

Class						Outstanding as of ~~July 11, 2019~~August 23, 2022
Class A Common Stock, $0.01 par value per share						~~53,475,000~~111,527,385
Class B Common Stock, $0.01 par value per share						~~345,125,000~~311,188,356

CHEWY, INC.

FORM 10-Q

For the Quarterly Period Ended ~~May 5, 2019~~July 31, 2022

TABLE OF CONTENTS

~~TABLE OF CONTENTS~~

				Page
			PART I. FINANCIAL INFORMATION
Item 1.			Financial Statements (Unaudited)	12
			Condensed Consolidated Balance Sheets as of ~~May 5, 2019~~ July 31 , 2022 and ~~February 3, 2019~~January 30, 2022	12
			Condensed Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks Ended ~~May 5, 2019~~July 31 , 2022 and ~~April 29, 2018~~August 1 , 2021	23
			Condensed Consolidated Statements of ~~Stockholders' Deficit~~Stockholders’ Equity (Deficit) for the Thirteen and Twenty-Six Weeks Ended ~~May 5, 2019~~July 3 1, 2022 and ~~April 29, 2018~~August 1 , 2021	34
			Condensed Consolidated Statements of Cash Flows for the Thirteen and Twenty-Six Weeks Ended ~~May 5, 2019~~July 3 1, 2022 and ~~April 29, 2018~~August 1 , 2021	46
			Notes to Condensed Consolidated Financial Statements	57
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	1215
Item 3.			Quantitative and Qualitative Disclosures about Market Risk	2123
Item 4.			Controls and Procedures	2123
			PART II. OTHER INFORMATION
Item 1.			Legal Proceedings	2224
Item 1A.			Risk Factors	2224

Item 2.6.			~~Unregistered Sales of Equity Securities and Use of Proceeds~~Exhibits	2224
~~Item 6.~~			~~Exhibits~~SIGNATURES	2325
	~~SIGNATURES~~	24

PART I. FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning our ability to:

•successfully manage risks related to coronavirus (“COVID-19”), including any adverse impacts on our supply chain, workforce, facilities, customer services and operations;

•sustain our recent growth rates and manage our growth effectively;

•acquire and retain new customers in a cost-effective manner and increase our net sales per active customer;

•accurately predict economic conditions and their impact on consumer spending patterns, particularly in the pet products market, and accurately forecast net sales and appropriately plan our expenses in the future;

•introduce new products or ~~offerings and~~services, improve existing ~~products;~~products and services, and expand into new offerings;

•successfully compete in the pet products and services retail industry, especially in the e-commerce sector;

•strengthen our current supplier relationships, retain key suppliers and source additional ~~or strengthen our existing relationships with,~~ suppliers;

•negotiate acceptable pricing and other terms with third-party service providers, suppliers and outsourcing partners and maintain our relationships with such ~~entities;~~parties;

•mitigate changes in, or disruptions to, our shipping arrangements and operations;

•optimize, operate and manage the expansion of the capacity of our fulfillment ~~centers;~~centers, including risks from the spread of COVID-19 relating to our plans to expand capacity and develop new facilities;

•provide our customers with a cost-effective platform that is able to respond and adapt to rapid changes in technology;

•maintain and scale our technology, including the reliability of our website, mobile applications, and network infrastructure;

•maintain adequate cybersecurity with respect to our systems and ensure that our third-party service providers do the same with respect to their systems;

•successfully manufacture and sell our own private brand products;

•maintain consumer confidence in the safety and quality of our vendor-supplied and private brand food products and hardgood products;

•preserve, grow, and leverage the value of our reputation and our brand;

•comply with existing or future laws and regulations in a cost-efficient manner;

•attract, develop, motivate and retain well-qualified employees; and

•adequately protect our intellectual property rights and successfully defend ourselves against any intellectual property infringement claims or other allegations or claims that we may be subject to.

You should not rely on forward-looking statements as predictions of future ~~events.~~events, and you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of factors. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current assumptions, expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our annual report on Form 10-K for the fiscal year ended January 30, 2022, our subsequent quarterly report, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on ~~Form~~ Form��10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

Investors and others should note that we may announce material ~~financial~~ information to our investors using our investor relations website (https://investor.chewy.com/), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on ~~social media~~these channels could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.

~~PART I. FINANCIAL INFORMATION~~

Item 1. Financial Statements (Unaudited)

CHEWY, INC.

CHEWY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

As of
May 5,
2019 February 3,
2019
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 29,298
$ 88,331
Accounts receivable 58,984
48,738
Inventories 254,140
220,855
Due from Parent, net 74,655
78,712
Prepaid expenses and other current assets 13,048
11,949
Total current assets 430,125
448,585
Property and equipment, net 93,544
91,691
Operating lease right-of-use assets 157,139
—
Other non-current assets 1,505
1,346
Total assets $ 682,313
$ 541,622
Liabilities and stockholders’ deficit
Current liabilities:
Trade accounts payable $ 519,597
$ 502,880
Accrued expenses and other current liabilities 309,054
311,150
Total current liabilities 828,651
814,030
Operating lease liabilities 177,636
—
Other long-term liabilities 33,967
63,534
Total liabilities 1,040,254
877,564
Commitments and contingencies (Note 4)

Stockholders’ deficit:

Voting common stock, $0.01 par value per share, 1,000 shares authorized, 100 shares issued and outstanding as of May 5, 2019 and February 3, 2019 —
—
Additional paid-in capital 1,263,715
1,256,160
Accumulated deficit (1,621,656 ) (1,592,102 )
Total stockholders’ deficit (357,941 ) (335,942 )
Total liabilities and stockholders’ deficit $ 682,313
$ 541,622
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	As of
	July 31, 2022		January 30, 2022
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	606,800	$	603,079
Accounts receivable	143,805		123,510
Inventories	707,921		560,430
Prepaid expenses and other current assets	46,902		36,513
Total current assets	1,505,428		1,323,532
Property and equipment, net	431,554		367,166
Operating lease right-of-use assets	411,231		372,693
Other non-current assets	20,300		22,890
Total assets	$	2,368,513	$	2,086,281
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	1,049,390	$	883,316
Accrued expenses and other current liabilities	728,916		761,563
Total current liabilities	1,778,306		1,644,879
Operating lease liabilities	456,701		410,168
Other long-term liabilities	16,115		16,498
Total liabilities	2,251,122		2,071,545
Commitments and contingencies (Note 4)	0		0
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding as of July 31, 2022 and January 30, 2022	—		—
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 111,458,932 and 108,918,032 shares issued and outstanding as of July 31, 2022 and January 30, 2022, respectively	1,114		1,089
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 shares issued and outstanding as of July 31, 2022 and January 30, 2022	3,112		3,112
Additional paid-in capital	2,083,123		2,021,310
Accumulated deficit	(1,969,958)		(2,010,775)
Total stockholders’ equity	117,391		14,736
Total liabilities and stockholders’ equity	$	2,368,513	$	2,086,281

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

13 Weeks Ended
May 5, 2019 April 29, 2018
Net sales $ 1,108,872
$ 763,462
Cost of goods sold 854,982
613,474
Gross profit 253,890
149,988
Operating expenses:
Selling, general and administrative 181,897
123,152
Advertising and marketing 102,263
86,661
Total operating expenses 284,160
209,813
Loss from operations (30,270 ) (59,825 )
Interest income, net 716
10
Loss before income tax provision (29,554 ) (59,815 )
Income tax provision —
—
Net loss $ (29,554 ) $ (59,815 )

Net loss per share attributable to common stockholders, basic and diluted $ (0.08 ) $ (0.15 )
Weighted average common shares used in computing net loss per share attributable to common stockholders, basic and diluted 393,000
393,000

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)


	13 Weeks Ended				26 Weeks Ended
	July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021
Net sales	$	2,431,011	$	2,155,036	$	4,859,338	$	4,290,214
Cost of goods sold	1,748,214		1,561,582		3,508,721		3,106,984
Gross profit	682,797		593,454		1,350,617		1,183,230
Operating expenses:
Selling, general and administrative	516,983		437,672		1,021,266		843,892
Advertising and marketing	144,159		171,968		288,880		316,403
Total operating expenses	661,142		609,640		1,310,146		1,160,295
Income (loss) from operations	21,655		(16,186)		40,471		22,935
Interest income (expense), net	690		(500)		346		(902)
Income (loss) before income tax provision	22,345		(16,686)		40,817		22,033
Income tax provision	—		—		—		—
Net income (loss)	$	22,345	$	(16,686)	$	40,817	$	22,033

Earnings (loss) per share attributable to common Class A and Class B stockholders:
Basic	$	0.05	$	(0.04)	$	0.10	$	0.05
Diluted	$	0.05	$	(0.04)	$	0.10	$	0.05
Weighted-average common shares used in computing earnings per share:
Basic	421,690		416,665		421,048		415,957
Diluted	426,833		416,665		426,772		427,458

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(in thousands)
(Unaudited)

13 Weeks Ended May 5, 2019
Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders' Deficit
Shares Amount
Balance as of February 3, 2019 —
$ —
$ 1,256,160
$ (1,592,102 ) $ (335,942 )
Share-based compensation expense —
—
7,230
—
7,230
Contribution from Parent —
—
325
—
325
Net loss —
—
—
(29,554 ) (29,554 )
Balance as of May 5, 2019 —
$ —
$ 1,263,715
$ (1,621,656 ) $ (357,941 )

13 Weeks Ended April 29, 2018
Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders' Deficit
Shares Amount
Balance as of January 28, 2018 —
$ —
$ 1,240,509
$ (1,324,212 ) $ (83,703 )
Share-based compensation expense —
—
3,273
—
3,273
Contribution from Parent —
—
325
—
325
Net loss —
—
—
(59,815 ) (59,815 )
Balance as of April 29, 2018 —
$ —
$ 1,244,107
$ (1,384,027 ) $ (139,920 )

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(Unaudited)


	13 Weeks Ended July 31, 2022
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of May 1, 2022	420,606	$	4,206	$	2,046,707	$	(1,992,303)	$	58,610

Share-based compensation expense	—	—		38,377		—		38,377
Vesting of share-based compensation awards	1,948	19		(19)		—		—
Distribution to parent	93	1		(1)		—		—
Tax withholdings for share-based compensation awards	—	—		(4)		—		(4)
Tax sharing agreement with related parties	—	—		(1,937)		—		(1,937)
Net income	—	—		—		22,345		22,345
Balance as of July 31, 2022	422,647	$	4,226	$	2,083,123	$	(1,969,958)	$	117,391

	13 Weeks Ended August 1, 2021
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of May 2, 2021	415,395	$	4,154	$	1,963,107	$	(1,898,239)	$	69,022

Share-based compensation expense	—	—		21,778		—		21,778
Vesting of share-based compensation awards	2,274	23		(23)		—		—
Distribution to parent	93	1		(1)		—		—

Tax sharing agreement with related parties	—	—		939		—		939
Net loss	—	—		—		(16,686)		(16,686)
Balance as of August 1, 2021	417,762	$	4,178	$	1,985,800	$	(1,914,925)	$	75,053

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

13 Weeks Ended
May 5, 2019 April 29, 2018
Cash flows from operating activities
Net loss $ (29,554 ) $ (59,815 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 6,949
4,718
Share-based compensation expense 7,230
3,273
Non-cash lease expense 4,012
—
Amortization of deferred rent —
2,200
Other 1,820
7
Net change in operating assets and liabilities:
Accounts receivable (10,246 ) 4,255
Inventories (33,285 ) (32,543 )
Prepaid expenses and other current assets (3,090 ) 828
Other non-current assets (159 ) 487
Trade accounts payable 16,716
34,317
Accrued expenses and other current liabilities (11,190 ) (4,758 )
Operating lease liabilities (2,121 ) —
Other long-term liabilities 1,777
1,758
Net cash used in operating activities (51,141 ) (45,273 )
Cash flows from investing activities
Capital expenditures (12,222 ) (13,461 )
Cash advances provided to Parent (11,493 ) (115 )
Cash reimbursements of advances provided to Parent 15,550
10,090
Net cash used in investing activities (8,165 ) (3,486 )
Cash flows from financing activities
Contribution from Parent 325
325
Principal repayments of finance lease obligations (52 ) —
Net cash provided by financing activities 273
325
Net decrease in cash and cash equivalents (59,033 ) (48,434 )
Cash and cash equivalents, as of beginning of period 88,331
68,767
Cash and cash equivalents, as of end of period $ 29,298
$ 20,333

