UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August~~May 2, ~~2020~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-38936

CHEWY, INC.

(Exact name of registrant as specified in its charter)


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

(786) 320-7111

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


Class						Outstanding as of ~~September~~June 3, ~~2020~~2021
Class A Common Stock, $0.01 par value per share						~~89,291,476~~104,228,820
Class B Common Stock, $0.01 par value per share						~~317,338,356~~311,188,356

CHEWY, INC.

FORM 10-Q

For the Quarterly Period Ended ~~August~~May 2, ~~2020~~2021

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets as of ~~August~~May 2, ~~2020~~2021 and ~~February 2, 2020~~January 31, 2021	2
	Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended May 2 , 202 1 and ~~Twenty-Six Weeks Ended August 2, 2020 and August 4, 2019~~May 3, 20 20	3
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit ) for the Thirteen Weeks Ended May 2 , 202 1 and ~~Twenty-Six Weeks Ended August 2, 2020 and August 4, 2019~~May 3 , 20 20	4
	Condensed Consolidated Statements of Cash Flows for the ~~Twenty-Six~~ Th ir teen Weeks Ended ~~August~~May 2 ~~2020~~, 202 1 and ~~August 4, 2019~~May 3, 20 20	65
	Notes to Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1514
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2321
Item 4.	Controls and Procedures	2421
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2422
Item 1A.	Risk Factors	2422

Item 6.	Exhibits	2522
	SIGNATURES	2623

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,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “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 relating to the spread of coronavirus (also known as 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 new customers in a cost-effective manner and increase our net sales per active customer;

•accurately predict economic conditions, particularly the impact on economic conditions of the spread of COVID-19, 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 improve existing products;

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

•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;

•optimize, operate and manage the expansion of the capacity of our fulfillment 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 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~~proprietary brand products;

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

•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 that we may be subject to.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current 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 31, 2021, 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 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 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 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.

Item 1. Financial Statements (Unaudited)

CHEWY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


		As of							As of
		August 2, 2020		February 2, 2020			May 2, 2021		January 31, 2021
Assets	Assets	(Unaudited)				Assets	(Unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	153,842	$	212,088	Cash and cash equivalents	$	637,525	$	563,345
Accounts receivable	Accounts receivable	93,776		80,478		Accounts receivable	117,565		100,699
Inventories	Inventories	453,040		317,808		Inventories	490,887		513,304
Due from Parent, net		12,350		626
Prepaid expenses and other current assets	Prepaid expenses and other current assets	20,302		18,789		Prepaid expenses and other current assets	71,234		49,430
Total current assets	Total current assets	733,310		629,789		Total current assets	1,317,211		1,226,778
Property and equipment, net	Property and equipment, net	169,636		118,731		Property and equipment, net	233,556		210,017
Operating lease right-of-use assets	Operating lease right-of-use assets	237,191		179,052		Operating lease right-of-use assets	339,056		297,213
Other non-current assets	Other non-current assets	4,704		4,749		Other non-current assets	8,703		6,902
Total assets	Total assets	$	1,144,841	$	932,321	Total assets	$	1,898,526	$	1,740,910
Liabilities and stockholders’ deficit
Liabilities and stockholders’ equity (deficit)						Liabilities and stockholders’ equity (deficit)
Current liabilities:	Current liabilities:					Current liabilities:
Trade accounts payable	Trade accounts payable	$	702,603	$	683,049	Trade accounts payable	$	804,523	$	778,365
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	506,537		417,489		Accrued expenses and other current liabilities	620,463		602,497
Total current liabilities	Total current liabilities	1,209,140		1,100,538		Total current liabilities	1,424,986		1,380,862
Operating lease liabilities	Operating lease liabilities	261,836		200,439		Operating lease liabilities	371,464		328,231
Other long-term liabilities	Other long-term liabilities	51,477		35,318		Other long-term liabilities	33,054		33,821
Total liabilities	Total liabilities	1,522,453		1,336,295		Total liabilities	1,829,504		1,742,914
Commitments and contingencies (Note 4)	Commitments and contingencies (Note 4)					Commitments and contingencies (Note 4)	0		0
Stockholders’ deficit:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, 0 shares issued and outstanding as of August 2, 2020 and February 2, 2020		0		0
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 89,227,335 and 66,445,422 shares issued and outstanding as of August 2, 2020 and February 2, 2020, respectively		893		665
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 317,338,356 and 334,922,454 shares issued and outstanding as of August 2, 2020 and February 2, 2020, respectively		3,173		3,349
Stockholders’ equity (deficit):						Stockholders’ equity (deficit):
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, 0 shares issued and outstanding as of May 2, 2021 and January 31, 2021						Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, 0 shares issued and outstanding as of May 2, 2021 and January 31, 2021	0		0
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 104,207,247 and 97,708,518 shares issued and outstanding as of May 2, 2021 and January 31, 2021, respectively						Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 104,207,247 and 97,708,518 shares issued and outstanding as of May 2, 2021 and January 31, 2021, respectively	1,042		977
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 and 317,338,356 shares issued and outstanding as of May 2, 2021 and January 31, 2021, respectively						Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 and 317,338,356 shares issued and outstanding as of May 2, 2021 and January 31, 2021, respectively	3,112		3,173
Additional paid-in capital	Additional paid-in capital	1,543,481		1,436,484		Additional paid-in capital	1,963,107		1,930,804
Accumulated deficit	Accumulated deficit	(1,925,159)		(1,844,472)		Accumulated deficit	(1,898,239)		(1,936,958)
Total stockholders’ deficit		(377,612)		(403,974)
Total liabilities and stockholders’ deficit		$	1,144,841	$	932,321
Total stockholders’ equity (deficit)						Total stockholders’ equity (deficit)	69,022		(2,004)
Total liabilities and stockholders’ equity (deficit)						Total liabilities and stockholders’ equity (deficit)	$	1,898,526	$	1,740,910

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						26 Weeks Ended							13 Weeks Ended
		August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019			May 2, 2021		May 3, 2020
Net sales	Net sales	$	1,699,859	$	1,153,545	$	3,321,252	$	2,262,417	Net sales	$	2,135,178	$	1,621,393
Cost of goods sold	Cost of goods sold	1,266,503		881,310		2,509,187		1,736,292		Cost of goods sold	1,545,402		1,242,684
Gross profit	Gross profit	433,356		272,235		812,065		526,125		Gross profit	589,776		378,709
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	343,181		244,563		663,238		426,460		Selling, general and administrative	406,220		320,057
Advertising and marketing	Advertising and marketing	122,446		110,752		228,584		213,015		Advertising and marketing	144,435		106,138
Total operating expenses	Total operating expenses	465,627		355,315		891,822		639,475		Total operating expenses	550,655		426,195
Loss from operations		(32,271)		(83,080)		(79,757)		(113,350)
Interest (expense) income, net		(546)		204		(930)		920
Loss before income tax provision		(32,817)		(82,876)		(80,687)		(112,430)
Income (loss) from operations										Income (loss) from operations	39,121		(47,486)
Interest expense, net										Interest expense, net	(402)		(384)
Income (loss) before income tax provision										Income (loss) before income tax provision	38,719		(47,870)
Income tax provision	Income tax provision	0		0		0		0		Income tax provision	0		0
Net loss		$	(32,817)	$	(82,876)	$	(80,687)	$	(112,430)
Net income (loss)										Net income (loss)	$	38,719	$	(47,870)

Net loss per share attributable to common Class A and Class B stockholders, basic and diluted		$	(0.08)	$	(0.21)	$	(0.20)	$	(0.28)
Weighted average common shares used in computing net loss per share attributable to common Class A and Class B stockholders, basic and diluted		404,377		397,387		402,891		395,193
Net income (loss) per share attributable to common Class A and Class B stockholders, basic										Net income (loss) per share attributable to common Class A and Class B stockholders, basic	$	0.09	$	(0.12)
Net income (loss) per share attributable to common Class A and Class B stockholders, diluted										Net income (loss) per share attributable to common Class A and Class B stockholders, diluted	$	0.09	$	(0.12)
Weighted average common shares used in computing net income (loss) per share attributable to common Class A and Class B stockholders, basic										Weighted average common shares used in computing net income (loss) per share attributable to common Class A and Class B stockholders, basic	415,248		401,405
Weighted average common shares used in computing net income (loss) per share attributable to common Class A and Class B stockholders, diluted										Weighted average common shares used in computing net income (loss) per share attributable to common Class A and Class B stockholders, diluted	427,597		401,405

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ ~~DEFICIT~~EQUITY (DEFICIT)

(in thousands)

(Unaudited)

