Chewy, Inc. Q3 FY2025 Earnings Call

Hello, and welcome to the Chewy Third Quarter 2025 Earnings Call. My name is Emily, and I will be coordinating your call today. I will now hand over to our host, Natalie Nowak, to begin. Please go ahead.

Thank you for joining us on the call today to discuss our third quarter results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit Singh; Will Billings, our Chief Accounting Officer and Interim Principal Financial Officer; and Chris Depee, our Head of Commercial Finance and FP&A. 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 in which we operate. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks, uncertainties and other factors that could cause actual results to differ materially from our forward-looking statements. We encourage you to review our SEC filings, including the section titled Risk Factors in our most recent Form 10-K for a discussion of these risks. 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 assume no 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. A replay of the audio webcast will also be available on our Investor Relations website shortly. And with that, I'd like to turn the call over to Sumit.

Thanks, Natalie, and good morning, everyone. Chewy continues to outperform the pet category and expand market share with profits once again growing faster than sales. We are delivering consistent year-over-year profitability gains and remain firmly on track toward our long-term objective of a 10% adjusted EBITDA margin. Q3 results build on the momentum from the first half of fiscal 2025 and highlight the structural resilience of our model as well as the efforts and execution quality of every team member at Chewy. We exceeded the high end of our net sales guidance, expanded margins, and accelerated free cash flow generation. Let's get into the details. First, our financial and customer performance. Q3 net sales grew over 8% year-over-year to $3.12 billion, primarily driven by unit volume growth, not price. Growth in Autoship customer sales outpaced total company growth, increasing 13.6% to $2.61 billion. As we have discussed before, Autoship revenues are highly predictable and allow operational planning to reduce costs and grow margin in a way that gives Chewy unique structural competitive advantages. We ended Q3 with 21.2 million active customers, up nearly 5% year-over-year, and delivered improvements across every part of the active customer funnel. Marketing efficiency continues to strengthen as we deploy spend with greater precision, attracting high-quality customers, driving stronger conversion, and improving LTV to CAC ratios. Enhanced mobile app functionality is lifting direct traffic, with app customers and app orders up approximately 15% year-over-year. These improvements supported marketing leverage in the quarter while enabling year-over-year growth in both new customers and reactivations alongside lower churn. Net sales per active customer reached $595, up nearly 5% year-over-year. Now let's review profitability and free cash flow, after which, I will comment on some of our ongoing initiatives. Gross margin expanded roughly 50 basis points year-over-year to 29.8%, driven by sponsored ad growth, a strong Autoship baseline, and favorable category mix. We believe that these gains will structurally enhance our margins going forward. Adjusted EBITDA reached $181 million, up 30% year-over-year. Adjusted EBITDA margin reached 5.8%, representing 100 basis points of year-over-year expansion and flow-through of about 18%. Margin gains reflect strong gross margin execution, disciplined SG&A management, and continued efficiency in advertising and marketing. And finally, we generated approximately $176 million of free cash flow in the quarter, up nearly $70 million sequentially. Our profitability and cash generation enabled us to repurchase $55 million of shares while self-funding strategic investments that position Chewy for durable long-term value creation. Now I would like to provide an update on some of Chewy's ongoing initiatives, starting with Chewy's health offerings. Chewy Vet Care, or CVC, continues to exceed expectations, driving strong utilization, supporting ecosystem engagement and strengthening customer loyalty through recurring high-margin services. Each clinic acts as both an acquisition channel and a retention driver supporting deeper Autoship and health program participation. We have opened two additional CVC practices since our last earnings call, including our first one in Phoenix, bringing our total to 14 locations across five states. Two more clinics are opening soon, keeping us on track with our previously stated plan to open 8 to 10 locations this fiscal year. Staying on the topic of Chewy's health offerings, on October 30, we announced the acquisition of Smart Equine, a leading Equine Health brand with strong loyalty and repeat purchase behavior. The transaction is expected to be accretive to adjusted EBITDA margins upon closing. Smart Equine enhances Chewy's premium health and nutraceutical assortment and strengthens our position in high-value wellness categories. By layering its premium assortment over Chewy's network and scale, we see significant opportunity to enhance our health and wellness mix and expand both net sales within this category as well as margins. Our paid membership program, Chewy+, continues to outperform our expectations, driving higher order frequency, broader category engagement, higher mobile app adoption and stronger Autoship participation. After launching at an introductory price of $49 per year with a 30-day free trial, we raised the annual fee to $79 at the end of October. Early data shows continued growth and strong conversion from free to paid memberships. Paid Chewy+ members are already delivering gross margins in line with the overall enterprise and with higher pricing in place, we remain confident in the program's growth and margin potential. I would now like to turn the call over to Will for a detailed recap of our results and guidance, after which I will make some final closing remarks about 2026 and Chewy's future. Will?