Supplemental disclosures of non-cash investing and financing activities:
Capital expenditures included in accrued expenses and other current liabilities $ 2,041
$ 6,589
Leasehold improvements paid by tenant allowances $ 758
$ 110
Assets acquired in exchange for new operating lease liabilities $ 165
$ —

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(Unaudited)



	26 Weeks Ended July 31, 2022
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 30, 2022	420,106	$	4,201	$	2,021,310	$	(2,010,775)	$	14,736

Share-based compensation expense	—	—		64,171		—		64,171
Vesting of share-based compensation awards	2,501	25		(25)		—		—
Tax withholdings for share-based compensation awards	(53)	(1)		(2,471)		—		(2,472)
Distribution to parent	93	1		(1)		—		—

Tax sharing agreement with related parties	—	—		139		—		139
Net income	—	—		—		40,817		40,817
Balance as of July 31, 2022	422,647	$	4,226	$	2,083,123	$	(1,969,958)	$	117,391

	26 Weeks Ended August 1, 2021
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balance as of January 31, 2021	415,046	$	4,150	$	1,930,804	$	(1,936,958)	$	(2,004)


Share-based compensation expense	—	—		44,884		—		44,884
Vesting of share-based compensation awards	2,623	27		(27)		—		—
Distribution to parent	93	1		(1)		—		—

Tax sharing agreement with related parties	—	—		10,140		—		10,140

Net income	—	—		—		22,033		22,033
Balance as of August 1, 2021	417,762	$	4,178	$	1,985,800	$	(1,914,925)	$	75,053

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	26 Weeks Ended
	July 31, 2022		August 1, 2021
Cash flows from operating activities
Net income	$	40,817	$	22,033
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	37,678		24,117
Share-based compensation expense	64,171		44,884
Non-cash lease expense	19,203		16,399
Other	604		179
Net change in operating assets and liabilities:
Accounts receivable	(20,295)		(12,734)
Inventories	(147,491)		7,326
Prepaid expenses and other current assets	(13,861)		(31,695)
Other non-current assets	2,067		(3,324)
Trade accounts payable	166,074		50,656
Accrued expenses and other current liabilities	(7,343)		78,233
Operating lease liabilities	(9,592)		(10,562)
Other long-term liabilities	(427)		(2,061)
Net cash provided by operating activities	131,605		183,451
Cash flows from investing activities
Capital expenditures	(124,212)		(63,714)

Other	(1,400)		—
Net cash used in investing activities	(125,612)		(63,714)
Cash flows from financing activities


Payments for tax withholdings related to vesting of share-based compensation awards	(2,472)		—
Proceeds from tax sharing agreement with related parties	533		42,405


Principal repayments of finance lease obligations	(333)		(490)
Net cash (used in) provided by financing activities	(2,272)		41,915
Net increase in cash and cash equivalents	3,721		161,652
Cash and cash equivalents, as of beginning of period	603,079		563,345
Cash and cash equivalents, as of end of period	$	606,800	$	724,997

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	~~Description of Business and Basis of Presentation~~

1.Description of Business

Chewy, Inc. and its wholly-owned subsidiaries (collectively “Chewy” or the “Company”) is a pure play e-commerce business geared toward pet products and services for dogs, cats, fish, birds, small pets, horses, and reptiles. Chewy serves its customers through its retail website, www.chewy.com, and its mobile applications and focuses on delivering exceptional customer service, competitive prices, outstanding convenience (including Chewy’s Autoship subscription program, fast shipping, and hassle-free returns), and a large selection of high-quality pet food, treats and supplies, ~~price, convenience (including Chewy’s Autoship subscription program), fast shipping,~~ and ~~hassle-free returns.~~pet healthcare products.

~~PetSmart Acquisition~~

~~On May 31, 2017, the~~The Company ~~was acquired by PetSmart, Inc. (“PetSmart” or the “Parent”), a leading specialty provider of products, services and solutions for the lifetime needs of pets. This change-in-control event~~ is ~~referred to as the “PetSmart Acquisition”. PetSmart is wholly-owned~~controlled by a consortium including private investment funds advised by BC Partners and its affiliates, La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP, and funds advised by Longview Asset Management, LLC (collectively, the “Sponsors”)~~, and~~. The Company was controlled by ~~affiliates~~PetSmart LLC (“PetSmart”), a wholly-owned subsidiary of ~~BC Partners.~~the Sponsors through February 11, 2021.

~~Initial Public Offering~~

~~On June 18, 2019, the Company closed its initial public offering (“IPO”), in which it issued and sold 5.6 million shares of its Class A common stock. The price at IPO was $22.00 per share.~~ The Company ~~received net proceeds~~is transitioning corporate functions from Dania Beach, Florida to Plantation, Florida, which will serve as the new co-headquarters beginning August 22, 2022.

2. Basis of ~~approximately $111.5 million from the IPO after deducting underwriting discounts~~Presentation and ~~commissions of $6.2 million and offering expenses.~~Significant Accounting Policies

Prior to the completion of the IPO, the Company amended and restated its certificate of incorporation to authorize Class A and Class B common stock and reclassify the 100 outstanding shares of common stock into 393,000,000 shares of Class B common stock. In connection with the IPO, 47,875,000 shares of the Company’s Class B common stock were reclassified into shares of Class A common stock on a one-to-one basis. As of June 18, 2019, 53,475,000 shares of the Company’s Class A common stock and 345,125,000 shares of Class B common stock were outstanding. The Class A common stock outstanding includes the shares issued in the IPO.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes include the accounts of Chewy, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. The unaudited condensed consolidated financial statements and notes thereto of Chewy, Inc. have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) accounting standards codification. In the opinion of management, all adjustments necessary for a fair statement of the financial information, which are of a normal and recurring nature, have been made for the interim periods reported. Results of operations for the quarterly period ended ~~May 5, 2019~~July 31, 2022 are not necessarily indicative of the results for the entire fiscal year. The unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q for the quarterly period ended ~~May 5, 2019~~July 31, 2022 (“10-Q Report”) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s ~~final prospectus filed with~~Annual Report on Form 10-K for the ~~SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on June 17, 2019 (the “Prospectus”~~fiscal year ended January 30, 2022 (“10-K Report”).

Fiscal Year

The Company has a 5252- or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that year. ~~Each~~The Company’s 2022 fiscal year ~~generally consists of four 13-week~~ends on January 29, 2023 and is a 52-week year. The Company’s 2021 fiscal ~~quarters, with each fiscal quarter ending on the Sunday that is closest to the last day of the last month of the quarter.~~year ended January 30, 2022 and was a 52-week year.

Significant Accounting Policies


2.	~~Summary of Significant Accounting Policies~~

Other than policies noted ~~within Recent Accounting Pronouncements below,~~herein, there have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in the ~~Prospectus.~~10-K Report.

Use of Estimates

GAAP requires management to make certain estimates, judgments, and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates these estimates and judgments. Actual results could differ from those estimates.

Key estimates relate primarily to determining the net realizable value and demand for inventory, useful lives associated with property and equipment and intangible assets, valuation allowances with respect to deferred tax assets, contingencies, self-insurance accruals, evaluation of sales tax positions, and the valuation and assumptions underlying share-based compensation. On an ongoing basis, management evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

~~Recent Accounting Pronouncements~~Accrued Expenses and Other Current Liabilities

~~Recently Adopted Accounting Pronouncements~~

~~ASU 2016-02, Leases.~~ In February 2016, the FASB issued this Accounting Standards Update (“ASU”) to provide a comprehensive lease accounting model that requires lessees to recognize lease liabilities and corresponding right-of-use assets for most leases. The new guidance also changes the definition of a lease and requires enhanced disclosures of pertinent quantitative and qualitative information about an entity’s leasing activities. The FASB subsequently issued ASU 2018-10 allowing entities to initially apply ASU 2016-02 at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. These ASUs became effective at the beginning of the Company’s 2019 fiscal year. The Company adopted this ASU by applying the new guidance to new and existing leases effective February 4, 2019, with no restatement of comparative periods. The Company elected the package of practical expedients, which permitted the Company to not reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company also made an accounting policy election to not recognize right-of-use assets and lease liabilities arising from short-term leases on its condensed consolidated balance sheets. The adoption of this ASU did not result in a cumulative effect adjustment to accumulated deficit. Upon adoption, the Company recognized operating lease right-of-use assets of $162.8 million and operating lease liabilities of $193.6 million. The adoption of this new guidance did not have a material net impact on the Company’s condensed consolidated statements of operations or condensed consolidated statements of cash flows.

The Company has operating and finance lease agreements for its fulfillment and customer service centers, corporate offices, and certain equipment. The Company determines if an arrangement contains a lease at inception based on the ability to control a physically distinct asset. Operating and finance lease right-of-use assets are recorded in the condensed consolidated balance sheets based on the initial measurement of the lease liability as adjusted to include prepaid rent and initial direct costs less any lease incentives received. Lease liabilities are measured at the commencement date based on the present value of the lease payments over the lease term. Lease payments are generally fixed but may include provisions for future rent increases based on a market index. The Company separately accounts for lease and non-lease components within lease agreements; the non-lease components primarily relate to common area maintenance for real estate leases. The Company uses its incremental borrowing rate to present value the lease liability as key inputs to determine the interest rate implicit in the lease are not shared by lessors.

Operating lease expense is recorded on a straight-line basis over the lease term. Right-of-use assets and lease liabilities for short-term leases are not recognized in the condensed consolidated balance sheets. Payments for short-term leases are recognized in the condensed consolidated statements of operations on a straight-line basis over the lease term.

~~ASU 2018-07, Stock Compensation; Improvements to Nonemployee Share-Based Payment Accounting~~. In June 2018, the FASB issued this ASU to expand the scope of Topic 718, Compensation-Stock Compensation to include share-based payment awards to be issued to non-employees in exchange for acquiring goods and services. The ASU aligned the accounting for awards issued to non-employees to be similar to employee awards. This update became effective at the beginning of the Company’s 2019 fiscal year. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.

~~Recently Issued Accounting Pronouncements~~

~~ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement.~~ In August 2018, the FASB issued this ASU to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update is effective at the beginning of the Company’s 2020 fiscal year. The Company does not believe the adoption of this new guidance will have a material impact on its consolidated financial statements and disclosures.


3.	~~Accrued Expenses and Other Current Liabilities~~

The following table presents the components of accrued expenses and other current liabilities (in thousands):


	As of
	July 31, 2022		January 30, 2022
Outbound fulfillment	$	378,958	$	389,548
Advertising and marketing	84,333		86,285
Payroll liabilities	72,150		70,556
Accrued expenses and other	193,475		215,174
Total accrued expenses and other current liabilities	$	728,916	$	761,563

Fair Value of Financial Instruments

As of
May 5, 2019 February 3, 2019
Outbound fulfillment $ 143,620
$ 147,610
Advertising and marketing 68,006
85,421
Accrued expenses and other 97,428
78,119
Total accrued expenses and other current liabilities $ 309,054
$ 311,150

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:


4.	~~Commitments~~ ~~and Contingencies~~

~~As of May 5, 2019, there were no material changes to~~Level 1-Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2-Valuations based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3-Valuations based on unobservable inputs reflecting the Company’s ~~advertising~~assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value and ~~services purchase commitments and legal matters disclosed in Note 5~~are classified within Level 1 of the ~~“Notes to Consolidated Financial Statements” included in the Prospectus.~~fair value hierarchy because they are valued using quoted market prices.


