Douglas Anmuth: Thank you both.
Operator: Our next question comes from Lauren Schenk with Morgan Stanley. Please proceed.
Nathan Feather: Hi, everyone. Thanks for taking my question. This is Nathan Feather on for Lauren. Can you dig a bit more into the direct impact of macro across each of gross adds, churn and NSPAC? And then is the embedded macro environment in the 4Q guide worsening for 3Q? Or is it just largely stable? Thank you.
Sumit Singh: Hi, Nathan, this is Sumit. So on the macro it is — the trends that we started seeing coming out of Q3 have largely persisted, right? For the most part, you’re seeing discretionary — spending in discretionary being low persisting, you’re seeing a shift out of that in to drive persisting. So nothing has broadly changed. We’re not seeing broad trade downs happen on our side. So customers that are engaging with premiumized assortment aren’t the ones essentially trading down. So loyalty within core consumables categories and customers’ general reluctance to switch from a proven food that works well for their pet, that is pretty intact. The power of the Autoship model, which facilitates the stickiness and behavior is intact.
And all of the softness that we’re seeing is primarily in our non-Autoship-driven businesses. which are more egregiously weighted towards discretionary, including categories such as treats per se. You had a second part to your question, I think, additional commentary on NSPAC, gross ads. Our commentary on customers hasn’t necessarily changed. We guided in Q3 that we expect a wider outcome. If you can — I mean, of course, we’ve been about roughly 100,000, 150,000 customers down on a year-over-year basis, on an average, 100,000 customers. We don’t expect to make that up and our customer sentiment doesn’t change up until kind of the macro starts resolving. We’re happy with the way that we played through Black Friday, Cyber Monday. We’re happy with the way customers are responding to us across our consumables, Autoship, health-type categories.
Our reactivation rate remains pretty strong. So all of those are positive trends. Q4 typically comes with a very high mix of seasonal discretionary categories. And if you look at it from a year-over-year perspective, it’s down relative to last year. But compared to 2021, discretionary is down roughly — on a mix basis, roughly 15%, and that definitely has an impact.
Stacy Bowman: Yes. I would just go back to the NSPAC point as well. We continue to meaningfully expand our wallet share. So it continues to show our loyal customer base and they continue to penetrate into other categories such as our high-margin health category and whatnot. So we are seeing some growth there as demonstrated over — by our record highs this quarter.
Nathan Feather: Great. Thank you.
Operator: The next question comes from Anna Andreeva with Needham. Please proceed.
Anna Andreeva: Great. Thank you so much. Good afternoon. A couple from us. I guess if we continue to see inflation exit the space into next year and the consumer remains pretty price sensitive, how do you think about the trade down for Chewy in margins versus topline? I guess in other words, would you pull back on promotions to this non-Autoship customer to preserve margins or not necessarily? And secondly, just a follow-up on Canada. Did you break out Canada in terms of net adds and sales during the quarter? And are you seeing a similar consumer behavior with trade down to value in the region as well? Thanks so much.
Sumit Singh: Sure. Hi, Anna. So first of all, our discounting/promo spend isn’t materially elevated. From the beginning of this year, we had said that there’s an opportunity that we might spend up to 30 basis points higher in promotions on a year-over-year basis. And so far, we had not seen the environment where that spend had come through. And we have seen it only during the holiday period where our discounting/promotional spend was roughly 30 basis points higher than last year. And beyond that, we’ve gone back to our normal levels of discounting, which may be very slightly elevated now just responding to seasonal patterns. But broadly speaking, promotionality remains relatively rational from our vantage point. Also, I want to make sure that it is clear that our ability to navigate through kind of the promotional variability, however small it might be, is reflected through the continuous kind of strong gross margin performances.
And last, I would say, we continue to work closely with our supplier partners to ensure a high degree of MAP compliance, which essentially protects prices and large variability in the pet space, and we expect MAP discipline to be enforced by the overall market as we continue to move through Q4 and beyond. So that was the first part of your answer. Number two, in Canada, yes, we like the business the way it’s performing. We’re continuing to add assortment and open up a geography, which we will come talk to you here in the next 1 to 2 quarters. Alongside — overall in FY ’23, the business has not a material impact. So we’ll stay away from providing numbers or guidances accordingly. And we’re seeing consumers respond well to promotions around the Boxing Day time frame.
And even there, we’ve actually pulled back and gone back to leading our businesses or building it via a recurring theme in mind. So we are heavier on Autoship and not so much on non-Autoship type transactional offers.
Anna Andreeva: Fair enough. Thanks so much.
Operator: Next question comes from Rick Patel with Raymond James.