Thank you, Sumit. Third quarter net sales grew 8.3% year-over-year to $3.12 billion, above the high end of our Q3 guidance range. Gross margin expanded approximately 50 basis points to 29.8%. Q3 SG&A, excluding share-based compensation and related taxes, was $588.6 million or 18.9% of net sales and includes approximately $2.7 million of one-time transaction costs primarily related to the pending Smart Equine acquisition. Excluding SBC and these one-time costs, we delivered SG&A leverage of 20 basis points year-over-year. Consistent with our expectations, we returned to SG&A leverage as our newest automated facility in Houston scaled and as we cycle past certain transitory costs related to the Dallas FC and inventory pull forward. Advertising and marketing expense was $197.9 million or 6.3% of net sales, reflecting about 40 basis points of year-over-year leverage. As Sumit noted, this leverage is driven by higher productivity of spend, not reduced investments. We are attracting high-quality customers and are quickly converting them into Autoship, Chewy+ and health programs, which deepens loyalty and increases lifetime value. These efficiencies reflect a more disciplined allocation of marketing dollars and stronger flywheel effects that we expect to build as we scale. Q3 adjusted net income was $135.7 million, up 59.6% year-over-year and adjusted diluted earnings per share of $0.32 landed near the high end of our prior guidance range. Third-quarter adjusted EBITDA was $180.9 million, representing a 5.8% adjusted EBITDA margin, up 100 basis points year-over-year and adjusted EBITDA flow-through of 17.9%. Free cash flow for the quarter was $175.8 million, driven by $207.9 million of cash from operating activities and $32.1 million of capital expenditures. For full year 2025, we continue to expect to convert approximately 80% of adjusted EBITDA to free cash flow. In addition, based on year-to-date performance, we now expect 2025 capital expenditures to come in around 1.3% of net sales, below the low end of our prior target range of 1.5% to 2% of net sales. During the quarter, we repurchased approximately 1.5 million shares for $55 million. We ended Q3 with $304.9 million of remaining authorization under our existing repurchase program. We closed the quarter with approximately $675 million in cash and cash equivalents, remain debt-free and had total liquidity of approximately $1.5 billion. Turning to guidance. Recall that in Q2, we raised our full year net sales guidance by $175 million at the midpoint, reflecting our bullishness to outperform a market which is expected to grow low single digits in FY 2025. Today, we are narrowing our full year 2025 net sales outlook to between $12.58 billion and $12.6 billion, or approximately 8% year-over-year growth when adjusted to exclude the impact of the 53rd week in fiscal year 2024, with even greater confidence in our ability to deliver incremental margins. We are also narrowing our full year 2025 adjusted EBITDA margin outlook to 5.6% to 5.7%, or approximately 90 basis points of adjusted EBITDA margin expansion at the midpoint year-over-year. Consistent with our comments last quarter, we expect approximately 60% of our adjusted EBITDA margin expansion to be driven by improvements in gross margin. We expect fourth quarter 2025 net sales of between $3.24 billion and $3.26 billion or approximately 7% to 8% year-over-year growth when adjusted to exclude the impact of the 14th week in Q4 of fiscal year 2024. Our fourth quarter guidance takes into account the strong year-over-year comps of approximately 7% net sales growth in the fourth quarter of last year. We also expect Q4 adjusted diluted earnings per share in the range of $0.24 to $0.27, which includes an estimated $10 million of closing costs related to the pending acquisition of Smart Equine. And finally, given our performance in the first three quarters of the year, we now expect advertising and marketing expense to come in at approximately 6.5% to 6.6% of net sales for the full year. For the full year, we are also expecting share-based compensation expense, including related taxes of approximately $315 million and weighted average diluted shares outstanding of approximately $430 million. We now expect 2025 net interest income of approximately $15 million to $20 million. And lastly, we expect our effective tax rate to be between 16% to 18% for 2025. I would now like to turn the call back to Sumit for some closing remarks.

