Chewy, Inc. (NYSE:CHWY) Q2 2023 Earnings Call Transcript

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Nathan Feather: Okay. Thank you.

Operator: Thank you. Our next question is from Trevor Young with Barclays. You may proceed.

Trevor Young: Great. Thanks for the questions. First on a category basis, it looks like hard goods returned to growth in the quarter. Is that kind of consistent with your expectations and do you expect that cadence to improve from here or does that more discerning customer and tougher compares, make it likely that growth stays a bit more challenged? And then any update on the insurance initiative, with Trupanion and Lemonade. I think that’s now available nationwide. Just any initial comments on uptick there relative to your own expectations? And can you shed any light on how that maps to the P&L? Thank you.

Stacy Bowman: Hi, Trevor. This is Stacy. So I’ll take the hard good question, first. So historically, we always do have some seasonality in our hard goods sales with a small pullback between the first and second quarter. So that also combined with the value-seeking behavior that Sumit spoke about shown by the consumer recently, contributed to some softness in hard good growth for this quarter. Our expectations for the rest of the year have not really changed, yes.

Sumit Singh: On hard goods, it’s also easier comps. If you noticed last Q2 was a negative, almost high single-digit, low-double-digit decline and so you’re comping a much softer year from last year. On insurance, we are super-excited about having two best-in-class providers on our platform Trupanion and Lemonade as expected. What it has done is, it’s opened up the range of plans and choices across various different price points and coverages to a wider range of our customers. And as you would expect what that has translated to is the rate of policy sign-up has gone up proportionately because you opened up the assortment, it drives to incremental revenue on a pretty indirect coordination basis. So while that’s a really positive data point, this vertical itself requires a ton of education and awareness, and we’re seeing our metrics had in the positive direction.

Our quote-to-conversion rates or – call-to-quote rate and quote-to-conversion rates are all improving. As you would expect, our customer care team is actually becoming a pretty powerful source of educating customers about insurance and therefore also driving on a high-cost basis, providing the information and driving the conversion. This was always our hypothesis to start with, because you don’t really buy insurance online. You buy it via kind of these assisted channels and we have one of the best assisted channels out there. So overall, we’re super excited about what’s to come. I must kind of note on you that this is a bit of a longer arc vertical, given that the consideration cycle for customers is longer. So we’re going to be appropriately patient and play this game over the long-term.

Trevor Young: Thank you.

Operator: Thank you, Mr. Young. Our next question is from Seth Basham with Wedbush. You may proceed.

Seth Basham: Thanks a lot and good afternoon. I was wondering if you could provide some color on gross ads relative to 2019, like you did in recent quarters? And then also provide some color on CAC trends year-over-year sequentially?

Sumit Singh: So gross ads, continue to run higher than 2019. We’re not entirely dissatisfied by the pace of our gross ads. We believe the team has executed incredibly. Yes, the categories that are muted are, of course, are causing a pullback on gross ads. I think, Doug mentioned whether like the contribution of hard goods is weighing in on customer acquisition, it absolutely is. But on the balance, we’re not totally dissatisfied by the pace off of gross ads. Net new to Chewy is slightly softer than pre-pandemic, but reactivations are much stronger than pre-pandemic. So if you combine those two, the overall output is that gross ads is stronger than 2019. And then color on CAC, not much has changed from what I believe I shared last-time, which is the CAC has increased over the last couple of years, at least through the – as we’ve come out of the pandemic, because then you were picking up – everybody was declaring intent and you were picking up customers quite economically.

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