13 Weeks Ended August 2, 2020
Class A and Class B Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit
Shares Amount
Balance as of May 3, 2020 401,461 $ 4,015 $ 1,491,792 $ (1,892,342) $ (396,535)
Share-based compensation expense — — 33,151 — 33,151
Vesting of share-based compensation awards 4,918 49 (49) — 0
Distribution to Parent 187 2 (2) — 0
Contribution from Parent — — 325 — 325
Tax sharing agreement with Parent — — 18,264 — 18,264
Net loss — — — (32,817) (32,817)
Balance as of August 2, 2020 406,566 $ 4,066 $ 1,543,481 $ (1,925,159) $ (377,612)
13 Weeks Ended August 4, 2019
Class A and Class B Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit
Shares Amount
Balance as of May 5, 2019 0 $ 0 $ 1,263,715 $ (1,621,656) $ (357,941)
Issuance of common stock upon initial public offering, net of underwriting discounts, commissions and offering costs 5,600 56 110,528 — 110,584
Change in capital structure 393,000 3,930 (3,930) — 0
Share-based compensation expense — — 43,783 — 43,783
Contribution from Parent — — 325 — 325
Tax sharing agreement with Parent — — 3,902 — 3,902
Termination of loan from Parent — — (79,510) — (79,510)
Net loss — — — (82,876) (82,876)
Balance as of August 4, 2019 398,600 $ 3,986 $ 1,338,813 $ (1,704,532) $ (361,733)


	13 Weeks Ended May 2, 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	—	—		23,106		—		23,106
Vesting of share-based compensation awards	349	4		(4)		—		0
Tax sharing agreement with PetSmart	—	—		9,201		—		9,201
Net income	—	—		—		38,719		38,719
Balance as of May 2, 2021	415,395	$	4,154	$	1,963,107	$	(1,898,239)	$	69,022

	13 Weeks Ended May 3, 2020
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balance as of February 2, 2020	401,368	$	4,014	$	1,436,484	$	(1,844,472)	$	(403,974)

Share-based compensation expense	—	—		42,229		—		42,229
Vesting of share-based compensation awards	93	1		(1)		—		0
Contribution from PetSmart	—	—		325		—		325
Tax sharing agreement with PetSmart	—	—		12,755		—		12,755
Net loss	—	—		—		(47,870)		(47,870)
Balance as of May 3, 2020	401,461	$	4,015	$	1,491,792	$	(1,892,342)	$	(396,535)

See accompanying Notes to Condensed Consolidated Financial Statements.

~~CHEWY, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT~~

~~(in thousands)~~

~~(Unaudited)~~

26 Weeks Ended August 2, 2020
Class A and Class B Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit
Shares Amount
Balance as of February 2, 2020 401,368 $ 4,014 $ 1,436,484 $ (1,844,472) $ (403,974)
Share-based compensation expense — — 75,380 — 75,380
Vesting of share-based compensation awards 5,011 50 (50) — 0
Distribution to Parent 187 2 (2) — 0
Contribution from Parent — — 650 — 650
Tax sharing agreement with Parent — — 31,019 — 31,019
Net loss — — — (80,687) (80,687)
Balance as of August 2, 2020 406,566 $ 4,066 $ 1,543,481 $ (1,925,159) $ (377,612)
26 Weeks Ended August 4, 2019
Class A and Class B Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit
Shares Amount
Balance as of February 3, 2019 0 $ 0 $ 1,256,160 $ (1,592,102) $ (335,942)
Issuance of common stock upon initial public offering, net of underwriting discounts, commissions and offering costs 5,600 56 110,528 — 110,584
Change in capital structure 393,000 3,930 (3,930) — 0
Share-based compensation expense — — 51,013 — 51,013
Contribution from Parent — — 650 — 650
Tax sharing agreement with Parent — — 3,902 — 3,902
Termination of loan from Parent — — (79,510) — (79,510)
Net loss — — — (112,430) (112,430)
Balance as of August 4, 2019 398,600 $ 3,986 $ 1,338,813 $ (1,704,532) $ (361,733)

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


		26 Weeks Ended							13 Weeks Ended
		August 2, 2020		August 4, 2019			May 2, 2021		May 3, 2020
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss		$	(80,687)	$	(112,430)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)						Net income (loss)	$	38,719	$	(47,870)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	15,336		14,579		Depreciation and amortization	11,426		7,253
Share-based compensation expense	Share-based compensation expense	75,380		51,013		Share-based compensation expense	23,106		42,229
Non-cash lease expense	Non-cash lease expense	11,082		8,964		Non-cash lease expense	8,365		5,092
Other	Other	216		2,002		Other	87		386
Net change in operating assets and liabilities:	Net change in operating assets and liabilities:					Net change in operating assets and liabilities:
Accounts receivable	Accounts receivable	(13,298)		(11,257)		Accounts receivable	(16,866)		(17,615)
Inventories	Inventories	(135,232)		(67,300)		Inventories	22,417		(130,948)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(2,010)		(20,439)		Prepaid expenses and other current assets	(27,653)		1,366
Other non-current assets	Other non-current assets	(99)		(2,002)		Other non-current assets	(1,874)		680
Trade accounts payable	Trade accounts payable	19,554		54,027		Trade accounts payable	26,158		99,814
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	92,650		55,536		Accrued expenses and other current liabilities	20,535		59,008
Operating lease liabilities	Operating lease liabilities	(7,196)		(3,488)		Operating lease liabilities	(5,223)		(3,873)
Other long-term liabilities	Other long-term liabilities	16,159		1,461		Other long-term liabilities	(831)		5,223
Net cash used in operating activities		(8,145)		(29,334)
Net cash provided by operating activities						Net cash provided by operating activities	98,366		20,745
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Capital expenditures	Capital expenditures	(69,723)		(24,163)		Capital expenditures	(38,882)		(42,578)
Cash advances provided to Parent, net of reimbursements		(3,918)		1,018
Cash advances provided to PetSmart, net of reimbursements						Cash advances provided to PetSmart, net of reimbursements	0		2,114

Net cash used in investing activities	Net cash used in investing activities	(73,641)		(23,145)		Net cash used in investing activities	(38,882)		(40,464)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from tax sharing agreement with Parent		23,213		0
Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs		0		115,228
Payment of debt issuance costs		0		(781)
Contribution from Parent		650		650

Proceeds from tax sharing agreement with PetSmart						Proceeds from tax sharing agreement with PetSmart	14,968		0

Contribution from PetSmart						Contribution from PetSmart	0		325
Principal repayments of finance lease obligations	Principal repayments of finance lease obligations	(323)		(105)		Principal repayments of finance lease obligations	(272)		(160)
Net cash provided by financing activities	Net cash provided by financing activities	23,540		114,992		Net cash provided by financing activities	14,696		165
Net (decrease) increase in cash and cash equivalents		(58,246)		62,513
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	74,180		(19,554)
Cash and cash equivalents, as of beginning of period	Cash and cash equivalents, as of beginning of period	212,088		88,331		Cash and cash equivalents, as of beginning of period	563,345		212,088
Cash and cash equivalents, as of end of period	Cash and cash equivalents, as of end of period	$	153,842	$	150,844	Cash and cash equivalents, as of end of period	$	637,525	$	192,534

Supplemental disclosures on non-cash investing and financing activities:
Offering costs included in accrued expenses and other current liabilities		$	0	$	4,644

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 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, and pet healthcare products.

~~The~~During the fiscal year ended January 31, 2021, the Company iswas controlled by PetSmart ~~Inc.~~LLC (“PetSmart” ~~or the “Parent”~~). PetSmart is wholly-owned by a consortium including private investment funds advised by BC Partners, 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 controlled by affiliates of BC Partners.

~~Initial Public Offering~~

On ~~June 18, 2019, the Company closed its initial public offering (“IPO”),~~February 12, 2021, PetSmart completed a refinancing transaction and 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 of approximately $110.3 million from the IPO after deducting underwriting discounts and commissions of $6.2 million and offering costs.

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~~such transaction all shares of the Company’s ~~Class B~~ common stock held by PetSmart and its subsidiaries were ~~reclassified into shares~~distributed to affiliates of ~~Class A common stock on a one-to-one basis. Upon completion of~~BC Partners. Subsequent to the ~~IPO, 53,475,000~~distribution, PetSmart no longer directly or indirectly owns any 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.~~stock.

2. Basis of Presentation and Significant Accounting Policies

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 ~~August~~May 2, ~~2020~~2021 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 ~~August~~May 2, ~~2020~~2021 (“10-Q Report”) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~February 2, 2020~~January 31, 2021 (“10-K Report”).

Fiscal Year

The Company has a 52 or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that year. The Company’s ~~2020~~2021 fiscal year ends on January ~~31, 2021~~30, 2022 and is a 52-week year. The Company’s ~~2019~~2020 fiscal year ended ~~February 2, 2020~~January 31, 2021 and was a 52-week year.

Reclassification

As the Company is no longer a subsidiary of PetSmart, balances due from and due to PetSmart have been included on a net basis within prepaid expenses and other current assets on the condensed consolidated balance sheets; corresponding amounts for prior periods have been reclassified to conform to the current period’s presentation.

Significant Accounting Policies

~~There~~Other than policies noted herein or within Recent Accounting Pronouncements below, 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 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, 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.

Accrued Expenses and Other Current Liabilities

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


		As of							As of
		August 2, 2020		February 2, 2020			May 2, 2021		January 31, 2021
Outbound fulfillment	Outbound fulfillment	$	273,236	$	182,589	Outbound fulfillment	$	328,148	$	310,700
Advertising and marketing	Advertising and marketing	82,194		96,836		Advertising and marketing	90,436		85,835
Payroll liabilities						Payroll liabilities	47,468		72,467
Accrued expenses and other	Accrued expenses and other	151,107		138,064		Accrued expenses and other	154,411		133,495
Total accrued expenses and other current liabilities	Total accrued expenses and other current liabilities	$	506,537	$	417,489	Total accrued expenses and other current liabilities	$	620,463	$	602,497

Recent Accounting Pronouncements

Recently Adopted ~~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 Accounting Standards Update (“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 became effective at the beginning of the Company’s 2020 fiscal year. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.