5.	~~Debt~~

~~Interest Income and Expense~~

The following ~~table provides information about~~is a summary of cash and cash equivalents (in thousands):


	As of
	July 31, 2022		January 30, 2022
Cash	$	414,839	$	401,119
Level 1 securities:
Money market funds	127,000		67,000
Commercial paper	64,961		74,965
U.S. Treasury securities	—		59,995

Cash and cash equivalents	$	606,800	$	603,079

Stockholders’ Equity

Conversion of Class B Common Stock

On April 12, 2021, Argos Intermediate Holdco I Inc. (“Argos Holdco”), which is controlled by affiliates of BC Partners, converted 6,150,000 shares of the Company’s ~~interest income (expense),~~Class B common stock into Class A common stock and sold such Class A common stock.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. In June 2022, the FASB issued this Accounting Standards Update (“ASU”) to clarify the guidance when measuring the fair value of an equity security subject to contractual sale restrictions that prohibit the sale of an equity security. This update is effective at the beginning of the Company’s 2024 fiscal year, with early adoption permitted. The Company does not believe the adoption of this standard will have a material impact on the Company’s condensed consolidated financial statements.

3. Property and Equipment, net

The following is a summary of property and equipment, net (in thousands):


	As of
	July 31, 2022		January 30, 2022
Furniture, fixtures and equipment	$	197,069	$	132,727
Computer equipment	60,740		55,164
Internal-use software	112,316		95,302
Leasehold improvements	163,742		153,797
Construction in progress	86,391		85,043
	620,258		522,033
Less: accumulated depreciation and amortization	188,704		154,867
Property and equipment, net	$	431,554	$	367,166

Internal-use software includes labor and license costs associated with software development for internal use. As of July 31, 2022 and January 30, 2022, the Company had accumulated amortization related to internal-use software of $44.0 million and $35.1 million, respectively.

Construction in progress is stated at cost, which includes the cost of construction and other directly attributable costs. No provision for depreciation is made on construction in progress until the relevant assets are completed and put into use.

For the thirteen weeks ended July 31, 2022 and August 1, 2021, the Company recorded depreciation expense on property and equipment of $13.9 million, and $9.4 million, respectively, and amortization expense related to internal-use software costs of $5.5 million, and $3.3 million, respectively. For the twenty-six weeks ended July 31, 2022 and August 1, 2021, the Company recorded depreciation expense on property and equipment of $26.0 million, and $18.0 million, respectively, and amortization expense related to internal-use software costs of $9.9 million, and $6.1 million, respectively.The aforementioned depreciation and amortization expenses were included within selling, general and administrative expenses in the condensed consolidated statements of operations.

4. Commitments and Contingencies

Legal Matters

Various legal claims arise from time to time in the normal course of business. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

The Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. The Company does not believe that the ultimate resolution of any matters to which it is presently a party will have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

13 Weeks Ended
May 5, 2019 April 29, 2018
Interest income $ 720
$ 10
Interest expense (4 ) —
$ 716
$ 10
International Business Machines Corporation (“IBM”) previously alleged that the Company is infringing 4 of its patents. On February 15, 2021, the Company filed a declaratory judgment action in the United States District Court for the Southern District of New York (the “District Court”) against IBM seeking the District Court’s declaration that the Company is not infringing the 4 asserted IBM patents. On April 19, 2021, IBM filed an answer with counterclaims, alleging that the Company is infringing the 4 patents by operation of the Chewy.com website and mobile application, and seeking unspecified damages, including a request that the amount of compensatory damages be trebled, injunctive relief and costs and reasonable attorneys’ fees. The Company filed a motion to dismiss IBM’s claims against 3 of the asserted patents on May 14, 2021. In response, IBM filed an amended complaint on May 24, 2021 that included an additional assertion that the Company is infringing a fifth IBM patent. On October 8, 2021, the parties had a claim construction hearing and on November 9, 2021, the claim construction rulings resulted in 1 of the 5 patents being eliminated from the case. The parties filed their motions for summary judgment which were fully briefed on February 24, 2022. A pre-trial conference was held on March 25, 2022, where the judge heard oral arguments on the motions for summary judgment. On April 11, 2022, the District Court granted the Company’s motions for summary judgment that the Company did not infringe 3 of the patents and that the fourth patent is invalid. On April 29, 2022, IBM filed a notice of appeal in the United States Court of Appeals for the Federal Circuit to appeal the District Court’s judgment and filed its appellate brief on August 18, 2022. The Company continues to deny the allegations of any infringement and intends to vigorously defend itself in this matter.

5. Debt

ABL Credit Facility

~~On June 18, 2019, the~~The Company ~~entered into~~has a ~~new~~ five-year senior secured ~~asset-backed~~asset-based credit facility (the “ABL Credit Facility”) which matures in August 2026 and provides for non-amortizing revolving loans in an aggregate principal amount of up to ~~$300~~$500 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility provides the right to request incremental commitments and add incremental asset-based revolving loan facilities in an aggregate principal amount of up to ~~$100~~$300 million,, subject to customary conditions.

Borrowings under the ABL Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at the Company’s option, either a base rate or a LIBOR rate. The applicable margin is generally determined based on the average excess liquidity during the immediately preceding fiscal quarter as a percentage of the maximum borrowing amount under the ABL Credit Facility, and is between 0.25% and 0.75% for base rate loans and between 1.25% and 1.75% for LIBOR loans. The Company is ~~also~~ required to pay a ~~pay~~ commitment fee of ~~between~~ 0.25% ~~and 0.375%~~ with respect to the undrawn portion of the commitments, which is generally based on average daily usage of the facility.

~~All obligations~~ Based on the Company’s borrowing base as of July 31, 2022, which is reduced by standby letters of credit, the Company had $449.9 million of borrowing capacity under the ABL Credit ~~Facility are guaranteed on a senior secured first-lien basis by~~Facility. As of July 31, 2022, the Company’s wholly-owned domestic subsidiaries, subject to certain exceptions, and secured, subject to permitted liens and other exceptions, by a perfected first-priority security interest in substantially all of the Company’s and its wholly-owned domestic subsidiaries’ assets.

~~The ABL Credit Facility contains a number of covenants that, among other things, restrict the Company’s and its restricted subsidiaries’ ability to:~~

•~~incur or guarantee additional debt and issue certain equity securities;~~

•~~make certain investments and acquisitions;~~

•~~make certain restricted payments and payments of certain indebtedness;~~

•~~incur certain liens or permit them to exist;~~

•~~enter into certain types of transactions with affiliates;~~

•~~merge or consolidate with another company; and~~

•~~transfer, sell or otherwise dispose of assets.~~

~~Each of these restrictions is subject to various exceptions.~~

~~In addition,~~Company had no outstanding borrowings under the ABL Credit Facility requires the Company to maintain a minimum fixed charge coverage ratio of 1.0:1.0 if excess availability under the facility is less than the greater of 10% of the maximum borrowing amount and $30.0 million for a certain period of time. The ABL Credit Facility also contains certain customary affirmative covenants and events of default for facilities of this type, including an event of default upon a change in control.Facility.


6.	6. Leases

The Company leases all of its fulfillment and customer service centers and corporate offices under non-cancelable operating lease agreements. The terms of the Company’s real estate leases generally range from 5 to 15 years and typically allow for the leases to be renewed for up to ~~three~~3 additional five-year terms. Fulfillment and customer service centers and corporate office leases ~~including exercised renewal options,~~ expire at various dates through ~~2031.~~2034, excluding renewal options. The Company also leases certain equipment under operating and finance leases. The terms of equipment leases generally range from 3 to 5 years and do not contain renewal options. These leases expire at various dates through ~~2024.~~2025.

The Company’s finance leases as of ~~May 5, 2019~~July 31, 2022 and January 30, 2022 were not ~~material.~~ material and were included in property and equipment, net, on the Company’s condensed consolidated balance sheets.

The table below presents the operating lease-related assets and liabilities recorded on the condensed consolidated balance sheets (in thousands):


		As of
Leases	Balance Sheet Classification	July 31, 2022		January 30, 2022
Assets
Operating	Operating lease right-of-use assets	$	411,231	$	372,693
Total operating lease assets		$	411,231	$	372,693

Liabilities
Current
Operating	Accrued expenses and other current liabilities	$	22,841	$	24,225
Non-current
Operating	Operating lease liabilities	456,701		410,168
Total operating lease liabilities		$	479,542	$	434,393

Leases Balance Sheet Classification
As of
May 5, 2019
Assets
Operating Operating lease right-of-use assets $ 157,139
Total operating lease assets $ 157,139

Liabilities
Current
Operating Accrued expenses and other current liabilities $ 13,310
Non-current
Operating Operating lease liabilities 177,636
Total operating lease liabilities $ 190,946

For the twenty-six weeks ended July 31, 2022 and August 1, 2021, assets acquired in exchange for new operating lease liabilities were $57.1 million and $50.1 million, respectively. Lease expense primarily ~~related~~relates to operating lease costs. Lease expense for the thirteen weeks ended ~~May 5, 2019~~July 31, 2022 and August 1, 2021 was ~~$11.0 million, of which short-term and variable lease payments were $2.2~~$23.3 million and ~~were~~$19.6 million, respectively. Lease expense for the twenty-six weeks ended July 31, 2022 and August 1, 2021 was $44.6 million and $38.6 million, respectively. The aforementioned lease expense was included within selling, general and administrative expenses in the condensed consolidated statements of operations.

~~As of May 5, 2019, the weighted-average remaining lease term and weighted-average discount rate for~~Cash flows used in operating ~~leases was 11.3 years and 11.8%, respectively.~~

~~Operating cash flows~~activities related to ~~cash paid for~~ operating leases were approximately ~~$8.3~~$38.2 million and $32.0 million for the ~~thirteen~~twenty-six weeks ended ~~May 5, 2019.~~July 31, 2022 and August 1, 2021, respectively.

7. Share-Based Compensation

2022 Omnibus Incentive Plan

In July 2022, the Company’s stockholders approved the Chewy, Inc. 2022 Omnibus Incentive Plan (the “2022 Plan”) replacing the Chewy, Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2022 Plan became effective on July 14, 2022 and allows for the issuance of up to 40.0 million shares of Class A common stock and 1.0 million shares for new grants rolled over from the 2019 Plan. No awards may be granted under the 2022 Plan after July 2032. The 2022 Plan provides for the grants of: (i) options, including incentive stock options and non-qualified stock options, (ii) restricted stock units, (iii) other share-based awards, including share appreciation rights, phantom stock, restricted shares, performance shares, deferred share units, and share-denominated performance units, (iv) cash awards, (v) substitute awards, and (vi) dividend equivalents (collectively the “awards”). The awards may be granted to (i) the Company’s employees, consultants, and non-employee directors, (ii) employees of the Company’s affiliates and subsidiaries, and (iii) consultants of the Company’s subsidiaries.

Service and Performance-Based Awards

The ~~table below presents~~Company granted restricted stock units which vested upon satisfaction of both service-based vesting conditions and company performance-based vesting conditions (“PRSUs”), subject to the ~~maturity of lease liabilities~~employee’s continued employment with the Company through the applicable vesting date. The Company recorded share-based compensation expense for PRSUs over the requisite service period and accounted for forfeitures as ~~of May 5, 2019 (in thousands):~~they occur.

Operating Leases
Remainder of 2019 $ 22,569
2020 35,946
2021 33,555
2022 31,248
2023 26,695
Thereafter 215,409
Total lease payments 365,422
Less: interest 174,476
Present value of lease liabilities $ 190,946
Service and Performance-Based Awards Activity

The following table ~~above includes all locations~~summarizes the activity related to the Company’s PRSUs for ~~which~~the twenty-six weeks ended July 31, 2022 (in thousands, except for weighted-average grant date fair value):


	Number of PRSUs	Weighted-Average Grant Date Fair Value
Unvested and outstanding as of January 30, 2022	6,573	$	36.16
Granted	86	$	43.59
Vested	(2,080)	$	36.24
Forfeited	(218)	$	36.73
Unvested and outstanding as of July 31, 2022	4,361	$	36.24

The total fair value of PRSUs that vested during the twenty-six weeks ended July 31, 2022 was $58.5 million. As of July 31, 2022, total unrecognized compensation expense related to unvested PRSUs was $13.2 million and is expected to be recognized over a weighted-average expected performance period of 1.2 years.

