the first quarter, we saw kind of exactly what we expected, albeit with one slight difference, and that was that we actually exceeded our internal forecasts with respect to active customer accounts driven by both new customer adds as well as an increase in reactivations. And in addition to that, as I mentioned, it feels like that we're starting to see normalization in the industry from an adoption versus relinquishment of pet perspective. That's certainly the data that we saw from the shelter, so, so positive on that front as well. So from, you know, what would turn customer accounts, you know, positive versus maybe the trends that we've seen over the last couple of years. You know, we have mentioned a, a couple of times over the last several calls that really we needed inflation to normalize, and that inflation in the market normalizing would free up kind of discretionary income for consumers would give them the, the ability to then become additional pet parents in the future. And then as more of the market moves online, we would be disproportionately favored in that scenario. And so when we talk about normalization of the market, what we're really referring to is normalization of pet households, normalization of inflationary pressures that are putting discretionary spending with the consumer under pressure, so normalization of that. And I would say that we're currently seeing... I think what we're seeing is some green shoots with respect to that normalization that we've been talking about. Sumit, anything you'd add? On the question on why would higher e-commerce penetration continue? Well, look, I mean, you know, the core insights around, you know, customers not wanting to lug heavy product back from retail stores. You know, dog food bags are heavy, cat litter pails are heavy and inconvenient. And so the convenience of transacting through the online channel, you know, remains a value proposition that continues to, you know, propel the migratory trends from retail to online. Online is expected to, you know, reach 45% or more to 45% over the next few years. And the second thing is, when you look at delivering personalized experiences, you know, the way that you can deliver personalized experience via digital sort of touch points, you know, technology is much better, and we do a much better in the way- in the way that we understand customers, put them through the high touch ecosystem that we have, and, you know, keep them and retain their trust and develop and nurture their, their interests over time, et cetera, et cetera. So overall, you know, we're bullish on e-com penetration trends continuing from this point onwards. Thank you. And, my follow-up is, how do you plan on growing revenue without increasing your customers this year? Is growing Net SPAC a sustainable strategy? You know, this is something that we've talked about in the past as well. Look, like, unlike a fixed subscription model, right, where you must have customers to continue your growth, at Chewy, you know, share of wallet, it has been a bit of an underappreciated, you know, strength of the ecosystem. So first. And, you know, second point is, we're not shifting our focus away from, you know, customer addition to share of wallet. We believe in combining the power of customer addition to share of wallet, right? A pet lives for 12, 14, 15, 18 years. During that time, you know, a pet and a pet parent spends anywhere from, you know, $1,200-$2,500, with an average of $1,600-$1,800 in LTV. You know, we've shown the power of growing that NSPAC. It grew, you know, over 9.5%, you know, this quarter, reaching $562, which means that right now we're capturing about a third of the NSPAC in the market. You know, roughly about 20% of our customers are health customers, and they continue to mix into the overall pool of customer bases, right? So our other businesses are fairly nascent. So we are bullish and expectant of growing our net sales per active customer number. And at the same time, when you look at, you know, net adds, you know, that's comprised of three different components: acquisition, retention, and reactivation. So our reactivation engine is firing on all cylinders, so we're happy about that. In terms of retention, we're seeing better retention in cohort behavior. We saw lower churn, you know, come into the quarter from a year-over-year point of view, so we were pleased with that. And then finally, on acquisition, as Dave was explaining, you know, right now, you essentially have a shallower pool of customers that are not declaring intent, given inflation is still pretty high, food and treats are suppressed, and discretionary categories haven't yet sort of recovered. So broadly speaking, the value proposition of Chewy continues to resonate really loudly, whether it's price, selection, and convenience, or whether it's overall personalization and customer intent capture. So we remain bullish. Thank you. Sure. The next question comes from the line of Seth Basham of Wedbush. Your line is now open. Please go ahead. Hi, this is Matt McCartney on for Seth. I was hoping you'd give some more color on behavior for existing cohorts, just specifically on, on the recent cohorts, just how they're trending relative to historic levels in, in terms of retention and their NSPAC maturation. Sure. You know, not much deviation from the trends that we've seen. We continue to see customers lean into health-related categories. We continue to see customers lean into condition-based and premiumized categories. You know, treats and toys continues to be, you know, sort of muted, given the pressure, but, you know, we're seeing kind of strong performance across other categories. In terms of, you know, when you take a look at our cohorts from 2022 back half of 2022, and project cohort membership, you know, retention for 12-month, 15-month, 18-month time frame, you know, each of these cohorts is in the positive, in the low single-digit percentage point range, you know, relative to past cohorts, or relative to pandemic cohorts. So, you