~~ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~ In June 2016, the FASB issued this ASU to amend the current accounting guidance which requires the measurement of all expected losses to be based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables, loans, and other financial instruments, the Company will be required to use a forward-looking expected loss model that reflects probable losses rather than the incurred loss model for recognizing credit losses. This update became effective at the beginning of the Company’s 2020 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 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued this ~~ASU~~Accounting Standards Update (“ASU”) to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This ASU also clarifies and simplifies other aspects of the accounting for income taxes. This update isbecame effective at the beginning of the Company’s 2021 fiscal ~~year, with early adoption permitted.~~year. The ~~Company is currently evaluating the impact that the~~ adoption of this ~~standard will~~ASU did not have a material impact on ~~its~~the Company’s condensed consolidated financial ~~statements.~~statements and disclosures.

3. Property and Equipment, net

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


		As of							As of
		August 2, 2020		February 2, 2020			May 2, 2021		January 31, 2021
Furniture, fixtures and equipment	Furniture, fixtures and equipment	$	80,126	$	65,329	Furniture, fixtures and equipment	$	104,819	$	91,496
Computer equipment	Computer equipment	37,245		32,259		Computer equipment	44,999		43,347
Internal-use software	Internal-use software	42,352		30,222		Internal-use software	67,304		56,977
Leasehold improvements	Leasehold improvements	41,039		39,447		Leasehold improvements	90,910		80,641
Finance lease assets		3,067		2,565
Construction in progress	Construction in progress	50,580		18,927		Construction in progress	41,198		41,914
		254,409		188,749			349,230		314,375
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization	84,773		70,018		Less: accumulated depreciation and amortization	115,674		104,358
Property and equipment, net	Property and equipment, net	$	169,636	$	118,731	Property and equipment, net	$	233,556	$	210,017

Internal-use software includes labor and license costs associated with software development for internal use. As of ~~August~~May 2, ~~2020~~2021 and ~~February 2, 2020,~~January 31, 2021, the Company had accumulated amortization related to internal-use software of ~~$18.5~~$25.3 million and ~~$15.9~~$22.5 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 ~~August~~May 2, ~~2020~~2021 and ~~August 4, 2019,~~May 3, 2020, the Company recorded depreciation expense on property and equipment of ~~$6.6~~$8.6 million, and ~~$5.2~~$6.1 million, respectively, and amortization expense related to internal-use software costs of ~~$1.4~~$2.8 million, and $2.5 million, respectively. For the twenty-six weeks ended August 2, 2020 and August 4, 2019, the Company recorded depreciation expense on property and equipment of $12.7 million, and $10.2 million, respectively, and amortization expense related to internal-use software costs of $2.6 million, and $4.4$1.2 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

~~As of August 2, 2020, there were no material changes to the Company’s legal matters disclosed in Note 4 of the “Notes to Consolidated Financial Statements” included in the 10-K Report.~~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.

International Business Machines Corporation (“IBM”) previously alleged that the Company is infringing 4 of its patents. On February 15, 2021, the Company filed a declaration judgment action in the United States District Court for the Southern District of New York against IBM seeking the 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 three 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. The Company filed a motion to dismiss IBM’s claims with respect to the newly asserted fifth patent on May 28, 2021.The Company continues to deny the allegations of any infringement and intends to vigorously defend itself in this matter. The possible loss or range of loss associated with this matter is not estimable.

5. Debt

ABL Credit Facility

The Company has a five-year senior secured asset-backed credit facility (the “ABL Credit Facility”) which matures in June 2024 and provides for non-amortizing revolving loans in an aggregate principal amount of up to $300 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 million, subject to customary conditions. The Company is 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. Based on the Company’s borrowing base as of May 2, 2021, which is reduced by standby letters of credit, the Company had $272.8 million of borrowing capacity under the ABL Credit Facility. As of ~~August~~May 2, ~~2020,~~2021, the Company had 0 outstanding borrowings under the ABL Credit Facility.

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 3 additional five-year terms. Fulfillment and customer service centers and corporate office leases ~~including exercised renewal options,~~ expire at various dates through ~~2037.~~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 ~~August~~May 2, ~~2020~~2021 and ~~February 2, 2020~~January 31, 2021 were not ~~material.~~material and were included in property and equipment 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								As of
Leases	Leases	Balance Sheet Classification	August 2, 2020		February 2, 2020		Leases	Balance Sheet Classification	May 2, 2021		January 31, 2021
Assets	Assets						Assets
Operating	Operating	Operating lease right-of-use assets	$	237,191	$	179,052	Operating	Operating lease right-of-use assets	$	339,056	$	297,213
Total operating lease assets	Total operating lease assets		$	237,191	$	179,052	Total operating lease assets		$	339,056	$	297,213

Liabilities	Liabilities						Liabilities
Current	Current						Current
Operating	Operating	Accrued expenses and other current liabilities	$	15,737	$	15,491	Operating	Accrued expenses and other current liabilities	$	21,301	$	19,142
Non-current	Non-current						Non-current
Operating	Operating	Operating lease liabilities	261,836		200,439		Operating	Operating lease liabilities	371,464		328,231
Total operating lease liabilities	Total operating lease liabilities		$	277,573	$	215,930	Total operating lease liabilities		$	392,765	$	347,373

For the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020~~2021 and ~~August 4, 2019,~~May 3, 2020, assets acquired in exchange for new operating lease liabilities were ~~$67.6~~$46.0 million and ~~$26.8~~$32.0 million, respectively. Lease expense primarily related to operating lease costs. Lease expense for the thirteen weeks ended ~~August~~May 2, 2021 and May 3, 2020 ~~and August 4, 2019~~ was ~~$14.9~~$19.0 million and ~~$11.9 million, respectively. Lease expense for the twenty-six weeks ended August 2, 2020 and August 4, 2019 was $28.3 million and $22.9~~$13.4 million, respectively. The aforementioned lease expense was included within selling, general and administrative expenses in the condensed consolidated statements of operations.

Operating cash flows related to cash paid for operating leases were approximately ~~$21.7~~$15.3 million and ~~$17.3~~$10.4 million for the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020~~2021 and ~~August 4, 2019,~~May 3, 2020, respectively.

7. Stockholders’ Equity (Deficit)

Common Stock

2020 Equity Offering

On ~~August 12,~~September 21, 2020, the Company ~~finalized agreements with~~issued and sold 5,100,000 shares of Class A common stock in an underwritten public offering at a ~~local government agency for certain ad valorem tax benefits provided~~price of $54.40 per share to Morgan Stanley & Co. LLC, who acted as sole underwriter in the offering. The Company ~~in connection with~~had granted the underwriter an option to purchase up to an additional 765,000 shares of Class A common stock at a ~~maximum capital investment~~price of ~~$70~~$54.40 per share (“Option Shares”), which was exercised on September 30, 2020. The Company raised $318.4 million in ~~property, plant, and equipment purchases for a new fullfillment center over a three-year timeframe. To facilitate~~net proceeds through the ~~incentives,~~equity offering (including proceeds from the government agency will issue its Taxable Industrial Development Revenue Bonds, Series 2020 (the “Bonds”), in a maximum aggregate principal amount of $70 million. In exchange for the Bonds, the Company will convey the purchased equipment to the local government agency and will lease the equipment from this agency. The Company will not pay any cash for the Bonds nor receive any cash for the conveyancesale of the ~~equipment. Upon termination~~Option Shares) after deducting offering costs of approximately $0.6 million.

Conversion of Class B Common Stock

On May 8, 2020, Buddy Chester Sub LLC, a wholly-owned subsidiary of Argos Intermediate Holdco I Inc. (“Argos Holdco”), which is controlled by affiliates of BC Partners, converted 17,584,098 shares of the ~~lease, including early termination,~~Company’s Class B common stock into Class A common stock. On May 11, 2020, Buddy Chester Sub LLC entered into a variable forward purchase agreement to deliver up to 17,584,098 shares of the ~~equipment~~Company’s Class A common stock at the exchange date, which is expected to be May 16, 2023. The number of shares to be delivered will be ~~conveyed to~~determined based on, among other things, the ~~Company for a nominal fee.~~trading price of the Company’s Class A common stock at that time.

On April 12, 2021, Argos Holdco converted 6,150,000 shares of the Company’s Class B common stock into Class A common stock and sold such Class A common stock.

7.8. Share-Based Compensation

2019 Omnibus Incentive Plan

In June 2019, the Company’s board of directors adopted and approved the 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2019 Plan became effective on June 13, 2019 and allows for the issuance of up to 31,864,865 shares of Class A common stock. No awards may be granted under the 2019 Plan after June ~~2029.~~

~~The~~2029.The 2019 Plan provides for the grant of stock options, including incentive stock options, non-qualified stock options, restricted stock, dividend equivalents, stock payments, restricted stock units, performance shares, other incentive awards, stock appreciation rights, 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.