During the twenty-six weeks ended July 31, 2022 and August 1, 2021, vesting occurred for 93,309 PRSUs, respectively, previously granted to an employee of PetSmart. For accounting purposes, the issuance of Class A common stock upon vesting of these PRSUs is treated as a distribution to a parent entity because both the Company ~~had the right to control the use~~and PetSmart are controlled by affiliates of the property. In addition, as of May 5, 2019 the Company had executed lease agreements which had not yet commenced with total future lease payments of $111.1 million. The weighted-average lease term for these leases is 16.1 years.BC Partners.



7.			~~Share-Based Compensation~~

~~Citrus Profits Interest Plan~~The fair value for PRSUs with a Company performance-based vesting condition is established based on the market price of the Company’s Class A common stock on the date of grant.

~~Subsequent~~

Service-Based Awards

The Company granted restricted stock units with service-based vesting conditions (“RSUs”) which vested subject to the ~~PetSmart Acquisition,~~employee’s continued employment with the Company’s share-based compensation included profits interests units granted by Citrus Intermediate Holdings L.P. (the “Citrus Partnership”), a newly established Delaware limited partnership (the “Citrus Profits Interest Plan”). The Citrus Partnership is a parent company of PetSmart and a wholly-owned subsidiary ofCompany through the ~~Sponsors.~~applicable vesting date. The Company recognizes share-based compensation as equity contributions from the Citrus Partnership in its condensed consolidated financial statements for awards granted under the Citrus Profits Interest Plan as it relates to grantees’ services as employees of the Company.

~~During the thirteen weeks ended May 5, 2019 and April 29, 2018, the Company recognized~~recorded share-based compensation expense for RSUs on a straight-line basis over the requisite service period and accounted for forfeitures as they occur.

Service-Based Awards Activity

The following table summarizes the activity related to the Company’s RSUs for the twenty-six weeks ended July 31, 2022 (in thousands, except for weighted-average grant date fair value):


	Number of RSUs	Weighted-Average Grant Date Fair Value
Unvested and outstanding as of January 30, 2022	3,207	$	68.96
Granted	7,487	$	42.79
Vested	(516)	$	73.90
Forfeited	(883)	$	55.01
Unvested and outstanding as of July 31, 2022	9,295	$	48.93

The total fair value of ~~$7.2~~RSUs that vested during the twenty-six weeks ended July 31, 2022 was $22.3 million. As of July 31, 2022, total unrecognized compensation expense related to unvested RSUs was $391.5 million and ~~$3.3~~is expected to be recognized over a weighted-average expected performance period of 3.1 years.

The fair value for RSUs is established based on the market price of the Company’s Class A common stock on the date of grant.

As of July 31, 2022, there were 39.9 million ~~respectively, in connection with awards granted~~additional shares of Class A common stock reserved for future issuance under the ~~Citrus Profits Interest~~2022 Plan.

Share-Based Compensation Expense

Share-based compensation expense is included within selling, general and administrative expenses in the condensed consolidated statements of operations. The Company recognized share-based compensation expense as follows (in thousands):

~~2019 Omnibus Incentive Plan~~


	13 Weeks Ended				26 Weeks Ended
	July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021
PRSUs	$	3,559	$	10,037	$	8,198	$	24,149
RSUs	34,818		11,741		55,973		20,735
Total share-based compensation expense	$	38,377	$	21,778	$	64,171	$	44,884

~~In June 2019,~~

8. Income Taxes

Chewy is subject to taxation in the ~~Company’s board of directors adopted~~U.S. and ~~approved the 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2019 Plan became effective on June 13, 2019~~various state, local, and ~~allows for the issuance of up to 31,864,865 shares of Class A common stock.~~

The 2019 Plan provides for the grant of stock options, including incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), restricted stock, dividend equivalents, stock payments, restricted stock units (“RSUs”), performance shares, other incentive awards, SARs, and cash awards (collectively “awards”). The awards may be granted to the Company’s employees, consultants, and directors, and the employees and consultants of the Company’s affiliates and subsidiaries.

~~In connection with the consummation of the IPO, the Company granted the following RSUs under the 2019 Plan:~~

•~~2,711,689 RSUs, which were fully vested upon consummation of the IPO,~~

•~~362,629 RSUs, which will vest within one year of consummation of the IPO, and~~

•~~21,693,634 RSUs, which will vest based on time-vesting conditions and share price hurdles.~~

~~There are 7,096,913 additional shares of Class A common stock reserved for future issuance under the 2019 Plan.~~


8.	~~Income Taxes~~

~~Subsequent to the PetSmart Acquisition, the Company’s losses were included with PetSmart’s consolidated U.S. federal and state income tax returns.~~foreign jurisdictions. Income taxes as presented in the Company’s condensed consolidated financial statements have been prepared based on ~~the~~Chewy’s separate return ~~method as if~~method. The Company’s losses and tax attributes were previously included in PetSmart’s consolidated tax return activity at the ~~Company were a taxpayer separate from PetSmart.~~U.S. federal level and any applicable state and local level.

The Company did not have a current or deferred provision for income taxes for any taxing jurisdictionduring the thirteen and twenty-six weeks ended~~May 5, 2019~~ July 31, 2022, and ~~April 29, 2018~~.August 1, 2021. Additionally, the Company maintained a full valuation allowance on its net deferred tax assets.

Concurrent with its initial public offering during the ~~IPO,~~fiscal year ended February 2, 2020, the Company, PetSmart, and ~~PetSmart~~Argos Holdco entered into a tax sharing agreement which governs the respective rights, responsibilities, and obligations of the Company, PetSmart, and ~~PetSmart~~Argos Holdco with respect to tax matters, including taxes attributable to PetSmart, entitlement to refunds, allocation of tax attributes, preparation of tax returns, certain tax elections, control of tax contests and other tax matters regarding U.S. federal, state, ~~local,~~ and ~~foreign~~local income taxes.

During the twenty-six weeks ended July 31, 2022, and August 1, 2021, the Company collected $0.5 million and $42.4 million, respectively, pursuant to the tax sharing agreement. The tax sharing agreement was effectively terminated for federal income taxes upon tax deconsolidation with PetSmart, however, there may be future settlements upon final adjustment to the consolidated federal tax returns. The tax sharing agreement remains in effect for certain states in which the Company continues to file with Argos Holdco.


9.	~~Net Loss~~ 9. Earnings (Loss) per Share

Basic and diluted ~~net loss~~earnings (loss) per share attributable to common stockholders isare presented using the ~~two class~~two-class method required for participating securities. Under the ~~two class~~two-class method, net ~~loss~~income (loss) attributable to common stockholders is determined by allocating undistributed earnings between common stock and participating securities. Undistributed earnings for the periods presented are calculated as net ~~loss~~income (loss) less distributed earnings.

Undistributed earnings are allocated proportionally to common Class A and Class B stockholders as both classes are entitled to share equally, on a per share basis, in dividends and other distributions. Basic and diluted ~~net loss~~earnings (loss) per share isare calculated by dividing net ~~loss~~income (loss) attributable to common stockholders by the weighted-average shares outstanding during the period. The weighted-average shares outstanding during the period reflects the reclassification of the 100 outstanding shares of common stock into 393,000,000 shares of Class B common stock. There were no shares of Class A common stock outstanding for the thirteen weeks ended May 5, 2019 or April 29, 2018.

For the thirteen weeks ended May 5, 2019 and April 29, 2018, the Company’s basic and diluted net loss per share attributable to common stockholders are the same because the Company has generated a net loss to common stockholders and common stock equivalents are excluded from diluted net loss per share as they have an antidilutive impact.

The following table sets forth basic and diluted ~~net loss~~earnings (loss) per share attributable to common stockholders for the periods presented (in thousands, except per share data):


	13 Weeks Ended				26 Weeks Ended
	July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021
Basic and diluted earnings (loss) per share
Numerator
Earnings (loss) attributable to common Class A and Class B stockholders	$	22,345	$	(16,686)	$	40,817	$	22,033
Denominator
Weighted-average common shares used in computing earnings per share:
Basic	421,690		416,665		421,048		415,957
Effect of dilutive stock-based awards	5,143		—		5,724		11,501
Diluted	426,833		416,665		426,772		427,458
Anti-dilutive stock-based awards excluded from diluted common shares	7,388		11,913		4,528		66
Earnings (loss) per share attributable to common Class A and Class B stockholders:
Basic	$	0.05	$	(0.04)	$	0.10	$	0.05
Diluted	$	0.05	$	(0.04)	$	0.10	$	0.05

10. Certain Relationships and Related Party Transactions

13 Weeks Ended
May 5, 2019 April 29, 2018
Common stockholders
Numerator:
Net loss $ (29,554 ) $ (59,815 )
Net loss attributable to common stockholders $ (29,554 ) $ (59,815 )

Denominator:
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted 393,000
393,000

Net loss per share attributable to common stockholders, basic and diluted $ (0.08 ) $ (0.15 )


~~10.~~	~~Certain Relationships and Related Party Transactions~~

The Company’s condensed consolidated financial statements include management fee expenses of $0.3 million allocated to the Company by the Sponsors and the Parent for organizational oversight and certain limited corporate functions for the thirteen weeks ended May 5, 2019 and April 29, 2018, respectively. Allocated costs are included within selling, general and administrative expenses in the condensed consolidated statements of operations.

From time to time, prior to the completion of the IPO, the Company used funding from or provided funding to the Parent, as needed, in the normal course of business. The Company and PetSmart were parties to an intercompany loan agreement pursuant to which each party made loans from time to time to the other. As of May 5, 2019, PetSmart owed the Company $74.7 million under the agreement. In connection with the signing of an underwriting agreement pursuant to which the Company received substantially all of the net proceeds from the Company’s sale of shares of Class A common stock as part of the IPO, the loan agreement was terminated without cash repayment of the outstanding loan.

Certain of the Company’s ~~pharmacy~~healthcare operations are ~~currently, and have been since launch on July 2, 2018,~~ conducted through a wholly-owned subsidiary of ~~PetSmart. The~~PetSmart for which the Company ~~has~~and PetSmart entered into a services agreement ~~with PetSmart that~~which provides for the payment of a management fee due from ~~PetSmart with respect to this arrangement.~~PetSmart. The Company recognized ~~$10.5~~$1.8 million and $3.1 million during the thirteen and twenty-six weeks ended July 31, 2022, respectively, within net sales in the condensed consolidated ~~statement~~statements of operations for the services provided compared to $9.1 million and $19.7 million during the thirteen and twenty-six weeks ended ~~May 5, 2019. The services agreement will remain in place for so long as~~August 1, 2021, respectively.

As of July 31, 2022, the Company ~~conducts any pharmacy operations through~~had a net payable to PetSmart ~~subsidiary.~~

~~In connection with~~of $1.0 million, which was included in accrued expenses and other current liabilities on the ~~IPO,~~Company’s condensed consolidated balance sheets. As of January 30, 2022, the Company had a net receivable from PetSmart of $2.5 million, which was ~~released from its obligations under~~included in prepaid expenses and other current assets on the ~~Parent’s asset-backed revolving credit facility in accordance with its terms.~~Company's condensed consolidated balance sheets.

PetSmart Guarantees

PetSmart ~~currently provides~~previously provided a guarantee of payment with respect to certain equipment and other leases that the Company ~~has~~ entered into and ~~serves~~served as a guarantor in respect of the Company’s obligations under a credit insurance policy in favor of certain of the Company’s ~~current or future~~ suppliers. ~~The Company has historically not paid PetSmart for any~~As of ~~these guarantees.~~


~~11.~~	~~Subsequent~~ ~~Events~~

~~On June 13, 2019,~~July 31, 2022, all such guarantees had been released, with the exception of guarantees pertaining to 1 of the Company’s ~~2019 Omnibus Incentive Plan became effective. See Note 7 for additional information.~~lease agreements.