Thanks, Will. Before we take your questions, I would like to make a few important remarks. First, on Chewy's margin expansion and its path, cadence, and durability as we head into 2026. Chewy has an unmatched position in a uniquely attractive industry. On chewy.com, we have the leading sales engine in our industry, evidenced by the 84% of our sales on Autoship layered on top of a built-out world-class fulfillment network. The best-in-class consumer satisfaction that results from this combination leads customers to trust us with ever-increasing levels of business. As you can see from the growth of our pharmacy business and our multi-year steadily rising NASDAQ. Q3 shows the result. We delivered both revenue growth and margin expansion even as we made high-return targeted investments in the business. Gross margins continue to expand on a structural basis, supported by sponsored ads, category mix, and a growing health ecosystem. SG&A leverage is returning as automated facilities scale and as we cycle through transitory costs. And marketing is becoming more efficient as we increase direct share of traffic and grow our business inside the mobile app. And to be clear, we grew at approximately twice the market rate, taking share again without pricing below inflation or sacrificing margin. In 2026, we intend to press these competitive advantages and continue our pursuit of scalable self-funding initiatives that simultaneously enhance profitability. While we will always prioritize disciplined customer-centric growth, our unique flywheel-like operating model gives us high confidence in our ability to deliver consistent durable EBITDA expansion over the next several years. Our long-term framework is unchanged, and the underlying engines that drive margin expansion are strengthening. We remain firmly on track towards the long-term margin profile of 10% adjusted EBITDA that we outlined at Investor Day. Turning to investment levels into 2026 and beyond. What is temporary versus structural? We are highly disciplined in how we deploy capital. A number of the cost impacts you have seen in recent quarters, such as inventory pull forward and one-time launch expenses within fresh food, for instance, and early-stage Chewy+ incentives are all temporary by design. Our structural investments include automation and health services. And all investments have clear ROI thresholds and measurable payback periods. As we move into 2026 and as we press our unique competitive advantages, we expect the balance of investment to shift towards operating leverage. The framework is simple. Invest where returns are compelling and durable, moderate spend where benefits have been captured, and drive leverage using our scale across the platform. We look forward to wrapping up 2025 from a position of strength and to a successful 2026. With that, we will now take your questions.

Our first question today comes from Eric Sheridan with Goldman Sachs.

Maybe two, if I can. Curious as the team continues to scale offerings like Autoship and Chewy+ how you continue to evolve your learnings about the lifetime value of customers on the platform. And the second part of the question would be how does those learnings feed back into your strategic initiatives in support of growth given the commentary right there towards the end of the call from Sumit on some of your priorities over the next 12 to 18 months.