Service and Performance-Based Awards

~~Beginning in June 2019, the~~The Company ~~granted~~grants restricted stock units that vest upon satisfaction of both a service-based vesting ~~condition~~conditions and ~~a performance-based~~company performance or market-based vesting ~~condition~~conditions (“PRSUs”) ~~as described below.~~

The service-based vesting condition was satisfied with respect to 25% of an employee’s PRSUs on the first anniversary of the registration date (as defined in the 2019 Plan) and will then be satisfied with respect to 12.5% of an employee’s PRSUs at the end of each six month period thereafter,, subject to the employee’s continued employment with the Company through the applicable vesting date.

The ~~performance-based vesting condition shall be satisfied with respect to a percentage of an employee’s~~Company records share-based compensation expense for PRSUs over the requisite service period and accounts for forfeitures as and when the price per share of Class A common stock specified is achieved, on a volume adjusted weighted-average basis, on every trading day during a consecutive 45-trading day period completed prior to the fifth anniversary of the 2019 Plan’s effective date subject to the employee’s continued employment with the Company through the applicable vesting date. As of June 13, 2020, the performance-based vesting condition was fully satisfied.they occur.

Service-Based Awards

~~During the twenty-six weeks ended August 2, 2020, the~~The Company ~~granted~~grants restricted stock units with a service-based vesting ~~condition~~conditions (“RSUs”). The service-based vesting condition will be satisfied with respect to 25% of an employee’s RSUs on the one-year anniversary of the vesting commencement date and 12.5% of an employee’s RSUs at the end of each six month period thereafter, which vest subject to the employee’s continued employment with the Company through the applicable vesting date. The Company records share-based compensation expense for RSUs on a straight-line basis over the requisite service ~~period. The Company~~period and accounts for forfeitures as they occur.

Service and Performance-Based Awards Activity

The following table summarizes the activity related to the Company’s PRSUs for the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020~~2021 (in thousands, except for weighted average grant date fair value):


		Number of PRSUs	Weighted Average Grant Date Fair Value			Number of PRSUs	Weighted Average Grant Date Fair Value
Outstanding as of February 2, 2020		21,284	$	36.20
Outstanding as of January 31, 2021					Outstanding as of January 31, 2021	13,011	$	35.95
Granted	Granted	805	$	32.30	Granted	32	$	80.85
Vested	Vested	(5,207)	$	36.69	Vested	(257)	$	29.74
Forfeited	Forfeited	(714)	$	34.91	Forfeited	(294)	$	33.80
Unvested and outstanding as of August 2, 2020		16,168	$	35.90
Unvested and outstanding as of May 2, 2021					Unvested and outstanding as of May 2, 2021	12,492	$	36.24

The total fair value of PRSUs that vested during the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020~~2021 was ~~$254.0~~$24.2 million. As of ~~August~~May 2, ~~2020,~~2021, total unrecognized compensation expense related to unvested PRSUs was ~~$132.1~~$66.3 million and is expected to be recognized over a weighted-average expected performance period of ~~1.9~~1.6 years.

During the twenty-six weeks ended August 2, 2020, vesting occurred for 186,617 PRSUs previously granted to a director of the Company. For accounting purposes, the issuance of Class A common stock upon vesting of these PRSUs is treated as a distribution to the Parent because such director is an employee of the Parent.

The fair value of the PRSUs with ~~share price hurdles~~market-based vesting conditions was determined on the date of grant using a Monte Carlo model to simulate total stockholder return for the Company and peer companies with the following assumptions:


Performance period			5 years
Weighted-average risk-free interest rate			1.8%
Weighted-average volatility			49.7%
Weighted-average dividend yield			0%

The risk-free interest rate utilized is based on a 5-year term-matched zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on historical volatility of the stock of the Company’s peer firms.

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.

Service-Based Awards Activity

The following table summarizes the activity related to the Company’s RSUs for the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020~~2021 (in thousands, except for weighted average grant date fair value):


		Number of RSUs	Weighted Average Grant Date Fair Value			Number of RSUs	Weighted Average Grant Date Fair Value
Outstanding as of February 2, 2020		0	$	0
Outstanding as of January 31, 2021					Outstanding as of January 31, 2021	713	$	48.58
Granted	Granted	464	$	37.76	Granted	1,664	$	80.85
Vested					Vested	(92)	$	36.46
Forfeited	Forfeited	(12)	$	33.31	Forfeited	(67)	$	59.31
Unvested and outstanding as of August 2, 2020		452	$	37.88
Unvested and outstanding as of May 2, 2021					Unvested and outstanding as of May 2, 2021	2,218	$	73.04

The total fair value of RSUs that vested during the thirteen weeks ended May 2, 2021 was $9.1 million. As of ~~August~~May 2, ~~2020,~~2021, total unrecognized compensation expense related to unvested RSUs was ~~$15.9~~$150.9 million and is expected to be recognized over a weighted-average expected performance period of ~~3.6~~3.4 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 ~~August~~May 2, ~~2020,~~2021, there were ~~7.3~~6.2 million additional shares of Class A common stock reserved for future issuance under the 2019 Plan.

~~Citrus Profits Interest Plan~~

Subsequent to the PetSmart Acquisition, the Company’s share-based compensation included profits interests units (“PIUs”) granted by Citrus Intermediate Holdings L.P. (the “Citrus Partnership”), a Delaware limited partnership (the “Citrus Profits Interest Plan”). The Citrus Partnership is a parent company of PetSmart and a wholly-owned subsidiary of the Sponsors. 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.

~~As of June 13, 2019, an aggregate of 768,785 profits interests units under the Citrus Profits Interest Plan were held by employees of Chewy, Inc. and were canceled.~~

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):


		13 Weeks Ended						26 Weeks Ended							13 Weeks Ended
		August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019			May 2, 2021		May 3, 2020
PRSUs	PRSUs	$	32,138	$	40,848	$	74,148	$	40,848	PRSUs	$	14,112	$	42,010
RSUs	RSUs	1,013		0		1,232		0		RSUs	8,994		219
PIUs		0		2,935		0		10,165
Total share-based compensation expense	Total share-based compensation expense	$	33,151	$	43,783	$	75,380	$	51,013	Total share-based compensation expense	$	23,106	$	42,229

8.9. Income Taxes

~~Subsequent~~Chewy is subject to taxation in the ~~PetSmart Acquisition, the~~U.S. and various state and local jurisdictions. The Company’s losses and tax attributes were previously included ~~with~~in PetSmart’s consolidated tax return activity at the U.S. federal level and any applicable state ~~income tax returns.~~and local level. Income taxes as presented in the Company’s condensed consolidated financial statements have been prepared based on the separate return ~~method as if~~method. As of January 31, 2021, Chewy was no longer a member of PetSmart’s affiliated group for U.S. federal income tax purposes. For presentation purposes, during the fiscal year ended January 31, 2021, the Company ~~were a taxpayer separate~~reduced the deferred tax attributes previously utilized by PetSmart, along with the associated valuation allowances, from ~~PetSmart.~~the financial statements in order to properly reflect the deferred tax attributes available to the Company; this had no net impact on the Company’s income tax expense.

The Company did 0t have a ~~net~~ current or deferred provision for income taxes for any taxing jurisdiction during the thirteen ~~and twenty-six~~ weeks ended ~~August~~May 2, ~~2020~~2021, and ~~August 4, 2019.~~May 3, 2020. 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 and PetSmart entered into a tax sharing agreement which governs the respective rights, responsibilities, and obligations of the Company and PetSmart 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 thirteen ~~and twenty-six~~ weeks ended ~~August~~May 2, ~~2020,~~2021, the Company ~~recorded a $18.3~~collected $15.0 million ~~and $31.0 million due from Parent~~ pursuant to the tax sharing agreement. Though the tax sharing agreement ~~respectively.~~

~~The Coronavirus Aid, Relief,~~was effectively terminated upon tax deconsolidation for federal income taxes, future settlements will occur upon the filing of final tax returns. Additionally, the Company will continue to receive payments upon the filing of certain combined state tax returns for the fiscal year ended January 31, 2021 and ~~Economic Security Act (“CARES Act”),~~thereafter. As of May 2, 2021 and January 31, 2021, the Company had a receivable related to the tax sharing agreement of $24.7 million and $30.5 million, respectively, of which ~~was enacted on March 27, 2020, made tax law changes to provide financial relief to companies as a result of~~ the business impacts of COVID-19. Key income tax provisions of the CARES Act include changes in net operating loss carryback and carryforward rules, acceleration of alternative minimum tax credit recovery, increase in the net interest expense deduction limit and charitable contribution limit, and immediate write-off of qualified improvement property. The changes are notoutstanding amount is expected to ~~have a significant impact on~~be collected during the ~~Company.~~fiscal year ended January 30, 2022.

9.10. Net ~~Loss~~Income (Loss) per Share

Basic and diluted net ~~loss~~income (loss) per share attributable to common stockholders is presented using the two class method required for participating securities. Under the 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~~income (loss) per share is 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 periods presented reflects the reclassification of the 100 outstanding shares of common stock into 393,000,000 shares of Class B common stock.~~

For the thirteen ~~and twenty-six~~ weeks ended ~~August~~May 2, ~~2020 and August 4, 2019,~~2021, the Company’s calculations of basic and diluted net income per share attributable to common Class A and Class B stockholders include the dilutive effect of stock-based awards in the diluted net income per share calculation. The computation of diluted net income per share attributable to common stockholders does not include 2.1 million potential common shares for the thirteen weeks ended May 2, 2021.