~~On June 18, 2019, the Company completed its IPO. See Note 1 for additional information.~~

~~On June 18, 2019, the Company entered into a new five-year senior secured asset-backed credit facility. See Note 5 for additional information.~~

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and related notes thereto included in this Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2022 (“10-Q Report”) and our ~~final prospectus filed with~~audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the ~~Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on June 17, 2019 (the “Prospectus”~~fiscal year ended January 30, 2022 (“10-K Report”). This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections herein and in our 10-K Report, our actual results may differ materially from those anticipated in these forward-looking statements. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Chewy,” “the Company,” “we,” “our,” or “us” refer to Chewy, Inc. and its consolidated subsidiaries.

Investors and others should note that we may announce material ~~financial~~ information to our investors using our investor relations website (https://investor.chewy.com/), ~~SEC~~Securities and Exchange Commission (the “SEC”) filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on ~~social media~~these channels could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.

Overview

We are the largest pure-play pet e-tailer in the United States, offering virtually every product a pet needs. We launched Chewy in 2011 to bring the best of the neighborhood pet store shopping experience to a larger audience, enhanced by the depth and wide selection of products and services, as well as the around-the-clock convenience, that only e-commerce can offer. We believe that we are the preeminent ~~online~~ destination for pet parents as a result of our broad selection of high-quality products and expanded menu of service offerings, which we offer at great prices and deliver with an exceptional level of care and a personal touch. We are the trusted source for pet parents and partners and continually develop innovative ways for our customers to engage with us. We partner with more than ~~1,600~~3,000 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding private brands. Through our website and mobile applications, we offer our customers more than ~~45,000~~100,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.

COVID-19

The COVID-19 pandemic has been a disruptive economic and societal event that has affected our business and consumer shopping behavior. As this crisis unfolded, we monitored conditions closely and adapted aspects of our logistics, transportation, supply chain and purchasing processes accordingly to meet federal, state, and local standards and to ensure the safety and well-being of our team members, while continuing to meet the needs of our rapidly growing community of pets and pet parents. We continue to monitor the impact of the COVID-19 pandemic and adapt our business accordingly. As reflected in the discussion below, we saw customers shift more of their total shopping spend to online channels during the peak of the COVID-19 outbreak, which has led to increased sales and order activity for our business.

Labor markets, particularly as they pertain to our fulfillment centers, have been, and remain, challenging. We expect this labor supply and demand imbalance to continue over the foreseeable future, resulting in increased competition for personnel. In addition, global supply chain shortages and disruptions and inflation have emerged, which have impacted, and continue to impact, sales, margins and the pace of economic recovery.

While conditions do appear to be improving as vaccination levels rise and state and local economies have, for the most part, re-opened, the positive or negative impacts that the COVID-19 outbreak will ultimately have on our business remain difficult to predict, particularly as vaccine efforts face challenges and new variants of the virus continue to emerge. We are still unable to predict the duration of the COVID-19 pandemic and its ultimate impact on the broader economy or our operations and liquidity. As such, risks and uncertainties regarding COVID-19remain. Please refer to the “Cautionary Note Regarding Forward-Looking Statements” in this 10-Q Report and in the section titled “Risk Factors” in Item 1A of Form 10-K for the fiscal year ended January 30, 2022.

Fiscal Year End

We have a 5252- or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that ~~fiscal~~ year. ~~Each~~Our 2022 fiscal year ~~generally consists of four 13-week~~ends on January 29, 2023 and is a 52-week year. Our 2021 fiscal ~~quarters, with each fiscal quarter ending on the Sunday that is closest to the last day of the last month of the quarter.~~year ended January 30, 2022 and was a 52-week year.

~~Initial Public Offering~~

On June 13, 2019, our registration statement on Form S-1 to our initial public offering (“IPO”) was declared effective by the SEC, and our common stock began trading on the New York Stock Exchange (“NYSE”) on June 14, 2019. Our IPO closed on June 18, 2019. As a result, our condensed consolidated financial statements as of May 5, 2019 do not reflect the impact of our IPO. For additional information, see Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Key Financial and Operating Data

We measure our business using both financial and operating data and use the following metrics and measures to assess the near-term and long-term performance of our overall business, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies, and monitoring our business.


	13 Weeks Ended										13 Weeks Ended													26 Weeks Ended
(in thousands, except net sales per active customer and percentages)	May 5, 2019			April 29, 2018			% Change		(in thousands, except net sales per active customer and percentages)		July 31, 2022					August 1, 2021				% Change				July 31, 2022					August 1, 2021				% Change
Financial and Operating Data									Financial and Operating Data
Net sales	$	1,108,872		$	763,462		45.2	%	Net sales		$	2,431,011				$	2,155,036			12.8	%			$	4,859,338				$	4,290,214			13.3	%
Net loss	$	(29,554	)	$	(59,815	)	50.6	%
Net income (loss)(1)									Net income (loss)(1)		$	22,345				$	(16,686)			233.9	%			$	40,817				$	22,033			85.3	%
Net margin									Net margin		0.9		%			(0.8)		%						0.8		%			0.5		%
Adjusted EBITDA⁽¹⁾⁽²⁾	$	(15,766	)	$	(51,509	)	69.4	%	$	83,055				$	23,272				256.9	%		$	143,571				$	100,626				42.7	%
Adjusted EBITDA margin⁽¹⁾⁽²⁾	(1.4		)%	(6.7		)%			3.4		%			1.1		%						3.0		%			2.3		%
Net cash used in operating activities	$	(51,141	)	$	(45,273	)	(13.0	)%
Net cash provided by operating activities									Net cash provided by operating activities		$	49,172				$	85,085			(42.2)	%			$	131,605				$	183,451			(28.3)	%
Free cash flow⁽¹⁾⁽²⁾	$	(63,363	)	$	(58,734	)	(7.9	)%	$	981				$	60,253				(98.4)	%		$	7,393				$	119,737				(93.8)	%
Active customers	11,321			7,830			44.6	%	Active customers		20,490					20,077				2.1	%			20,490					$	20,077			2.1	%
Net sales per active customer	$	343		$	314		9.2	%	Net sales per active customer		$	462				$	404			14.4	%			$	462				$	404			14.4	%
Autoship customer sales	$	743,853		$	477,449		55.8	%	Autoship customer sales		$	1,776,583				$	1,513,944			17.3	%			$	3,530,264				$	2,994,184			17.9	%
Autoship customer sales as a percentage of net sales	67.1		%	62.5		%			Autoship customer sales as a percentage of net sales		73.1		%			70.3		%						72.6		%			69.8		%
⁽¹⁾ Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures.

(1) Includes share-based compensation expense, including related taxes, of $39.7 million and $66.9 million for the thirteen and twenty-six weeks ended July 31, 2022, respectively, compared to $25.6 million and $50.4 million for the thirteen and twenty-six weeks ended August 1, 2021, respectively.									(1) Includes share-based compensation expense, including related taxes, of $39.7 million and $66.9 million for the thirteen and twenty-six weeks ended July 31, 2022, respectively, compared to $25.6 million and $50.4 million for the thirteen and twenty-six weeks ended August 1, 2021, respectively.

(2) Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures.									(2) Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures.

We define net margin as net income (loss) divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this

10-Q Report adjusted EBITDA, a non-GAAP financial measure that we calculate as net ~~loss~~income (loss) excluding depreciation and amortization; share-based compensation ~~expense;~~expense and related taxes; income tax provision; interest income (expense), net; ~~management fee expense;~~transaction related costs; and ~~non-routine items.~~litigation matters and other items that we do not consider representative of our underlying operations. We have provided a reconciliation below of adjusted EBITDA to net ~~loss,~~income (loss), the most directly comparable GAAP financial measure.

We have included adjusted EBITDA and adjusted EBITDA margin in this 10-Q Report because iteach is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted EBITDA and adjusted EBITDA margin facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and certain variable charges. Accordingly, we believe that adjusted EBITDA ~~provides~~and adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

We believe it is useful to exclude non-cash charges, such as depreciation and amortization and share-based compensation ~~expense and management fee~~ expense from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision; interest income (expense), net; transaction related costs; and ~~non-routine~~litigation matters and other items ~~as these items~~which are not components of our core business operations. Adjusted EBITDA has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures;

•adjusted EBITDA does not reflect share-based compensation and related taxes. Share-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy;

•adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital;

•adjusted EBITDA ~~excludes one-time non-routine items;~~does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and

•other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, including various cash flow metrics, net ~~loss~~income (loss), net margin, and our other GAAP results.

The following table presents a reconciliation of net ~~loss~~income (loss) to adjusted EBITDA, as well as the calculation of net margin and adjusted EBITDA margin, for each of the periods indicated.


($ in thousands, except percentages)	13 Weeks Ended						26 Weeks Ended
Reconciliation of Net Income (Loss) to Adjusted EBITDA	July 31, 2022			August 1, 2021			July 31, 2022			August 1, 2021
Net income (loss)	$	22,345		$	(16,686)		$	40,817		$	22,033
Add:
Depreciation and amortization	20,338			12,691			37,678			24,117
Share-based compensation expense and related taxes	39,739			25,589			66,933			50,361
Interest (income) expense, net	(690)			500			(346)			902

Transaction related costs	237			140			1,395			971
Other	1,086			1,038			(2,906)			2,242
Adjusted EBITDA	$	83,055		$	23,272		$	143,571		$	100,626
Net sales	$	2,431,011		$	2,155,036		$	4,859,338		$	4,290,214
Net margin	0.9		%	(0.8)		%	0.8		%	0.5		%
Adjusted EBITDA margin	3.4		%	1.1		%	3.0		%	2.3		%

($ in thousands, except percentages) 13 Weeks Ended
Reconciliation of Net Loss to Adjusted EBITDA May 5, 2019 April 29, 2018
Net loss $ (29,554 ) $ (59,815 )
Add (deduct):
Depreciation and amortization 6,949
4,718
Share-based compensation expense 7,230
3,273
Income tax provision —
—
Interest income, net (716 ) (10 )
Management fee expense⁽¹⁾
325
325
Adjusted EBITDA $ (15,766 ) $ (51,509 )
Net sales $ 1,108,872
$ 763,462
Adjusted EBITDA margin (1.4 )% (6.7 )%
⁽¹⁾ Management fee expense allocated to us by PetSmart for organizational oversight and certain limited corporate functions. Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our condensed consolidated financial statements.

~~We define adjusted EBITDA margin as adjusted EBITDA divided by net sales.~~

Free Cash Flow

To provide investors with additional information regarding our financial results, we have also disclosed here and elsewhere in this 10-Q Report free cash flow, a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less capital expenditures (which consist of purchases of property and equipment, ~~including servers and networking equipment,~~ capitalization of labor related to our website, mobile applications, and software development, and leasehold improvements). We have provided a reconciliation below of free cash flow to net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure.

We have included free cash flow in this 10-Q Report because it is used by our management and board of directors as an important indicator of our liquidity as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Free cash flow has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. There are limitations to using non-GAAP financial measures, including that other companies, including companies in our industry, may calculate free cash flow differently. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used in) operating activities, capital expenditures and our other GAAP results.

The following table presents a reconciliation of net cash provided by ~~(used in)~~ operating activities to free cash flow for each of the periods indicated.


($ in thousands)	13 Weeks Ended				26 Weeks Ended
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow	July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021
Net cash provided by operating activities	$	49,172	$	85,085	$	131,605	$	183,451
Deduct:
Capital expenditures	(48,191)		(24,832)		(124,212)		(63,714)
Free Cash Flow	$	981	$	60,253	$	7,393	$	119,737

($ in thousands) 13 Weeks Ended
Reconciliation of Net Cash Provided by (Used in) Operating Activities to Free Cash Flow May 5, 2019 April 29, 2018
Net cash used in operating activities $ (51,141 ) $ (45,273 )
Add (deduct):
Capital expenditures (12,222 ) (13,461 )
Free Cash Flow $ (63,363 ) $ (58,734 )

Free cash flow may be affected in the near to medium term by the timing of capital investments (such as the launch of new fulfillment centers, customer service centers, and corporate offices and purchases of IT and other equipment), fluctuations in our growth and the effect of such fluctuations on working capital, and changes in our cash conversion cycle due to increases or decreases of vendor payment terms as well as inventory turnover.