know, so that is definitely encouraging. Broadly speaking, Matt, you know, not much more to comment relative to what we've already said on the call today. Yeah, I would just build on that and say that one very positive trend that we're also seeing is that new customers signing up for Autoship is some of the highest that we've seen in the company. So that's another positive signal for us with respect to the new cohorts. Did you have a follow-up, Seth? Yes, just I was wondering specifically on your ability to target specific cohorts with your new CRM. I know it's pretty early, but are you seeing benefits from that program yet in terms of retention? Or, you know, when might those sorts of benefits materialize here? We are, we are seeing benefit. We're seeing benefit both in terms of improvement in second purchase rate as well as in reactivation. Both the programs are run out of our CRM teams. We're also seeing greater participation on the Chewy app business, which is up multifold on a year-over-year basis. Great. Thank you. The last question comes from the line of Lee Horowitz of Deutsche Bank. Your line is now open. Please go ahead. Great. Thanks for fitting me in. Maybe one on share and then just to follow up on users. I guess on share, it strikes us that given the success you guys are seeing in healthcare, you're most certainly taking share in that vertical. Discretionary and hard goods, you seem to have decided to not, you know, chase bad share in that vertical and perhaps seeing some there. Then I guess that leaves consumables, which grew about 2% in the quarter, with that number likely a bit higher given some contribution from health in that line of your business. Can you help us better understand how you think Chewy share in the consumable category is progressing at the moment, and how you expect that to evolve through the course of the year? Sure. I'll start with a higher level commentary. If you look at the market growth in Q1, it ranged from negative 2% to positive 2%-3%. That's sort of the range in the market relative to the players that we're observing, and we generally have a fairly good read of demand in the marketplace. You know, we're obviously sitting on the high end of that, and therefore, the share story, you know, is consistent, right? We will take share this year. Now, when you break that down, I would reframe the way you view our intent and discretionary and hardgoods. It's not that we're not chasing. In fact, you know, we remain, you know, competitive as a team. And, you know, we're seeing positive green shoots in that category relative to where the industry performed in at least half of the categories, right? The other half, we're still focused on making sure that, you know, as I mentioned in the past, there are certain categories that we just need to make sure that our assortment and proposition resonates loudly within hard goods and discretion. So we're absolutely focused on it. And then in consumables, you know, we held share in the kind of the value segment, you could say, you know, and then we gained share across all premium or premium segments in consumables. So that's so it's a, it's a bit of... It's a positive story overall, but there's a bit of a range depending upon the customer segmentation and the cohorts that you see. Did you have a follow-up, Lee? Very helpful. And maybe, yeah, maybe one follow-up on users. You know, we've talked a lot about reactivation and new acquisition exceeding your expectations, with green shoots in terms of household formation. But I guess overall customer declines, I guess, steepened in the quarter. Can we maybe just talk a bit more on how churn is progressing at this point? And you know, I think, Sumit, you talked about churn down, churn improving year-over-year, but I guess, you know, how, how does that look relative to, you know, reactivations and new acquisition being the bigger, outperformer in the quarter? And I guess how you think churn should progress through the balance of the year. Any more color there will be helpful. Sure. Thanks so much. Sure, sure, sure. I can see kind of what you're trying to correlate here. So here, here's the deal. So our reactivations was up mid-teens, as we said, year over year. At the same time, our net new acquisition was higher than the reactivation rate, right? So I just want to be clear about that, reactivations aren't surpassing net new acquisition, right? Our acquisition is continuing to be held back by the amount of customer share, customer de-intent declaration in the discretionary categories, right? So there is a pool of customers that's missing there that will add to the trend that we're seeing or connecting to industry normalization. Then you come to churn. So the statement is true that churn was down year over year. Yet, you know, if you recall, we had, we had signaled that our cohorts in the last three years or so are churning, right, at rates that are low- to mid-single-digit higher than our, our legacy cohorts, right? And so, so that number hasn't reversed materially given that we're still playing through those cohorts, but the green shoots that we are seeing is in the back half of 2022 cohorts, which are, you know, sort of more out of the pandemic, you know, cohorts per se. So year-over-year trending is better, but there's still a healthy base that we need to sort of arrest at the, at the bottom, which continues to, to normalize, alongside us. Yeah, and perhaps just for some helpful color, churn in Q1 of 2024, it's a decline in absolute numbers from the churn and percentage for that perspective, churn from Q1 of 2023, and it's down from a churn of Q1 of 2022, and of course it's down sequentially from Q4 of 2023. So all data points that kind of, again, kind of point to some of those early, early green shoots that we believe we're seeing in the normalization of the industry. Very helpful. Thank you. Ladies and gentlemen, this now concludes today's call. I'd like to thank you all for joining. Have a great rest of your day. You may now disconnect your line.