It's a broad question, so I'll provide some frameworks on how we're thinking about it and why we believe these initiatives build on each other. Imagine three interconnected components: Autoship, Chewy+, and CVC, all supported by a highly personalized mobile app. These programs work together to enhance customer retention, reduce churn, and drive both revenue and efficiency. Autoship is a repeatable merchandise program known for its reliability and high satisfaction. Chewy+ helps improve discoverability of a wider range of products beyond just consumables and health, and it targets customers who spend between $300 and $700, allowing us to unlock additional value from them. Recent data shows that Chewy+ has increased penetration in categories like hard goods, highlighting its effectiveness in consolidating discretionary purchases and increasing order sizes. CVC expands our total addressable market by an additional $40 billion in health services, creating a customer journey that enhances both the customer experience and our business. The mobile app serves as a closed-loop system that promotes personalized interactions and higher repeat purchase rates, benefiting both Chewy+ and Autoship. Overall, our investment strategy is driving various top-line and margin initiatives, and we're also leveraging automation and future AI capabilities to enhance fulfillment and customer care. All of this is backed by a strong data infrastructure and a modern architecture that supports our fulfillment network. If this doesn't fully address your question, I'm happy to provide further details.

Our next question comes from Doug Anmuth with JPMorgan.

Sumit, the active customer growth was the strongest it's been in a few quarters. Can you just talk about some of the drivers there and then just how you're thinking about that in Q4 and into '26 along with just health of the industry. And then just a follow-up on the investment levels in '26. Is there a way to frame just kind of how you're thinking about that relative to what we've seen in '25?

Doug, thank you for the questions. So let's start with the active customers. So yes, Q3 active customer performance exceeded our expectation and was driven by improvements across the customer funnel. The strength in active customer reflects both gross adds strengthening as well as churn lowering or improvements in retention as we would call it. On the acquisition side of gross add side, we're benefiting from higher direct traffic, increasing engagement in the mobile app, and improved conversion across our platforms, both app and web. To give you data points, we lowered first time to have conversion. We increased daily active usages. We improved SEO performance by double-digit gains on a year-over-year basis. Our traffic was up mid-single digits on a year-over-year basis. So the combination of SEO plus app and overall increased traffic was then met with better experiences on the platforms that drove higher conversion, and as such, new customer conversion was better. So these things added up in Q3 and in our opinion, are durable moving forward. Retention at the same time continues to strengthen as customers deepen their engagement especially across categories like premium consumables and health care; our goods, once again, was strong, I think, 18% year-over-year growth. And as customers increasingly consolidate their spend with us, given that they're finding both value and convenience set. Now moving to the subpart of the same question. So you're asking about how we're thinking about Q4 and then in '26. So '26, we expect durability in net adds while continuing to increase. Let me hit Q4 more directly. So the implied moderation in Q4, if you calculate the fill in the blanks kind of question, you'll end up at the high end of low single digits for Q4. And that perhaps offers some moderation of roughly 150,000 customers from Q3 on a sequential basis, right? So the implied moderation in Q4 is largely comp driven and reflects timing more than anything else. We're cycling a much stronger Q4 from last year in terms of net adds; that naturally creates a tougher comparison. I should also note that when looking at Q4 quarter to date, we like the momentum that we're seeing on net adds, and we're running ahead of our forecast. There's still half the quarter left to go. So for now, it's prudent to hold kind of the conservatism that we're bringing forward here. What else. Okay. Now moving to the second part of your second question, which was investment levels on second let me just read this frame up for. Can you repeat the second question?

Just really just trying to understand your comments towards the end there just on investment levels in '26 relative to what we've seen in '25.

Yes. Okay. So first of all, I would like to perhaps just say that we've seen 2025 being characterized as an investment year. And the reality is, I mean, we're driving both strong top line growth and meaningful margin expansion. We're growing at more than 2x the market. We've narrowed our margin guidance, delivering 90 basis points of expansion at midpoint. And we're doing this simultaneously with growth in margin kind of moving together. '26 going to be better, right? So we expect to take share. And at the same time, investment levels are more structural and durable investment levels moving forward, while we continue to self-fund a bunch of the temporary investments that you've seen us take in kind of Q1 or Q2 of this year. So overall, we're going to be thinking about investments in a much more strategic manner and fund structural investments while pulling back on temporary investments because we feel they can self-fund them. The business is continuing to perform better and better each quarter as we move from '25 into '26, especially as our fulfillment center scales, our customer service scales and our marketing drives greater efficiency into '26.