Key Operating Metrics

Active Customers

As of the last date of each reporting period, we determine our number of active customers by counting the total number of individual customers who have ordered a product or service, and for whom ~~an order~~a product has shipped or for whom a service has been provided, at least once during the preceding 364-day period. The change in active customers in a reporting period captures both the inflow of new customers as well as the outflow of customers who have not made a purchase in the last 364 days. We view the number of active customers as a key indicator of our growth—acquisition and retention of customers—as a result of our marketing efforts and the value we provide to our customers. The number of active customers has grown over time as we acquired new customers and retained previously acquired customers.

Net Sales Per Active Customer

We define net sales per active customer as the aggregate net sales for the preceding four fiscal quarters, divided by the total number of active customers at the end of that period. We view net sales per active customer as a key indicator of our customers’ purchasing patterns, including their initial and repeat purchase behavior.

Autoship and Autoship Customer Sales

We define Autoship customers as customers in a given fiscal quarter ~~for whom~~that had an order ~~has~~ shipped through our Autoship subscription program during the preceding 364-day period. We define Autoship as our subscription program, which provides automatic ordering, payment, and delivery of products to our customers. We view our Autoship subscription program as a key driver of recurring net sales and customer retention. For a given fiscal quarter, Autoship customer sales consist of sales and shipping revenues from all Autoship subscription program purchases and purchases outside of the Autoship subscription program by Autoship customers, excluding taxes collected from customers, excluding any refund allowance, and net of any promotional offers (such as percentage discounts off current purchases and other similar offers), for that quarter. For a given fiscal year, Autoship customer sales equal the sum of the Autoship customer sales for each of the fiscal quarters in that fiscal year.

Autoship Customer Sales as a Percentage of Net Sales

We define Autoship customer sales as a percentage of net sales as the Autoship customer sales in a given reporting period divided by the net sales from all orders in that period. We view Autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention.

Components of Results of Consolidated Operations

Net Sales

We derive net sales primarily from sales of both third-party brand and private brand pet food, pet products, pet medications and other pet health products, and related shipping fees. Sales of third-party brand and private brand pet food, pet products and shipping revenues are recorded when products are shipped, net of promotional discounts and refund allowances. Taxes collected from customers are excluded from net sales. Net sales is primarily driven by growth of new customers and active customers, and the frequency with which customers purchase and subscribe to our Autoship subscription program.

We also periodically provide promotional offers, including discount offers, such as percentage discounts off current purchases and other similar offers. These offers are treated as a reduction to the purchase price of the related transaction and are reflected as a net amount in net sales.

Cost of Goods Sold

Cost of goods sold consists of the cost of third-party brand and private brand products sold to customers, inventory freight, shipping supply costs, inventory shrinkage costs, and inventory valuation adjustments, offset by reductions for promotions and percentage or volume rebates offered by our vendors, which may depend on reaching minimum purchase thresholds. Generally, amounts received from vendors are considered a reduction of the carrying value of inventory and are ultimately reflected as a reduction of cost of goods sold.

Selling, General and Administrative

Selling, general and administrative expenses consist of payroll and related expenses for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources; costs associated with use by these functions, such as depreciation expense and rent relating to facilities and equipment; professional fees and other general corporate costs; share-based compensation; and fulfillment costs.

Fulfillment costs represent costs incurred in operating and staffing fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, payment processing and related transaction costs and responding to inquiries from customers. Included within fulfillment costs are merchant processing fees charged by third parties that provide merchant processing services for credit cards.

Advertising and Marketing

Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities.

~~Interest Income (Expense), Net~~

Interest income (expense), net consists primarily of interest earned on cash and cash equivalents held by us. In the future, we will recognize interest expense in connection with any borrowings under the new five-year senior secured asset-backed credit facility (the “ABL Credit Facility”). See “Other Liquidity Measures-ABL Credit Facility.”

~~Income Tax Provision~~

Our income tax provision consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.

Results of Consolidated Operations

The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.


								13 Weeks Ended								26 Weeks Ended
	13 Weeks Ended													% of net sales										% of net sales
($ in thousands)	May 5, 2019			April 29, 2018			($ in thousands)	July 31, 2022		August 1, 2021		% Change		July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021		% Change		July 31, 2022		August 1, 2021
Consolidated Statements of Operations							Consolidated Statements of Operations
Net sales	$	1,108,872		$	763,462		Net sales	$	2,431,011	$	2,155,036	12.8	%	100.0	%	100.0	%	$	4,859,338	$	4,290,214	13.3	%	100.0	%	100.0	%
Cost of goods sold	854,982			613,474			Cost of goods sold	1,748,214		1,561,582		12.0	%	71.9	%	72.5	%	3,508,721		3,106,984		12.9	%	72.2	%	72.4	%
Gross profit	253,890			149,988			Gross profit	682,797		593,454		15.1	%	28.1	%	27.5	%	1,350,617		1,183,230		14.1	%	27.8	%	27.6	%
Operating expenses:							Operating expenses:
Selling, general and administrative	181,897			123,152			Selling, general and administrative	516,983		437,672		18.1	%	21.3	%	20.3	%	1,021,266		843,892		21.0	%	21.0	%	19.7	%
Advertising and marketing	102,263			86,661			Advertising and marketing	144,159		171,968		(16.2)	%	5.9	%	8.0	%	288,880		316,403		(8.7)	%	5.9	%	7.4	%
Total operating expenses	284,160			209,813			Total operating expenses	661,142		609,640		8.4	%	27.2	%	28.3	%	1,310,146		1,160,295		12.9	%	27.0	%	27.0	%
Loss from operations	(30,270		)	(59,825		)
Interest income, net	716			10
Loss before income tax provision	(29,554		)	(59,815		)
Income (loss) from operations							Income (loss) from operations	21,655		(16,186)		233.8	%	0.9	%	(0.8)	%	40,471		22,935		76.5	%	0.8	%	0.5	%
Interest income (expense), net							Interest income (expense), net	690		(500)		238.0	%	—	%	—	%	346		(902)		138.4	%	—	%	—	%
Income (loss) before income tax provision							Income (loss) before income tax provision	22,345		(16,686)		233.9	%	0.9	%	(0.8)	%	40,817		22,033		85.3	%	0.8	%	0.5	%
Income tax provision	—			—			Income tax provision	—		—		—	%	—	%	—	%	—		—		—	%	—	%	—	%
Net loss	$	(29,554	)	$	(59,815	)
Net income (loss)							Net income (loss)	$	22,345	$	(16,686)	233.9	%	0.9	%	(0.8)	%	$	40,817	$	22,033	85.3	%	0.8	%	0.5	%

	13 Weeks Ended
(% of net sales)	May 5, 2019			April 29, 2018
Consolidated Statements of Operations
Net sales	100.0		%	100.0		%
Cost of goods sold	77.1			80.4
Gross profit	22.9			19.6
Operating expenses:
Selling, general and administrative	16.4			16.1
Advertising and marketing	9.2			11.4
Total operating expenses	25.6			27.5
Loss from operations	(2.7		)	(7.8		)
Interest income, net	0.1			—
Loss before income tax provision	(2.7		)	(7.8		)
Income tax provision	—			—
Net loss	(2.7		)%	(7.8		)%

Thirteen and Twenty-Six Weeks Ended ~~May 5, 2019~~July 31, 2022 Compared to Thirteen and Twenty-Six Weeks Ended ~~April 29, 2018~~August 1, 2021

Net Sales


	13 Weeks Ended								26 Weeks Ended
($ in thousands)	July 31, 2022		August 1, 2021		$ Change		% Change		July 31, 2022		August 1, 2021		$ Change		% Change
Consumables	$	1,712,832	$	1,483,954	$	228,878	15.4	%	$	3,410,971	$	2,938,967	$	472,004	16.1	%
Hardgoods	290,804		318,593		(27,789)		(8.7)	%	606,828		662,222		(55,394)		(8.4)	%
Other	427,375		352,489		74,886		21.2	%	841,539		689,025		152,514		22.1	%
Net sales	$	2,431,011	$	2,155,036	$	275,975	12.8	%	$	4,859,338	$	4,290,214	$	569,124	13.3	%

13 Weeks Ended
($ in thousands) May 5, 2019 April 29, 2018 $ Change % Change
Consumables $ 872,315
$ 607,290
$ 265,025
43.6 %
Hardgoods 192,578
140,462
52,116
37.1 %
Other 43,979
15,710
28,269
179.9 %
Net sales $ 1,108,872
$ 763,462
$ 345,410
45.2 %

Net sales for the thirteen weeks ended ~~May 5, 2019~~July 31, 2022 increased by ~~$345.4~~$276.0 million, or ~~45.2%~~12.8%, to ~~$1.1~~$2.4 billion compared to ~~$763.5 million~~$2.2 billion for the thirteen weeks ended ~~April 29, 2018.~~August 1, 2021. This increase was primarily due to ~~growth~~increases in spending per customer and our larger customer ~~base, with the number of~~base. Net sales per active ~~customers increasing by 3.5 million,~~customer increased $58, or ~~44.6%~~14.4%, in the thirteen weeks ended ~~May 5, 2019~~July 31, 2022 compared to the thirteen weeks ended ~~April 29, 2018, along with the increased spending among~~August 1, 2021, driven by growth across our consumables and healthcare businesses, partially offset by a decline in sales in discretionary products, mainly hardgoods. In addition, our active ~~customers.~~customer base increased by 0.4 million, or 2.1% year-over-year.

Net sales for the twenty-six weeks ended July 31, 2022 increased by $569.1 million, or 13.3%, to $4.9 billion compared to $4.3 billion for the twenty-six weeks ended August 1, 2021. This increase was primarily due to increases in spending per customer and our larger customer base. Net sales per active customer increased $58, or 14.4%, in the twenty-six weeks ended July 31, 2022 compared to the twenty-six weeks ended August 1, 2021, driven by growth across our consumables and healthcare businesses, partially offset by a decline in sales in discretionary products, mainly hardgoods. In addition, our active customer base increased by 0.4 million, or 2.1% year-over-year.

Cost of Goods Sold and Gross Profit

13 Weeks Ended
($ in thousands) May 5, 2019 April 29, 2018 $ Change % Change
Cost of goods sold $ 854,982
$ 613,474
$ 241,508
39.4 %
Gross profit $ 253,890
$ 149,988
$ 103,902
69.3 %
Gross margin 22.9 % 19.6 %

Cost of goods sold for the thirteen weeks ended ~~May 5, 2019~~July 31, 2022 increased by ~~$241.5~~$186.6 million, or ~~39.4%~~12.0%, to ~~$855.0 million~~$1.7 billion compared to ~~$613.5 million~~$1.6 billion in the thirteen weeks ended ~~April 29, 2018.~~August 1, 2021. This increase was primarily due to a ~~42.1%~~4.8% increase in orders shipped, ~~and~~as well as an increase in associated product, ~~costs,~~ outbound freight, and shipping supply costs. The increase in cost of goods sold was lower than the increase in ~~orders~~net sales on a percentage basis, reflecting pricing strength and favorable changes in our mix of sales.

Cost of goods sold for the twenty-six weeks ended July 31, 2022 increased by $401.7 million, or 12.9%, to $3.5 billion compared to $3.1 billion in the twenty-six weeks ended August 1, 2021. This increase was primarily asdue to a ~~result~~6.8% increase in orders shipped and associated product, outbound freight, and shipping supply costs. The increase in cost of ~~negotiated cost reductions from product~~goods sold was lower than the increase in net sales on a percentage basis, reflecting pricing strength and ~~freight suppliers.~~favorable changes in our mix of sales.