For the thirteen weeks ended May 3, 2020, the Company’s calculations of basic and diluted net loss per share attributable to common Class A and Class B 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 computation of diluted net loss per share attributable to common stockholders does not include ~~16.6 million and 21.2~~21.8 million potential common shares for the thirteen ~~and twenty-six~~ weeks ended ~~August 2,~~May 3, 2020, ~~and August 4, 2019, respectively,~~ as the effect of their inclusion would have been antidilutive.

~~Conversion of Class B Common Stock~~The following table sets forth basic and diluted net income (loss) per share attributable to common stockholders for the periods presented (in thousands, except per share data):

On May 8, 2020, Buddy Chester Sub LLC, a wholly-owned subsidiary of PetSmart, converted 17,584,098 shares of the Company’s Class B common stock into Class A common stock. On May 11, 2020, Buddy Chester Sub LLC entered into a variable forward purchase agreement to deliver up to 17,584,098 shares of the Company’s Class A common stock at the exchange date, which is expected to be May 16, 2023, determined by reference to the trading price of the common stock at that time.


	13 Weeks Ended
	May 2, 2021		May 3, 2020
Basic and diluted net income (loss) per share
Numerator
Net income (loss) attributable to common stockholders	$	38,719	$	(47,870)
Denominator
Weighted average common shares used in computing net income (loss) per share attributable to Class A and Class B stockholders, basic	415,248		401,405
Weighted-average effect of dilutive stock-based awards	12,349		0
Weighted average common shares used in computing net income (loss) per share attributable to Class A and Class B stockholders, diluted	427,597		401,405
Earnings (loss) per common share
Net income (loss) per share attributable to common Class A and Class B stockholders, basic	$0.09		$(0.12)
Net income (loss) per share attributable to common Class A and Class B stockholders, diluted	$0.09		$(0.12)

~~10.~~11. Certain Relationships and Related Party Transactions

The Company’s condensed consolidated financial statements include management fee expenses of $0.3 million ~~and $0.7 million~~ allocated to the Company by ~~the Parent~~PetSmart for organizational oversight and certain limited corporate functions provided by its sponsors for the thirteen ~~and twenty-six~~ weeks ended ~~August 2, 2020 and August 4, 2019, respectively.~~May 3, 2020. Allocated costs are included within selling, general and administrative expenses in the condensed consolidated statements of operations.

~~Certain~~Since launch on July 2, 2018, certain of the Company’s pharmacy operations ~~are currently, and~~ have been ~~since launch on July 2, 2018,~~and continue to be conducted through a wholly-owned subsidiary of PetSmart. The Company has entered into a services agreement with PetSmart that provides for the payment of a management fee due from PetSmart with respect to this arrangement. The Company recognized ~~$9.9~~$10.6 million and ~~$21.6~~$11.7 million ~~during the thirteen and twenty-six weeks ended August 2, 2020~~ within net sales in the condensed consolidated statements of operations for the services provided ~~compared to $10.9 million and $21.5 million~~ during the thirteen ~~and twenty-six~~ weeks ended ~~August 4, 2019.~~May 2, 2021 and May 3, 2020, respectively.

As of May 2, 2021 and January 31, 2021, the Company had a net receivable from PetSmart of $28.8 million and $21.9 million, respectively, which was included in prepaid expenses and other current assets on the 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.

As of June 4, 2021, all such guarantees had been released, with the exception of guarantees pertaining to 2 of the Company’s lease agreements.

1413

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 ~~August~~May 2, ~~2020~~2021 (“10-Q Report”) and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended ~~February 2, 2020~~January 31, 2021 (“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 information to our investors using our investor relations website (https://investor.chewy.com/), 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 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 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, 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 continually develop innovative ways for our customers to engage with us. We partner with more than ~~2,000~~2,500 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding ~~private~~proprietary brands. Through our website and mobile applications, we offer our customers more than ~~60,000~~75,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.

~~Coronavirus~~COVID-19

The ~~coronavirus (also known as COVID-19)~~COVID-19 pandemic has been a ~~highly~~ disruptive economic and societal event that has affected our business and ~~has had a significant impact on~~ consumer shopping behavior. To serve our pet parents while also providing for the safety and well-being of our team members, we have adapted aspects of our logistics, transportation, supply chain and purchasing processes accordingly. As reflected in the discussion below, ~~early in the outbreak,~~ we ~~saw an acceleration in sales as concerned pet parents stocked up on necessities such as food and other essentials. Later, as shelter-in-place orders expanded and social distancing protocols took hold,~~have seen customers ~~began to~~ shift more of their total shopping spend to online ~~channels. More recently, shelter-in-place orders~~channels since the COVID-19 outbreak, which has led to increased sales and order activity for our business. While the COVID-19 outbreak has not had a material adverse impact on our operations to date, and conditions do appear to be improving as vaccination levels rise and state and local economies begin to re-open, the positive or negative impacts that the COVID-19 outbreak will ultimately have ~~been lifted in most areas, however, the migration of consumer spending towards e-commerce channels continues.~~on our business remain difficult to predict.

As this crisis ~~has~~ unfolded, we ~~have continued to monitor~~monitored conditions closely and ~~adapt~~adapted our operations to meet federal, state and local ~~standards. We have done so~~standards, while continuing to ~~continue meeting~~meet the needs of our rapidly growing community of pets and pet parents and to ensure the safety and well-being of our team members. ~~We cannot~~While conditions appear to be improving, we are still unable to predict the duration ~~or severity~~ of the COVID-19 ~~or its~~pandemic and therefore what the ultimate impact of the COVID-19 pandemic will be on the broader economy or our operations and liquidity. As such, ~~the situation remains unpredictable and~~ risks still remain. Please refer to the “Cautionary Note Regarding Forward-Looking Statements” in this 10-Q Report and the “Risk Factors” disclosed in our Annual Report on Form 10-K for the fiscal year ended ~~February 2, 2020.~~January 31, 2021.

Fiscal Year End

We have a 52 or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that year. Our ~~2020~~2021 fiscal year ends on January ~~31, 2021~~30, 2022 and is a 52-week year. Our ~~2019~~2020 fiscal year ended ~~February 2, 2020~~January 31, 2021 and was a 52-week year.

1514

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											26 Weeks Ended												13 Weeks Ended
(in thousands, except net sales per active customer and percentages)	(in thousands, except net sales per active customer and percentages)	August 2, 2020			August 4, 2019			% Change		August 2, 2020			August 4, 2019			% Change		(in thousands, except net sales per active customer and percentages)	May 2, 2021			May 3, 2020			% Change
Financial and Operating Data	Financial and Operating Data																	Financial and Operating Data
Net sales	Net sales	$	1,699,859		$	1,153,545		47.4	%	$	3,321,252		$	2,262,417		46.8	%	Net sales	$	2,135,178		$	1,621,393		31.7	%
Net loss ⁽¹⁾		$	(32,817)		$	(82,876)		60.4	%	$	(80,687)		$	(112,430)		28.2	%
Net income (loss) (1)																		Net income (loss) (1)	$	38,719		$	(47,870)		180.9	%
Net margin ⁽¹⁾	Net margin ⁽¹⁾	(1.9)		%	(7.2)		%			(2.4)		%	(5.0)		%			Net margin (1)	1.8		%	(3.0)		%
Adjusted EBITDA⁽²⁾	Adjusted EBITDA⁽²⁾	$	15,458		$	(29,183)		153.0	%	$	18,901		$	(44,949)		142.0	%	Adjusted EBITDA(2)	$	77,354		$	3,443		n/m
Adjusted EBITDA margin⁽²⁾	Adjusted EBITDA margin⁽²⁾	0.9		%	(2.5)		%			0.6		%	(2.0)		%			Adjusted EBITDA margin(2)	3.6		%	0.2		%
Net cash provided by (used in) operating activities		$	(28,890)		$	21,807		(232.5)	%	$	(8,145)		$	(29,334)		72.2	%
Net cash provided by operating activities																		Net cash provided by operating activities	$	98,366		$	20,745		n/m
Free cash flow⁽²⁾	Free cash flow⁽²⁾	$	(56,035)		$	9,866		(668.0)	%	$	(77,868)		$	(53,497)		(45.6)	%	Free cash flow(2)	$	59,484		$	(21,833)		n/m
Active customers	Active customers	16,579			12,021			37.9	%	16,579			$	12,021		37.9	%	Active customers	19,765			15,016			31.6	%
Net sales per active customer	Net sales per active customer	$	356		$	352		1.1	%	$	356		$	352		1.1	%	Net sales per active customer	$	388		$	357		8.7	%
Autoship customer sales	Autoship customer sales	$	1,161,603		$	799,618		45.3	%	$	2,262,792		$	1,543,471		46.6	%	Autoship customer sales	$	1,480,240		$	1,101,189		34.4	%
Autoship customer sales as a percentage of net sales	Autoship customer sales as a percentage of net sales	68.3		%	69.3		%			68.1		%	68.2		%			Autoship customer sales as a percentage of net sales	69.3		%	67.9		%
n/m - not meaningful																		n/m - not meaningful
(1) Includes share-based compensation expense, including related taxes, of $24.8 million for the thirteen weeks ended May 2, 2021 compared to $42.3 million for the thirteen weeks ended May 3, 2020.																		(1) Includes share-based compensation expense, including related taxes, of $24.8 million for the thirteen weeks ended May 2, 2021 compared to $42.3 million for the thirteen weeks ended May 3, 2020.