Our next question comes from Steven Zaccone with Citigroup.

I want to follow up on Doug's question there. When you think about '26, can you share a little bit more on your mining outlook for demand you talked about net adds, but how do you think about the overall backdrop of the industry? And obviously, '25 has been an improvement versus '24. So how do you think about '26? And then in that context, pricing, we haven't really seen it in the industry. Do you see that being more of a tailwind as we get into next year?

Yes, certainly. Currently, we anticipate that 2026 will be similar to 2025. When we approached 2025, we expected a stronger normalization in the industry by the end of that year, particularly in terms of net household formation, pricing returning to the norm, and robust demographic growth across the sector. Our present outlook for 2026 aligns closely with that of 2025, projecting industry growth in the low single digits, possibly reaching the low end of mid-single digits, while net household formation remains relatively stable. In terms of adoption numbers, we're seeing a surplus of about 100,000 to 150,000 between adoption and returns, which we believe should ideally be 5 to 6 times higher to consider the industry as normalized. Pricing growth in the industry typically exhibits 1.5% to 2% improvements year-over-year. We will look for clearer signals regarding 2026. Regarding pricing, it has been stable and rational without any significant impacts from inflation or deflation recently. We are maintaining a strong dialogue with our suppliers and monitoring this closely. We expect structural unit volume growth, and the pricing advantage may be slightly greater than what we experienced in 2025, which was mostly flat. We will provide more insights when we discuss 2026.

Our next question comes from Nathan Feather with Morgan Stanley.

My end. First, we discussed the strong net additions, and marketing continues to show excellent leverage year-on-year. What strategies are effective in the customer acquisition funnel that are enabling you to be more efficient in acquiring cohorts, and do you expect this to continue? Regarding margins, the full year '25 margin guidance indicates that the 4Q EBITDA margins will decline sequentially. Can you help us understand the factors influencing margins at the end of 4Q?

Sure, Nathan. When it comes to marketing, we need to look back two years to understand our progress. This reflects the ongoing journey I've been transparent about during this time. We began by connecting different parts of our sales funnel, which requires time to develop and enhance. We needed to boost our creative efforts and market strategies, which take some time to achieve. Two years ago, I emphasized our commitment to being mobile-first, and we've seen the mobile app strengthen with more traffic and increased customer retention. Last year, I also discussed our efforts to revamp our CRM systems, optimize bidding strategies, and improve our models. Overall, these efforts have led to significant outcomes, including increased traffic from new programs. We have continually innovated to improve market offerings, which in turn has resulted in higher traffic. The effectiveness of SEO and our app has helped convert third-party traffic to our site. The website experience has improved markedly, and we anticipate even better changes next year, leading to ongoing enhancements in conversions. This cumulative work has made our marketing efforts more efficient, a trend we've noted for a few quarters now, with this quarter showing more definitive progress. We see clear signals that will guide us into 2026 and we plan to provide more details in March. Do you have any follow-up questions?

Margin is unclear.

Yes. We typically see Q4 as an investment quarter. Several factors are at play: promotional levels are higher, pricing is not favorable in Q4, and we're pushing significantly more units through our fulfillment center. Consequently, the leverage that we experience in other quarters isn’t the same in Q4. Additionally, marketing efforts and media costs are heightened during this period, making it challenging to assess Q4 in comparison to prior quarters. However, we are very pleased with the momentum we have and the team's execution. Year-over-year, we're achieving a midpoint increase of 90 basis points, which corresponds to about a 25% profit increase, while growth is around 8%. This results in three times more incremental profit than growth on a percentage basis, and we're quite satisfied with these results.

Our next question comes from Shweta Khajuria with Wolfe Research.