Gross profit for the thirteen weeks ended ~~May 5, 2019~~July 31, 2022 increased by ~~$103.9~~$89.3 million, or ~~69.3%~~15.1%, to ~~$253.9~~$682.8 million compared to ~~$150.0~~$593.5 million in the thirteen weeks ended ~~April 29, 2018.~~August 1, 2021. This increase was primarily due to the year-over-year increase in net sales as described above. Gross profit as a percentage of net sales for the thirteen weeks ended ~~May 5, 2019~~July 31, 2022 increased by ~~330~~60 basis points compared to the thirteen weeks ended ~~April 29, 2018,~~August 1, 2021, primarily due to margin expansion across our consumables and healthcare businesses.

Gross profit for the twenty-six weeks ended July 31, 2022 increased by $167.4 million, or 14.1%, to $1.4 billion compared to $1.2 billion in the twenty-six weeks ended August 1, 2021. This increase was primarily due to the year-over-year increase in net sales as described above. Gross profit as a ~~result~~percentage of ~~negotiated cost reductions from product~~net sales for the twenty-six weeks ended July 31, 2022 increased by 20 basis points compared to the twenty-six weeks ended August 1, 2021, primarily due to margin expansion across our consumables and ~~freight suppliers.~~healthcare businesses.

Selling, General and Administrative

13 Weeks Ended
($ in thousands) May 5, 2019 April 29, 2018 $ Change % Change
Selling, general and administrative $ 181,897
$ 123,152
$ 58,745
47.7 %
As a percentage of net sales 16.4 % 16.1 %

Selling, general and administrative expenses for the thirteen weeks ended ~~May 5, 2019~~July 31, 2022 increased by ~~$58.7~~$79.3 million, or ~~47.7%~~18.1%, to ~~$181.9~~$517.0 million compared to ~~$123.2~~$437.7 million in the thirteen weeks ended ~~April 29, 2018.~~August 1, 2021. This ~~increase~~ was primarily due to an increase of ~~$32.5~~$49.2 million in facilities expenses and other general and administrative expenses, principally due to increased headcount as a result of business growth and new initiatives, increases in software and cloud-based IT systems and charitable donations, as well as the opening of new corporate offices in Seattle, Washington. This also included an increase of $13.5 million in fulfillment costs largely attributable to ~~increased~~ investments to support the overall growth of our business, including the costs associated with the opening and operating of ~~a new~~three fulfillment ~~center~~centers and ~~the expansion of~~two healthcare fulfillment centers and growth in fulfillment and customer service ~~headcount~~headcount. The increase also included a $16.6 million increase in non-cash share-based compensation expense.

Selling, general and ~~launch of a new customer service center~~administrative expenses for the twenty-six weeks ended July 31, 2022 increased by $177.4 million, or 21.0%, to $1.0 billion compared to $843.9 million in the ~~second quarter~~twenty-six weeks ended August 1, 2021. This was primarily due to an increase of ~~2018. We also expanded our corporate office and increased headcount~~$98.1 million in ~~IT, merchandising,~~facilities expenses and other ~~corporate departments~~general and administrative expenses, principally due to increased headcount as a result of business growth and new initiatives, increases in software and cloud-based IT systems and charitable donations, as well as the opening of new corporate offices in Seattle, Washington. This also ~~in contemplation of becoming a public company, resulting in~~included an increase of $60.0 million in fulfillment costs largely attributable to investments to support the overall growth of our business, including the costs associated with the opening and operating of four fulfillment centers and two healthcare fulfillment centers and growth in fulfillment and customer service headcount. The increase also included a $19.3 million increase in non-cash share-based compensation ~~and facilities expense and other general and administrative items of $26.2 million.~~expense.

Advertising and Marketing

13 Weeks Ended
($ in thousands) May 5, 2019 April 29, 2018 $ Change % Change
Advertising and marketing $ 102,263
$ 86,661
$ 15,602
18.0 %
As a percentage of net sales 9.2 % 11.4 %

Advertising and marketing expenses for the thirteen weeks ended ~~May 5, 2019 increased~~July 31, 2022 decreased by ~~$15.6~~$27.8 million, or ~~18.0%~~16.2%, to ~~$102.3~~$144.2 million compared to ~~$86.7~~$172.0 million in the thirteen weeks ended ~~April 29, 2018, but overall~~August 1, 2021. Increased measurement capabilities allowing for more efficient application of marketing spend ~~declined as a percentage of net sales to 9.2% from 11.4% in~~and lower advertising input costs during the thirteen weeks ended ~~April 29, 2018. There was~~July 31, 2022, led to a ~~$14.2 million increase~~decrease in ~~advertising~~expenses. Our marketing efforts and ~~marketing spending through existing channels in the thirteen weeks ended May 5, 2019 which contributed~~investments led to an increase ~~in the number~~ of 0.4 million active customers ~~by 3.5 million.~~since August 1, 2021.

~~Interest Income (Expense), Net~~

13 Weeks Ended
($ in thousands) May 5, 2019 April 29, 2018 $ Change % Change
Interest income, net $ 716
$ 10
$ 706
7,060.0 %
As a percentage of net sales 0.1 % — %

~~Interest income, net~~Advertising and marketing expenses for the ~~thirteen~~twenty-six weeks ended ~~May 5, 2019 increased $0.7~~July 31, 2022 decreased by $27.5 million, or 8.7%, to $288.9 million compared to $316.4 million in the ~~thirteen~~twenty-six weeks ended ~~April 29, 2018. This increase was primarily due to intercompany interest income on net amounts due from Parent.~~

~~Income Tax Provision~~

~~Income tax provision was zero~~August 1, 2021. Increased measurement capabilities allowing for more efficient application of marketing spend and lower advertising input costs during the ~~thirteen~~twenty-six weeks ended ~~May 5, 2019~~July 31, 2022, led to a decrease in expenses. Our marketing efforts and ~~April 29, 2018 as we maintained a full valuation allowance against our net deferred tax assets.~~investments led to an increase of 0.4 million active customers since August 1, 2021.

Liquidity and Capital Resources

~~Since our inception, we have financed~~We finance our operations and capital expenditures primarily through ~~sales of convertible redeemable preferred stock and~~ cash flows generated by ~~operations.~~operations and equity offerings. Our principal sources of liquidity are expected to be our cash and cash equivalents and our ~~new~~ revolving credit facility. Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market ~~funds.~~funds, U.S. Treasury securities, certificates of deposit, and commercial paper. Cash and cash equivalents totaled ~~$29.3~~$606.8 million as of ~~May 5, 2019, a decrease~~July 31, 2022, an increase of ~~$59.0~~$3.7 million from ~~February 3, 2019.~~January 30, 2022.

We believe that our cash and cash equivalents and availability under our ~~new~~ revolving credit facility will be sufficient to fund our working capital, ~~and~~ capital expenditure requirements, and contractual obligations for at least the next twelve months. In addition, we may choose to raise additional funds at any time through equity or debt financing arrangements, which may or may not be needed for additional working capital, capital expenditures or other strategic investments. Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” ~~herein.~~in Item 1A of our 10-K Report. Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all.

Cash Flows


	26 Weeks Ended
($ in thousands)	July 31, 2022		August 1, 2021
Net cash provided by operating activities	$	131,605	$	183,451
Net cash used in investing activities	$	(125,612)	$	(63,714)
Net cash (used in) provided by financing activities	$	(2,272)	$	41,915

13 Weeks Ended
May 5, 2019 April 29, 2018
Net cash used in operating activities $ (51,141 ) $ (45,273 )
Net cash used in investing activities $ (8,165 ) $ (3,486 )
Net cash provided by financing activities $ 273
$ 325

Operating Activities

Cash provided by (used in) operating activities consisted of net loss adjusted for non-cash items, including depreciation and amortization, share-based compensation expense and certain other non-cash items, as well as the effect of changes in working capital and other activities.

Net cash ~~used in~~provided by operating activities was ~~$51.1~~$131.6 million for the ~~thirteen~~twenty-six weeks ended ~~May 5, 2019 ,~~July 31, 2022, which primarily ~~consisting~~consisted of ~~$29.6~~$40.8 million of net ~~loss, adjusted for certain~~income, non-cash ~~items, which primarily included~~adjustments such as depreciation and amortization expense of ~~$6.9~~$37.7 million and ~~$7.2 million of~~ share-based compensation expense of $64.2 million, and a cash decrease of $22.9 million from working capital. Cash decreases from working capital were primarily driven by an increase in inventories, receivables, and other current assets, as well as a ~~$41.1 million increase in cash consumed by working capital primarily driven by higher inventories, accounts receivable, prepaid expenses and other current assets, and lower accrued expenses and~~decrease to other current liabilities, partially offset by ~~higher accounts payable.~~an increase in payables.

Net cash ~~used in~~provided by operating activities was ~~$45.3~~$183.5 million for the ~~thirteen~~twenty-six weeks ended ~~April 29, 2018,~~August 1, 2021, which primarily ~~consisting~~consisted of ~~$59.8~~$22.0 million of net ~~loss, adjusted for certain~~income, non-cash ~~items, which primarily included~~adjustments such as depreciation and amortization expense of ~~$4.7~~$24.1 million and ~~$3.3 million of~~ share-based compensation expense ~~as well as~~of $44.9 million, and a ~~$2.1~~cash increase of $91.8 million ~~decrease in cash consumed by~~from working capital. Cash increases from working capital were primarily driven by an increase in ~~our accounts payable~~other current liabilities and payables, as well as a decrease in ~~our accounts receivable~~inventories, partially offset by ~~higher inventories, higher prepaid expenses and~~an increase in other current assets and ~~lower accrued expenses and other current liabilities.~~receivables.

Investing Activities

Our primary investing activities consisted of purchases of property and equipment, mainly for the launch and expansion of our physical fulfillment capabilities, as well as purchases of servers and networking equipment, leasehold improvements, and capitalization of labor related to our website, mobile applications, and other software.

Net cash used in investing activities was ~~$8.2~~$125.6 million for the ~~thirteen~~twenty-six weeks ended ~~May 5, 2019 ,~~July 31, 2022, primarily consisting ~~of $12.2 million~~ of capital expenditures related to the launch of new ~~fulfilment~~and future fulfillment centers ~~the expansion of corporate and customer services offices,~~ and additional investments in IT hardware and ~~software, partially offset by $4.1 million of cash reimbursements, net of advances from PetSmart.~~ software.

Net cash used in investing activities was ~~$3.5~~$63.7 million for the ~~thirteen~~twenty-six weeks ended ~~April 29, 2018,~~August 1, 2021, primarily consisting of ~~$13.5 million of costs~~capital expenditures related to the launch of ~~three~~ new and future fulfillment centers ~~the expansion of corporate and customer service offices,~~ and additional investments in IT hardware and ~~software,~~software.

Financing Activities

Net cash used in financing activities was $2.3 million for the twenty-six weeks ended July 31, 2022 and consisted of $2.5 million for payments of tax withholdings related to vesting of share-based compensation awards and principal repayments of finance lease obligations, partially offset by ~~$10.0 million of cash reimbursements, net of advances from PetSmart.~~proceeds received pursuant to the tax sharing agreement with related parties.

~~Financing Activities~~

Net cash provided by financing activities was ~~$0.3~~$41.9 million for the ~~thirteen~~twenty-six weeks ended ~~May 5, 2019~~August 1, 2021, and ~~April 29, 2018, primarily consisting~~consisted of ~~a $0.3~~$42.4 million ~~management fee expense allocated~~received pursuant to usthe tax sharing agreement with related parties, partially offset by ~~PetSmart for organizational oversight and certain limited corporate functions.~~principal payments of finance lease obligations.

Other Liquidity Measures

ABL Credit Facility

~~On June 18, 2019, we entered into the ABL~~We have a five-year senior secured asset-based credit facility (the “ABL Credit ~~Facility~~Facility”) which matures in August 2026 and provides for non-amortizing revolving loans in anthe aggregate principal amount of up to ~~$300~~$500 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility provides the right to request incremental commitments and add incremental asset-based revolving loan facilities ~~in an aggregate principal amount of up~~ to ~~$100~~$300 million, subject to customary conditions.