⁽¹⁾Includes share-based compensation expense, including related taxes, of $37.8 million and $80.1 million for the thirteen and twenty-six weeks ended August 2, 2020 compared to $43.8 million and $51.0 million for the thirteen and twenty-six weeks ended August 4, 2019.
⁽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.																										(2) Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures.

We define net margin as net ~~loss~~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 and related taxes; income tax provision; interest income (expense), net; management fee expense; transaction related costs; and litigation matters and other ~~costs.~~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 in this 10-Q Report because it 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 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 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, 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 ~~transaction~~litigation matters and other ~~costs 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 does not reflect transaction related costs and other ~~costs~~items which are ~~generally~~either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include ~~transaction costs (i.e. IPO costs),~~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 for each of the periods indicated.


($ in thousands, except percentages)	($ in thousands, except percentages)	13 Weeks Ended									26 Weeks Ended										($ in thousands, except percentages)	13 Weeks Ended
Reconciliation of Net Loss to Adjusted EBITDA		August 2, 2020			August 4, 2019			August 2, 2020			August 4, 2019
Net loss		$	(32,817)		$	(82,876)		$	(80,687)		$	(112,430)
Reconciliation of Net Income (Loss) to Adjusted EBITDA														Reconciliation of Net Income (Loss) to Adjusted EBITDA	May 2, 2021			May 3, 2020
Net income (loss)														Net income (loss)	$	38,719		$	(47,870)
Add (deduct):	Add (deduct):													Add (deduct):
Depreciation and amortization	Depreciation and amortization	8,083			7,630			15,336			14,579			Depreciation and amortization	11,426			7,253
Share-based compensation expense and related taxes	Share-based compensation expense and related taxes	37,797			43,783			80,138			51,013			Share-based compensation expense and related taxes	24,772			42,341
Interest expense (income), net		546			(204)			930			(920)
Interest expense, net														Interest expense, net	402			384
Management fee expense⁽¹⁾	Management fee expense⁽¹⁾	325			325			650			650			Management fee expense(1)	—			325
Transaction related costs	Transaction related costs	—			1,396			—			1,396			Transaction related costs	831			—
Other	Other	1,524			763			2,534			763			Other	1,204			1,010
Adjusted EBITDA	Adjusted EBITDA	$	15,458		$	(29,183)		$	18,901		$	(44,949)		Adjusted EBITDA	$	77,354		$	3,443
Net sales	Net sales	$	1,699,859		$	1,153,545		$	3,321,252		$	2,262,417		Net sales	$	2,135,178		$	1,621,393
Net margin	Net margin	(1.9)		%	(7.2)		%	(2.4)		%	(5.0)		%	Net margin	1.8		%	(3.0)		%
Adjusted EBITDA margin	Adjusted EBITDA margin	0.9		%	(2.5)		%	0.6		%	(2.0)		%	Adjusted EBITDA margin	3.6		%	0.2		%
⁽¹⁾ Management fee expense allocated to us by PetSmart for organizational oversight and certain limited corporate functions provided by its sponsors. 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.
(1) Management fee expense allocated to us by PetSmart LLC (“PetSmart”) for organizational oversight and certain limited corporate functions provided by its sponsors. 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 during the thirteen weeks ended May 3, 2020.														(1) Management fee expense allocated to us by PetSmart LLC (“PetSmart”) for organizational oversight and certain limited corporate functions provided by its sponsors. 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 during the thirteen weeks ended May 3, 2020.

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 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)	($ in thousands)	13 Weeks Ended						26 Weeks Ended							($ in thousands)	13 Weeks Ended
Reconciliation of Net Cash Provided by (Used in) Operating Activities to Free Cash Flow		August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
Net cash provided by (used in) operating activities		$	(28,890)	$	21,807	$	(8,145)	$	(29,334)
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow										Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow	May 2, 2021		May 3, 2020
Net cash provided by operating activities										Net cash provided by operating activities	$	98,366	$	20,745
Deduct:	Deduct:									Deduct:
Capital expenditures	Capital expenditures	(27,145)		(11,941)		(69,723)		(24,163)		Capital expenditures	(38,882)		(42,578)
Free Cash Flow	Free Cash Flow	$	(56,035)	$	9,866	$	(77,868)	$	(53,497)	Free Cash Flow	$	59,484	$	(21,833)

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, and for whom an order has shipped, 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 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.

1817

Components of Results of Consolidated Operations

Net Sales

We derive net sales primarily from sales of both third-party brand and ~~private~~proprietary brand pet food, pet products, pet medications and other pet health products, and related shipping fees. Sales of third-party brand and ~~private~~proprietary 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~~proprietary 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.

1918

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																				% of net sales
($ in thousands)	($ in thousands)	August 2, 2020		August 4, 2019		% Change		August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019		% Change		August 2, 2020				August 4, 2019		($ in thousands)		May 2, 2021		May 3, 2020					% Change				May 2, 2021			May 3, 2020
Consolidated Statements of Operations	Consolidated Statements of Operations																							Consolidated Statements of Operations
Net sales	Net sales	$	1,699,859	$	1,153,545	47.4	%	100.0	%	100.0	%	$	3,321,252	$	2,262,417	46.8	%	100.0	%			100.0	%	Net sales		$	2,135,178	$	1,621,393				31.7		%		100.0		%	100.0	%
Cost of goods sold	Cost of goods sold	1,266,503		881,310		43.7	%	74.5	%	76.4	%	2,509,187		1,736,292		44.5	%	75.5	%			76.7	%	Cost of goods sold		1,545,402		1,242,684					24.4		%		72.4		%	76.6	%
Gross profit	Gross profit	433,356		272,235		59.2	%	25.5	%	23.6	%	812,065		526,125		54.3	%	24.5	%			23.3	%	Gross profit		589,776		378,709					55.7		%		27.6		%	23.4	%
Operating expenses:	Operating expenses:																							Operating expenses:
Selling, general and administrative	Selling, general and administrative	343,181		244,563		40.3	%	20.2	%	21.2	%	663,238		426,460		55.5	%	20.0	%			18.8	%	Selling, general and administrative		406,220		320,057					26.9		%		19.0		%	19.7	%
Advertising and marketing	Advertising and marketing	122,446		110,752		10.6	%	7.2	%	9.6	%	228,584		213,015		7.3	%	6.9	%			9.4	%	Advertising and marketing		144,435		106,138					36.1		%		6.8		%	6.5	%
Total operating expenses	Total operating expenses	465,627		355,315		31.0	%	27.4	%	30.8	%	891,822		639,475		39.5	%	26.9	%			28.3	%	Total operating expenses		550,655		426,195					29.2		%		25.8		%	26.3	%
Loss from operations		(32,271)		(83,080)		61.2	%	(1.9)	%	(7.2)	%	(79,757)		(113,350)		29.6	%	(2.4)	%			(5.0)	%
Interest (expense) income, net		(546)		204		(367.6)	%	—	%	—	%	(930)		920		(201.1)	%	—	%			—	%
Loss before income tax provision		(32,817)		(82,876)		60.4	%	(1.9)	%	(7.2)	%	(80,687)		(112,430)		28.2	%	(2.4)	%			(5.0)	%
Income (loss) from operations																			Income (loss) from operations	39,121					(47,486)					182.4	%	1.8		%		(2.9)		%
Interest expense, net																			Interest expense, net	(402)					(384)					4.7	%	—		%		—		%
Income (loss) before income tax provision																			Income (loss) before income tax provision	38,719					(47,870)					180.9	%	1.8		%		(3.0)		%
Income tax provision	Income tax provision	—		—		—	%	—	%	—	%	—		—		—	%	—	%			—	%	Income tax provision		—		—					—		%		—		%	—	%
Net loss		$	(32,817)	$	(82,876)	60.4	%	(1.9)	%	(7.2)	%	$	(80,687)	$	(112,430)	28.2	%	(2.4)	%			(5.0)	%
Net income (loss)																			Net income (loss)	$	38,719				$	(47,870)				180.9	%	1.8		%		(3.0)		%

Thirteen ~~and Twenty-Six~~ Weeks Ended ~~August~~May 2, ~~2020~~2021 Compared to Thirteen ~~and Twenty-Six~~ Weeks Ended ~~August 4, 2019~~May 3, 2020

Net Sales


		13 Weeks Ended ⁽¹⁾										26 Weeks Ended ⁽¹⁾											13 Weeks Ended
($ in thousands)	($ in thousands)	August 2, 2020		August 4, 2019		$ Change		% Change		August 2, 2020		August 4, 2019		$ Change		% Change		($ in thousands)	May 2, 2021		May 3, 2020		$ Change		% Change
Consumables	Consumables	$	1,159,094	$	855,571	$	303,523	35.5	%	$	2,332,643	$	1,689,516	$	643,127	38.1	%	Consumables	$	1,455,013	$	1,173,549	$	281,464	24.0	%
Hardgoods	Hardgoods	296,666		172,300		124,366		72.2	%	539,504		340,747		198,757		58.3	%	Hardgoods	343,629		242,838		100,791		41.5	%
Other	Other	244,099		125,674		118,425		94.2	%	449,105		232,154		216,951		93.5	%	Other	336,536		205,006		131,530		64.2	%
Net sales	Net sales	$	1,699,859	$	1,153,545	$	546,314	47.4	%	$	3,321,252	$	2,262,417	$	1,058,835	46.8	%	Net sales	$	2,135,178	$	1,621,393	$	513,785	31.7	%

⁽¹⁾Prior periods have been reclassified to conform with current presentation.