Can I first ask about gross margins? Could you explain the trends in gross margins and how we should consider them going forward, particularly with 2026 in mind? How much of 2025's performance will be relevant for 2026 regarding gross margin trends? Additionally, regarding customer additions for 2026 and their sustainability, how should we view the role of retention versus gross additions? Which of these factors do you feel more confident about, and which do you think will contribute more significantly?

On the topic of gross margin, while I won't delve into specifics for 2026, I want to emphasize the overarching view rather than the finer details for this call. By the end of this year, we will have less than 450 basis points to reach our long-term EBITDA margin of 10%. We anticipate that around half of that will be derived from gross margin improvements, with the other half from operating expenses. This indicates there are opportunities for expansion and growth in gross margin that we will continue to pursue. There are several structural levers available for expanding gross margin, including steady growth in advertising, premium category mixes where we excel, and strengthening of private label with our fresh launch. We will share more exciting news regarding private label in our March-April call. The health ecosystem is also becoming stronger with Chewy+. Concerns about margin headwinds that were expressed last quarter have been addressed, and we do not see that as a hindrance moving forward. We expect some incremental growth as we look at our scale and the continued growth of Autoship. Different vectors are progressing at varying rates, and while some years may show amplified gross margins from these vectors, other years may reflect more stable returns from a mix of these factors. However, if we take a long-term perspective, these compounding vectors give us confidence in our gross margin trajectory. We have been building trust since we entered the market in 2018-2019, at a time when gross margins were at 20%. Regarding customer growth, we believe our additions will be stable. Given the market conditions resembling those of 2025, we're currently forecasting for 2026 and will refrain from providing guidance. However, we are optimistic about the performance we've demonstrated this year along with improvements in marketing, innovation, and other aspects. When it comes to gross adds versus retention, both are equally essential for a business, and we see it as a combination rather than an either/or situation. In the overall market, there are around 90 million U.S. households, and during typical years, we see an increase of 10 million to 15 million new pets per household. Furthermore, we believe approximately 50 million people remain within our reach, 15 million of whom are highly likely to shop online. The last few million may not be ideal Chewy customers. This indicates a substantial number of households we can still engage with. The refresh rate isn't fixed; thus, when normal conditions resume, we should expect additional advantages alongside our current performance. Our internal initiatives, such as Chewy+, Autoship, and various elements of the health ecosystem, will help enhance customer retention. We're focused on both acquiring and retaining customers as a combined effort.

Our next question comes from Anna Andreeva with Piper Sandler. Please go ahead.

Let me add my congrats. Nice quarter. Curious on Chewy+, can you talk about if you've seen any changes in retention when you raised the fee to $79 from $49 previously? And great to hear about expectations that the program is no longer dilutive. How should we think about that penetration into next year? And then we had a follow-up.

Okay. So in terms of the elasticity, the conversion that we saw once we raised price, conversion has remained quite strong and has exceeded our internal expectation from an elasticity point of view. So the percentage of price increase and the loss of demand conversion is essentially the ratio that I'm talking about that is better than what we forecasted. So we like that. Number two, yes, on the margins, like, look, I mentioned that our paid members are already delivering gross margins that are in line with the enterprise, and the higher pricing only strengthens the profile. So from an economic standpoint, we feel good about where the program is today and how it scales. It is early. Another data point that I'll give you is, at this point, 80% of our member mix is now paid, right? So you can kind of see that as the program scales, right, it will continue to become more efficient, right? So the initial investments get recouped very quickly, even quicker with the increased pricing, and then the conversion is holding better than expected. Obviously, it's slightly lower than what it was at 49%, but nothing that we're too concerned about at this point. Let me see. How should we think about penetration next year? So I'll stay away from comments on next year. In terms of what we've said about last quarter, our expectations for the program haven't changed since we've spoken last quarter. Another data point that I shared on this call today was we're seeing strong member penetration in categories like hard goods and specialty that aid basket building and drive NSPAC consolidation. So we kind of like all the signals that we're getting. It's acting as a complementary program driving discovery across platform especially across some of the discovery discretionary categories.