Borrowings under the ABL Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at our option, either a base rate or a LIBOR rate. The applicable margin is generally determined based on the average excess liquidity during the immediately preceding fiscal quarter as a percentage of the maximum borrowing amount under the ABL Credit Facility, and is between 0.25% and 0.75% for base rate loans and between 1.25% and 1.75% for LIBOR loans. We are ~~also~~ required to pay a ~~pay~~0.25% commitment fee ~~of between 0.25% and 0.375%~~ with respect to the undrawn portion of the commitments, which is generally based on average daily usage of the facility.

~~All obligations~~ Based on our borrowing base as of July 31, 2022, which is reduced by standby letters of credit, we had $449.9 million of borrowing capacity under the ABL Credit Facility are guaranteed on a senior secured first-lien basis by the our wholly-owned domestic subsidiaries, subject to certain exceptions, and secured, subject to permitted liens and other exceptions, by a perfected first-priority security interest in substantially allFacility. As of ~~our and our wholly-owned domestic subsidiaries’ assets.~~

~~The ABL Credit Facility contains a number of covenants that, among other things, restrict our and our restricted subsidiaries’ ability to:~~

•~~incur or guarantee additional debt and issue certain equity securities;~~

•~~make certain investments and acquisitions;~~

•~~make certain restricted payments and payments of certain indebtedness;~~

•~~incur certain liens or permit them to exist;~~

•~~enter into certain types of transactions with affiliates;~~

•~~merge or consolidate with another company; and~~

•~~transfer, sell or otherwise dispose of assets.~~

~~Each of these restrictions is subject to various exceptions.~~

~~In addition,~~July 31, 2022, we had no outstanding borrowings under the ABL Credit Facility requires us to maintain a minimum fixed charge coverage ratio of 1.0:1.0 if excess availability under the facility is less than the greater of 10% of the maximum borrowing amount and $30.0 million for a certain period of time. The ABL Credit Facility also contains certain customary affirmative covenants and events of default for facilities of this type, including an event of default upon a change in control.Facility.

~~Contractual Obligations~~

There have been no material changes to our contractual obligations as compared to those described in Contractual Obligations included in Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Prospectus, except as disclosed in Note 4 in the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

~~Off-Balance Sheet Arrangements~~

We do not engage in any off-balance sheet activities or have any arrangements or relationships with unconsolidated entities, such as variable interest, special purpose, and structured finance entities.

~~Recent Accounting Pronouncements~~

~~Information regarding recent accounting pronouncements is included in Note 2 in the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~For~~There have been no material changes to the quantitative and qualitative disclosures about market risk ~~please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Quantitative and Qualitative Disclosures About Market Risk” of~~disclosed in our ~~Prospectus. Our exposures to market risk have not changed materially since February 3, 2019.~~Annual Report on Form 10-K for the fiscal year ended January 30, 2022.

Item 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.

As of the end of the period covered by this 10-Q Report, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of ~~May 5, 2019.~~July 31, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the thirteen weeks ended ~~May 5, 2019 .~~July 31, 2022. We have not experienced any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the impact of remote working on our internal controls.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~From time to time, we are involved in various~~Information concerning legal proceedings ~~arising from the normal course~~is provided in Item 1 of business activities. We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.Part I, “Financial Statements (Unaudited)–Note 4– Commitments and Contingencies–Legal Matters” and is incorporated by reference herein.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our ~~prospectus, dated June 13, 2019 and filed with the SEC on June 17, 2019 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.~~

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Use of Proceeds~~

On June 18, 2019, we closed our IPO, in which we sold 5.6 million shares of our Class A common stock at a price of $22.00 per share. In addition, a wholly-owned subsidiary of PetSmart, the selling stockholder in our IPO, sold 47,875,000 shares of our Class A common stock (which included 6,975,000 of our Class A common stock that were issued pursuant to the underwriters’ exercise in full of their option to purchase additional shares) at a price of $22.00 per share less underwriting discounts and commissions. The offer and sale of the shares in the IPO were registered under the Securities Act pursuant to a registration statementAnnual Report on Form ~~S-1 (File No. 333-231095), which was declared effective by~~10-K for the SEC on June 13, 2019. Upon completion of the sale of the shares of our Class A common stock, the IPO terminated. We raised approximately $111.5 million in net proceeds after deducting underwriting discounts and commissions of approximately $6.2 million and offering expenses of approximately $5.5 million. We did not receive any proceeds from the sale of shares by the selling stockholder. We intend to use the net proceeds we received from our IPO for working capital and general corporate purposes. There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the Securities and Exchange Commission on June 17, 2019 pursuant to Rule 424(b)(4). The representatives of the underwriters of our IPO were Morgan Stanley & Co. LLC and J.P. Morgan Securities, LLC.

fiscal year ended January 30, 2022.

Item 6. Exhibits

Incorporation by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit No.

Filing Date

Filed Herewith

10.1

*Chewy, Inc. 2022 Omnibus Incentive Plan

DEF 14A

001-38936

Filed as Appendix B

May 26, 2022

10.2

*Form of Director Restricted Stock Unit Agreement

31.1

Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto

Incorporation by Reference
Exhibit No. Exhibit Description Form File No. Exhibit No. Filing Date Filed Herewith
3.1
Amended and Restated Certificate of Incorporation of Chewy Inc.
8-K 001-38936 3.1 June 18, 2019
3.2
Amended and Restated Bylaws of Chewy, Inc.
8-K 001-38936 3.2 June 18, 2019
10.1
Investor Rights Agreement, dated June 13, 2019, by and among Chewy, Inc. and certain holders identified therein
8-K 001-38936 10.1 June 18, 2019
10.2
Form of Director and Officer Indemnification Agreement
S-1/A 333-231095 10.2 June 3, 2019
10.3
Chewy, Inc. 2019 Omnibus Incentive Plan
S-8 333-232188 4.1 June 18, 2019
10.4
Master Transaction Agreement, dated June 13, 2019, by and among Chewy, Inc. and PetSmart, Inc.
8-K 001-38936 10.2 June 18, 2019
10.5
Tax Matters Agreement, dated June 13, 2019, by and among Chewy, Inc., Argos Intermediate Holdco I Inc. and PetSmart, Inc.
8-K 001-38936 10.3 June 18, 2019
10.6
Intercompany Services Agreement, dated as of July 2, 2018, between Chewy, Inc. and Chewy Pharmacy KY, LLC
S-1 333-231095 10.6 April 29, 2019
10.7
Master Purchase Agreement, dated as of February 7, 2019, between Chewy, Inc. and PetSmart Home Office, Inc.
S-1/A 333-231095 10.7 May 30, 2019
10.8
Amended and Restated Executive Employment Agreement, dated June 1, 2019, between Sumit Singh and Chewy, Inc.
S-1/A 333-231095 10.8 June 3, 2019
10.9
Stockholders Agreement, dated as of April 17, 2019, between Chewy, Inc. and the other parties named therein
S-1/A 333-231095 10.10 May 17, 2019
10.10
Amendment to Master Purchase Agreement, effective as of May 15, 2019, between Chewy, Inc. and PetSmart Home Office, Inc.
S-1/A 333-231095 10.11 May 30, 2019
10.11
Form of Restricted Stock Unit Agreement
S-1/A 333-231095 10.11 June 3, 2019
10.12
Master Procurement Agreement, dated as of May 31, 2019, between Chewy, Inc. and The China Joint Business Arrangement between PetSmart International Holdings I LLC and PetSmart International Holdings II LLC
S-1/A 333-231095 10.12 June 3, 2019
10.13
Executive Employment Agreement, dated June 2, 2019, between Susan Helfrick and Chewy, Inc.
S-1/A 333-231095 10.13 June 3, 2019
10.14
Executive Employment Agreement, dated June 2, 2019, between Mario Marte and Chewy, Inc.
S-1/A 333-231095 10.14 June 3, 2019
31.1
Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1
Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
101.INS XBRL Instance Document X
101.SCH XBRL Taxonomy Extension Schema Document X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB XBRL Taxonomy Extension Label Linkbase Document X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.


					CHEWY, INC.


					~~CHEWY, INC.~~

~~Date:~~			~~July 18, 2019~~	~~By:~~	~~/s/ Sumit Singh~~
Date:			August 30, 2022	By:	~~Sumit Singh~~
			~~Chief Executive Officer~~
			~~(Principal Executive Officer)~~

~~Date:~~	~~July 18, 2019~~	~~By:~~	/s/ Mario Marte
					Mario Marte
					Chief Financial Officer
					(Principal Financial Officer)



Delaware						90-1020167
(State or other jurisdiction of incorporation or organization)						~~90-1020167~~ (I.R.S. Employer Identification No.)
~~1855 Griffin Road, Suite B-428, Dania Beach,~~7700 West Sunrise Boulevard, Plantation, Florida						33322
(Address of principal executive offices)						~~33004~~ (Zip Code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share	CHWY	New York Stock Exchange



Large accelerated filer	¨☒	Accelerated filer	¨☐
Non-accelerated filer	x☐	Smaller reporting company	¨☐
		Emerging growth company	¨☐

CHEWY, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (in thousands) (Unaudited)

	13 Weeks Ended May 5, 2019
	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Total Stockholders' Deficit
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders' Deficit
Balance as of February 3, 2019	—	$	—	$	1,256,160	$	(1,592,102	)	$	(335,942	)
Share-based compensation expense	—	—		7,230		—			7,230
Contribution from Parent	—	—		325		—			325
Net loss	—	—		—		(29,554		)	(29,554		)
Balance as of May 5, 2019	—	$	—	$	1,263,715	$	(1,621,656	)	$	(357,941	)

	13 Weeks Ended April 29, 2018
	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Total Stockholders' Deficit
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders' Deficit
Balance as of January 28, 2018	—	$	—	$	1,240,509	$	(1,324,212	)	$	(83,703	)
Share-based compensation expense	—	—		3,273		—			3,273
Contribution from Parent	—	—		325		—			325
Net loss	—	—		—		(59,815		)	(59,815		)
Balance as of April 29, 2018	—	$	—	$	1,244,107	$	(1,384,027	)	$	(139,920	)



	As of
	May 5, 2019		February 3, 2019
Outbound fulfillment	$	143,620	$	147,610
Advertising and marketing	68,006		85,421
Accrued expenses and other	97,428		78,119
Total accrued expenses and other current liabilities	$	309,054	$	311,150



Leases	Balance Sheet Classification	As of May 5, 2019
Assets
Operating	Operating lease right-of-use assets	$	157,139
Total operating lease assets		$	157,139

Liabilities
Current
Operating	Accrued expenses and other current liabilities	$	13,310
Non-current
Operating	Operating lease liabilities	177,636
Total operating lease liabilities		$	190,946



	Operating Leases
Remainder of 2019	$	22,569
2020	35,946
2021	33,555
2022	31,248
2023	26,695
Thereafter	215,409
Total lease payments	365,422
Less: interest	174,476
Present value of lease liabilities	$	190,946



($ in thousands, except percentages)	13 Weeks Ended
Reconciliation of Net Loss to Adjusted EBITDA	May 5, 2019			April 29, 2018
Net loss	$	(29,554	)	$	(59,815	)
Add (deduct):
Depreciation and amortization	6,949			4,718
Share-based compensation expense	7,230			3,273
Income tax provision	—			—
Interest income, net	(716		)	(10		)
Management fee expense⁽¹⁾	325			325
Adjusted EBITDA	$	(15,766	)	$	(51,509	)
Net sales	$	1,108,872		$	763,462
Adjusted EBITDA margin	(1.4		)%	(6.7		)%
⁽¹⁾ Management fee expense allocated to us by PetSmart for organizational oversight and certain limited corporate functions. Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our condensed consolidated financial statements.



($ in thousands)	13 Weeks Ended
Reconciliation of Net Cash Provided by (Used in) Operating Activities to Free Cash Flow	May 5, 2019			April 29, 2018
Net cash used in operating activities	$	(51,141	)	$	(45,273	)
Add (deduct):
Capital expenditures	(12,222		)	(13,461		)
Free Cash Flow	$	(63,363	)	$	(58,734	)