Net sales for the thirteen weeks ended ~~August~~May 2, ~~2020~~2021 increased by ~~$546.3~~$513.8 million, or ~~47.4%~~31.7%, to ~~$1.7~~$2.1 billion compared to ~~$1.2~~$1.6 billion for the thirteen weeks ended August 4, 2019. This increase was primarily due to growth in our customer base, including a meaningful increase in organic customer growth in the thirteen weeks ended August 2, 2020, with the number of active customers increasing by 4.6 million, or 37.9% year-over-year. Spending among our active customers increased with net sales per active customer increasing $4, or 1.1%, in the thirteen weeks ended August 2, 2020 compared to the thirteen weeks ended August 4, 2019, driven by continued catalog expansion and growth in our hardgoods, healthcare and private brand businesses.

~~Net sales for the twenty-six weeks ended August 2, 2020 increased by $1.1 billion, or 46.8%, to $3.3 billion compared to $2.3 billion for the twenty-six weeks ended August 4, 2019.~~May 3, 2020. This increase was primarily due to growth in our customer base, with the number of active customers increasing by ~~4.6~~4.7 million, or ~~37.9%~~31.6% year-over-year. Spending among our active customers increased with net sales per active customer increasing ~~$4,~~$31, or ~~1.1%~~8.7%, in the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020~~2021 compared to the ~~twenty-six~~thirteen weeks ended ~~August 4, 2019,~~May 3, 2020, driven by continued catalog expansion and growth ~~in our hardgoods, healthcare and private brand businesses.~~across all verticals.

Cost of Goods Sold and Gross Profit

Cost of goods sold for the thirteen weeks ended ~~August~~May 2, ~~2020~~2021 increased by ~~$385.2~~$302.7 million, or ~~43.7%~~24.4%, to ~~$1.3~~$1.5 billion compared to ~~$881.3 million~~$1.2 billion in the thirteen weeks ended ~~August 4, 2019.~~May 3, 2020. This increase was primarily due to a ~~48.7%~~26.6% increase in orders shipped and associated product costs, outbound freight, and shipping supply costs. The increase in cost of goods sold was lower than the increase in net sales on a percentage basis, primarily as a result of realized supply chain efficiencies and change in mix of sales as hardgoods, healthcare, and ~~private brand businesses continue to grow faster than the overall business.~~

Cost of goods sold for the twenty-six weeks ended August 2, 2020 increased by $772.9 million, or 44.5%, to $2.5 billion compared to $1.7 billion in the twenty-six weeks ended August 4, 2019. This increase was primarily due to a 51.0% increase in orders shipped and associated product costs, outbound freight, and shipping supply costs, including incremental costs attributable to COVID-19. The increase in cost of goods sold was lower than the increase in orders on a percentage basis, primarily as a result of realized supply chain efficiencies and change in mix of sales as hardgoods, healthcare, and privateproprietary brand businesses continue to grow faster than the overall business.

Gross profit for the thirteen weeks ended ~~August~~May 2, ~~2020~~2021 increased by ~~$161.1~~$211.1 million, or ~~59.2%~~55.7%, to ~~$433.4~~$589.8 million compared to ~~$272.2~~$378.7 million in the thirteen weeks ended ~~August 4, 2019.~~May 3, 2020. 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 ~~August~~May 2, ~~2020~~2021 increased by ~~190~~420 basis points compared to the thirteen weeks ended ~~August 4, 2019,~~May 3, 2020, primarily due to margin expansion across all verticals including ~~improvements~~continued growth in ~~margin profile of~~our proprietary brands, hardgoods, ~~pharmacy~~ and ~~private brands.~~healthcare businesses.

Gross profit for the twenty-six weeks ended August 2, 2020 increased by $285.9 million, or 54.3%, to $812.1 million compared to $526.1 million in the twenty-six weeks ended August 4, 2019. 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 twenty-six weeks ended August 2, 2020 increased by 120 basis points compared to the twenty-six weeks ended August 4, 2019, primarily due to margin expansion across all verticals, including improvements in margin profile of hardgoods, pharmacy and private brands.

Selling, General and Administrative

Selling, general and administrative expenses for the thirteen weeks ended ~~August~~May 2, ~~2020~~2021 increased by ~~$98.6~~$86.2 million, or ~~40.3%~~26.9%, to ~~$343.2~~$406.2 million compared to ~~$244.6~~$320.1 million in the thirteen weeks ended ~~August 4, 2019.~~May 3, 2020. This increase was primarily due to an increase of $75.5 million in fulfillment costs largely attributable to increased investments to support overall growth of our business including the opening of a new fulfillment center in Salisbury, North Carolina and a customer service center in Dallas, Texas, growth of fulfillment and customer service headcount, and temporary incentive wages and bonuses as well as incremental cleaning and sanitation spend attributable to COVID-19. Facilities expenses and other general and administrative expenses increased by $33.8 million, primarily due to increased headcount as a result of business growth as well as expenses incurred as a result of IT initiatives and operating as a public company. These increases were partially offset by a $10.6 million reduction in non-cash share-based compensation expense.

Selling, general and administrative expenses for the twenty-six weeks ended August 2, 2020 increased by $236.8 million, or 55.5%, to $663.2 million compared to $426.5 million in the twenty-six weeks ended August 4, 2019. This increase was primarily due to an increase of $144.6$69.9 million in fulfillment costs largely attributable to increased investments to support overall growth of our business, including the opening of new fulfillment centers in ~~Dayton, Ohio,~~Lewisberry, Pennsylvania, Archbald, Pennsylvania, and Salisbury, North Carolina, a ~~pharmacy~~limited catalog fulfillment center in ~~Louisville, Kentucky, and~~Kansas City, Missouri, a customer service center in Dallas, Texas, growth of fulfillment and customer service headcount, and ~~temporary incentive~~investments in wages and ~~bonuses as well as incremental cleaning~~benefits for fulfillment and ~~sanitation spend attributable to COVID-19. We recognized an increase of $24.4 million in non-cash share-based compensation expense.~~customer service team members. Facilities expenses and other general and administrative expenses increased by ~~$67.8~~$35.4 million, primarily due to ~~expanding our corporate office and~~ increased headcount as a result of business growth as well as ~~an increase in~~ expenses incurred ~~due to operating~~ as a ~~public company.~~result of IT initiatives. These increases were partially offset by a $19.1 million reduction in non-cash share-based compensation expense.

Advertising and Marketing

Advertising and marketing expenses for the thirteen weeks ended ~~August~~May 2, ~~2020~~2021 increased by ~~$11.7~~$38.3 million, or ~~10.6%~~36.1%, to ~~$122.4~~$144.4 million compared to ~~$110.8~~$106.1 million in the thirteen weeks ended ~~August 4, 2019, but declined as a percentage of net sales~~May 3, 2020. The increase was primarily due to ~~7.2% from 9.6% in the thirteen weeks ended August 4, 2019. This~~an increase in advertising and marketing spend ~~combined with~~through existing channels which contributed to an increase in the number of active customers of 4.7 million. Of note, we experienced a meaningful increase in organic customer growth in the thirteen weeks ended ~~August 2,~~May 3, 2020 ~~contributed to the 4.6 million increase in active customers.~~

Advertising and marketing expenses for the twenty-six weeks ended August 2, 2020 increased by $15.6 million, or 7.3%, to $228.6 million compared to $213.0 million in the twenty-six weeks ended August 4, 2019, but overall spend declined as a percentage of net sales to 6.9% from 9.4% in the twenty-six weeks ended August 4, 2019. This increase in advertising and marketing spend through existing channels contributedattributable to an increase in online shopping due to the ~~number of active customers of 4.6 million.~~COVID-19 pandemic.

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 ~~source~~sources of liquidity isare expected to be our cash and cash ~~equivalents.~~equivalents and our revolving credit facility. Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market funds. Cash and cash equivalents totaled ~~$153.8~~$637.5 million as of ~~August~~May 2, ~~2020, a decrease~~2021, an increase of ~~$58.2~~$74.2 million from ~~February 2, 2020.~~January 31, 2021.

We believe that our cash and cash equivalents and availability under our 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” in Item 1A of our ~~Form~~ 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.

2020 Equity Offering

On September 21, 2020, we issued and sold 5,865,000 shares of Class A common stock at a public offering price of $54.40 per share, raising $318.4 million in net proceeds after deducting offering costs of approximately $0.6 million. For additional information, see Note 7 in the “Notes to Condensed Consolidated Financial Statements” of this 10-Q Report.