That's really great. And just as a follow-up, on the 4Q guide, you mentioned that you're running ahead of plan. Just anything else you can share about what you are seeing in the business quarter-to-date? Just any learnings from Black Friday and Cyber Week. I think you had mentioned previously that Chewy might lean into promotions in the fourth quarter. So far, I don't think we've seen that any update on that thinking?

We were pleased with our performance during the important peak period of Black Friday and Cyber Monday. The week met our expectations, and the team's execution was strong. Our supply chain backlogs were healthy, and we maintained good in-stock levels. Overall, we were very satisfied. The discipline around promotional spending and marketing efficiency we discussed continued throughout this holiday event. Net sales in Engage sessions increased year-over-year, while total event spending and customer acquisition costs decreased. Currently, we are ahead of plan and while I don’t want to revise guidance since it was just provided, we are optimistic about the momentum as we head into December. We will discuss this further in April, and all scenarios have been accounted for in the guidance we just issued.

We have time for one final question, and our last question today comes from Dylan Carden with William Blair. Dylan, please go ahead.

I appreciate that. I'm interested in how Chewy+ interacts with Autoship. Are we thinking that the number of Autoship customers could match the number of Plus customers, effectively broadening the range of products? Regarding scalability, you've shared some data on box productivity, which doesn't have a significant impact at your current scale. Could you elaborate on the wider ecosystem implications and highlight where you're seeing the benefits as well as the markets you have open?

The interaction between Chewy+ and Autoship is important. Autoship functions as a merchandise product level membership program that is free and operates like a quasi subscription, making it predictable and reliable. It's designed for repeat use, allowing customers to easily manage their orders. Importantly, Autoship is an active program, with consistent customer engagement during seasonal events. On the other hand, Chewy+ serves multiple purposes. It enhances product discoverability, as Chewy offers more than just consumables and health products. It also facilitates NSPAC consolidation, and since we are still in the early stages of gathering data, we anticipate being able to share more insights next year once we have larger cohort data. This data should demonstrate improvement in retention on top of the already strong figures we are seeing. The programs complement each other; Chewy+ specifically targets members who spend between $300 to $700, leading to increased spending and basket consolidation through easier access to additional products. This has resulted in a significant increase in order frequency and repeat traffic on our website. When combined, the value and convenience for customers are greatly enhanced, while we remain committed to keeping the programs economically sensible. Regarding CVC wet, there hasn't been a significant change in box productivity, but we will provide a detailed performance review by the end of the year. Currently, we see that 4 out of 10 customers entering CVC are new to Chewy, and within a short time, 50% of these customers expand their engagement with chewy.com by exploring more product categories. Our retention rates are strong, and our customer satisfaction rating is consistently high at 4.8%, based on external Google ratings. The wet recruiting and retention initiatives have been successful, and we expect to meet our forecast of 16% to 18% by year-end.

Great. I'll wait for that. I guess the question on Autoship versus Plus is whether it's straightforward to think that all Autoship customers have the potential to become Plus members and thus contribute to growth. You mentioned something about net bet consolidation?

Yes. Yes. But remember, the comments that I'm making now, Chewy+ affords us the ability to be targeted and segmented. And that's the power of running programs on digital platforms. We can consume unified data signals in a much more accurate and precise way and target and segment the program to customers who we believe will benefit from the programs or who will find the program attractive, but also Chewy will benefit equally well from those types of sign-ups. So while Autoship is applicable to 100% of customers, Chewy+ may or may not be, and the overlap, you have to sort of combine my two statements in terms of NSPAC thresholds and penetration in categories, being non-consumer and health categories to be able to find the intersection there.

Those are all the questions we have time for today. And so this concludes our call. Thank you all for your participation. You may now disconnect your lines.