Cash Flows


		26 Weeks Ended							13 Weeks Ended
		August 2, 2020		August 4, 2019			May 2, 2021		May 3, 2020
Net cash used in operating activities		$	(8,145)	$	(29,334)
Net cash provided by operating activities						Net cash provided by operating activities	$	98,366	$	20,745
Net cash used in investing activities	Net cash used in investing activities	$	(73,641)	$	(23,145)	Net cash used in investing activities	$	(38,882)	$	(40,464)
Net cash provided by financing activities	Net cash provided by financing activities	$	23,540	$	114,992	Net cash provided by financing activities	$	14,696	$	165

Operating Activities

~~Cash~~Net 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~~ operating activities was ~~$8.1~~$98.4 million for the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020,~~2021, which primarily ~~consisting~~consisted of ~~$80.7~~$38.7 million of net ~~loss, adjusted for certain~~income, non-cash ~~items, which primarily included~~adjustments such as depreciation and amortization expense of ~~$15.3~~$11.4 million and ~~$75.4 million of~~ share-based compensation expense ~~partially offset~~of $23.1 million, and a cash increase of $24.6 million from the management of working capital. Cash increases from working capital were primarily driven by a ~~$38.3 million~~ decrease ~~due to unfavorable working capital changes. Unfavorable working capital changes included~~in inventories, an increase in ~~current assets of $150.5 million due to~~payables, as well as an increase in ~~inventory and receivables associated with net sales,~~other current liabilities, partially offset by an increase in ~~current liabilities of $112.2 million, primarily due to timing of payments for inventory purchases.~~

Net cash used in operating activities was $29.3 million for the twenty-six weeks ended August 4, 2019, primarily consisting of $112.4 million of net loss, adjusted for certain non-cash items, which primarily included depreciationreceivables and amortization expense of $14.6 million and $51.0 million of share-based compensation expense, partially offset by a $10.6 million increase due to favorable working capital. Favorable working capital changes included an increase in current liabilities of $109.6 million, primarily driven by the timing of payments for inventory purchases and an increase in accrued expenses, partially offset by an increase in current assets of $99.0 million due to an increase in inventory and receivables associated with net sales as well as other current assets.

~~Investing Activities~~

Our primary investing activities consisted of purchases of property and equipment, mainly for the launch and expansion of our fulfillment capabilities, as well as purchases of servers and networking equipment, and leasehold improvements.

2220

Net cash provided by operating activities was $20.7 million for the thirteen weeks ended May 3, 2020, which primarily consisted of $47.9 million of net loss, non-cash adjustments such as depreciation and amortization expense of $7.3 million and share-based compensation expense of $42.2 million, and a cash increase of $11.6 million from the management of working capital. Cash increases from working capital were primarily driven by an increase in payables and other current liabilities, partially offset by an increase in inventories and receivables.

Investing Activities

Net cash used in investing activities was ~~$73.6~~$38.9 million for the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020,~~2021, primarily consisting ~~of $69.7 million~~ of capital expenditures related to the launch of new fulfillment centers and ~~a customer service center, and~~ additional investments in IT hardware and ~~software, as well as $3.9 million of cash advances provided to PetSmart, net of reimbursements.~~software.

Net cash used in investing activities was ~~$23.1~~$40.5 million for the ~~twenty-six~~thirteen weeks ended ~~August 4, 2019,~~May 3, 2020, primarily consisting of ~~$24.2~~$42.6 million of capital expenditures related to the launch of new fulfillment centers, the expansion of the corporate office and customer service centers, and additional investments in IT hardware and software, partially offset by ~~$1.0~~$2.1 million of cash reimbursements, ~~from PetSmart,~~ net of ~~advances.~~advances from PetSmart.

Financing Activities

Net cash provided by financing activities was ~~$23.5~~$14.7 million for the ~~twenty-six~~thirteen weeks ended ~~August~~May 2, ~~2020~~2021 and consisted of ~~$23.2~~$15.0 million received pursuant to the tax sharing agreement with PetSmart, ~~as well as~~partially offset by principal repayments of finance lease obligations.

Net cash provided by financing activities was $0.2 million for the thirteen weeks ended May 3, 2020, and consisted of a management fee expense allocated to us by PetSmart for organizational oversight and certain limited corporate functions provided by its sponsors, partially offset by principal ~~repayments~~payments of finance lease obligations. Net cash provided by financing activities was $115.0 million for the twenty-six weeks ended August 4, 2019, primarily consisting of $115.2 million of proceeds from our IPO, net of underwriting discounts, commissions and offering costs.

Other Liquidity Measures

ABL Credit Facility

We have a five year senior secured asset backed credit facility (the “ABL Credit Facility”) which matures in June 2024 and provides for non-amortizing revolving loans in an aggregate principal amount of up to $300 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 million, subject to customary conditions. We are 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. Based on our borrowing base as of May 2, 2021, which is reduced by standby letters of credit, we had $272.8 million of borrowing capacity under the ABL Credit Facility. As of ~~August~~May 2, ~~2020,~~2021, we had no outstanding borrowings under the ABL Credit 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 Annual Report on Form 10-K.

~~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 10-Q Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the quantitative and qualitative disclosures about market risk disclosed in our Annual Report on Form 10-K for the fiscal year ended ~~February 2, 2020.~~January 31, 2021.

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 ~~August~~May 2, ~~2020.~~2021.

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 ~~August~~May 2, ~~2020.~~2021. 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 COVID-19 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 Annual Report on Form 10-K for the fiscal year ended ~~February 2, 2020.~~

January 31, 2021.

Item 6. Exhibits

~~Exhibit No.~~

~~Exhibit Description~~

~~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~~

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~~XBRL Taxonomy Extension Schema Document~~

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~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~

~~XBRL Taxonomy Extension Definition Linkbase Document~~

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~~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)~~

Incorporation by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit No.

Filing Date

Filed Herewith

10.1

Amendment No. 1 to Intercompany Services Agreement, dated February 12, 2021, by and between Chewy, Inc. and Chewy Pharmacy KY, LLC

10-K

001-38936

10.1

March 30, 2021

10.2

Amendment No. 2 to Master Transaction Agreement, dated as of February 12, 202 1 , by and between Chewy, Inc. and PetSmart LLC

10-K

001-38936

10.2

March 30, 2021

10.3

Form of Performance-Based Restricted Stock Unit Agreement

31.1

31.2

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

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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)

2522

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.





Date:	~~September~~June 10, ~~2020~~2021	By:	/s/ Mario Marte
			Mario Marte
			Chief Financial Officer
			(Principal Financial Officer)

2623


	13 Weeks Ended August 2, 2020
	Class A and Class B Common Stock					Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount
Balance as of May 3, 2020	401,461	$	4,015	$	1,491,792	$	(1,892,342)	$	(396,535)
Share-based compensation expense	—	—		33,151		—		33,151
Vesting of share-based compensation awards	4,918	49		(49)		—		0
Distribution to Parent	187	2		(2)		—		0
Contribution from Parent	—	—		325		—		325
Tax sharing agreement with Parent	—	—		18,264		—		18,264
Net loss	—	—		—		(32,817)		(32,817)
Balance as of August 2, 2020	406,566	$	4,066	$	1,543,481	$	(1,925,159)	$	(377,612)

	13 Weeks Ended August 4, 2019
	Class A and Class B Common Stock					Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount
Balance as of May 5, 2019	0	$	0	$	1,263,715	$	(1,621,656)	$	(357,941)
Issuance of common stock upon initial public offering, net of underwriting discounts, commissions and offering costs	5,600	56		110,528		—		110,584
Change in capital structure	393,000	3,930		(3,930)		—		0
Share-based compensation expense	—	—		43,783		—		43,783
Contribution from Parent	—	—		325		—		325
Tax sharing agreement with Parent	—	—		3,902		—		3,902
Termination of loan from Parent	—	—		(79,510)		—		(79,510)
Net loss	—	—		—		(82,876)		(82,876)
Balance as of August 4, 2019	398,600	$	3,986	$	1,338,813	$	(1,704,532)	$	(361,733)



	26 Weeks Ended August 2, 2020
	Class A and Class B Common Stock					Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount
Balance as of February 2, 2020	401,368	$	4,014	$	1,436,484	$	(1,844,472)	$	(403,974)
Share-based compensation expense	—	—		75,380		—		75,380
Vesting of share-based compensation awards	5,011	50		(50)		—		0
Distribution to Parent	187	2		(2)		—		0
Contribution from Parent	—	—		650		—		650
Tax sharing agreement with Parent	—	—		31,019		—		31,019
Net loss	—	—		—		(80,687)		(80,687)
Balance as of August 2, 2020	406,566	$	4,066	$	1,543,481	$	(1,925,159)	$	(377,612)

	26 Weeks Ended August 4, 2019
	Class A and Class B Common Stock					Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount
Balance as of February 3, 2019	0	$	0	$	1,256,160	$	(1,592,102)	$	(335,942)
Issuance of common stock upon initial public offering, net of underwriting discounts, commissions and offering costs	5,600	56		110,528		—		110,584
Change in capital structure	393,000	3,930		(3,930)		—		0
Share-based compensation expense	—	—		51,013		—		51,013
Contribution from Parent	—	—		650		—		650
Tax sharing agreement with Parent	—	—		3,902		—		3,902
Termination of loan from Parent	—	—		(79,510)		—		(79,510)
Net loss	—	—		—		(112,430)		(112,430)
Balance as of August 4, 2019	398,600	$	3,986	$	1,338,813	$	(1,704,532)	$	(361,733)