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 1, ~~2021~~2022

☐ 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 ~~August~~May 25, ~~2021~~2022
Class A Common Stock, $0.01 par value per share						~~106,574,936~~109,418,531
Class B Common Stock, $0.01 par value per share						311,188,356

CHEWY, INC.

FORM 10-Q

For the Quarterly Period Ended ~~August~~May 1, ~~2021~~2022

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets as of AMay ~~ugu~~1, 202 ~~st 1~~2 and January 3 0 , ~~2021 and January 31, 2021~~20 2 2	2
	Condensed Consolidated Statements of Operations for the Thirteen ~~and Twenty-Six~~Weeks Ended ~~August~~May 1, 202 ~~, 2021~~2 and ~~August~~M ay 2 , ~~2020~~202 1	3
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Thirteen ~~and Twenty-Six~~ Weeks ~~Weeks~~ Ended ~~August 1~~May ~~, 2021~~1, 202 2 and ~~August~~May 2 , ~~2020~~20 2 1	4
	Condensed Consolidated Statements of Cash Flows for the TThirt ~~wenty-Six~~een Weeks Ended ~~August 1~~May ~~, 2021~~1, 202 2 and ~~August~~M a y 2 , ~~2020~~20 21	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	2322
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2422
Item 1A.	Risk Factors	2422

Item 6.	Exhibits	2423
	SIGNATURES	2524

PART I. FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•successfully manage risks relating to the spread of coronavirus ~~(also known as COVID-19)~~(“COVID-19”), including any adverse impacts on our supply chain, workforce, facilities, customer services and operations;

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

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

•accurately predict economic conditions ~~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~~services, improve existing ~~products;~~products and services, and expand into new offerings;

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

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

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

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

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

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

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

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

•successfully manufacture and sell our own ~~proprietary~~private brand products;

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

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

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

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

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

You should not rely on forward-looking statements as predictions of future ~~events.~~events, and you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of factors. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current assumptions, expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our annual report on Form 10-K for the fiscal year ended January ~~31, 2021, our subsequent quarterly report,~~30, 2022, 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~~these channels could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.

Item 1. Financial Statements (Unaudited)

CHEWY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


		As of					As of
		August 1, 2021		January 31, 2021			May 1, 2022		January 30, 2022
Assets	Assets	(Unaudited)				Assets	(Unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	724,997	$	563,345	Cash and cash equivalents	$	604,761	$	603,079
Accounts receivable	Accounts receivable	113,433		100,699		Accounts receivable	133,233		123,510
Inventories	Inventories	505,978		513,304		Inventories	598,200		560,430
Prepaid expenses and other current assets	Prepaid expenses and other current assets	48,126		49,430		Prepaid expenses and other current assets	53,185		36,513
Total current assets	Total current assets	1,392,534		1,226,778		Total current assets	1,389,379		1,323,532
Property and equipment, net	Property and equipment, net	277,413		210,017		Property and equipment, net	403,942		367,166
Operating lease right-of-use assets	Operating lease right-of-use assets	338,334		297,213		Operating lease right-of-use assets	371,925		372,693
Other non-current assets	Other non-current assets	10,081		6,902		Other non-current assets	24,798		22,890
Total assets	Total assets	$	2,018,362	$	1,740,910	Total assets	$	2,190,044	$	2,086,281
Liabilities and stockholders’ equity (deficit)
Liabilities and stockholders’ equity						Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Trade accounts payable	Trade accounts payable	$	829,021	$	778,365	Trade accounts payable	$	956,994	$	883,316
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	709,927		602,497		Accrued expenses and other current liabilities	740,641		761,563
Total current liabilities	Total current liabilities	1,538,948		1,380,862		Total current liabilities	1,697,635		1,644,879
Operating lease liabilities	Operating lease liabilities	372,400		328,231		Operating lease liabilities	413,828		410,168
Other long-term liabilities	Other long-term liabilities	31,961		33,821		Other long-term liabilities	19,971		16,498
Total liabilities	Total liabilities	1,943,309		1,742,914		Total liabilities	2,131,434		2,071,545
Commitments and contingencies (Note 4)	Commitments and contingencies (Note 4)	0		0		Commitments and contingencies (Note 4)	0		0
Stockholders’ equity (deficit):
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding as of August 1, 2021 and January 31, 2021		—		—
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 106,574,936 and 97,708,518 shares issued and outstanding as of August 1, 2021 and January 31, 2021, respectively		1,066		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 August 1, 2021 and January 31, 2021, respectively		3,112		3,173
Stockholders’ equity:						Stockholders’ equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding as of May 1, 2022 and January 30, 2022						Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding as of May 1, 2022 and January 30, 2022	—		—
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 109,418,531 and 108,918,032 shares issued and outstanding as of May 1, 2022 and January 30, 2022, respectively						Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 109,418,531 and 108,918,032 shares issued and outstanding as of May 1, 2022 and January 30, 2022, respectively	1,094		1,089
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 shares issued and outstanding as of May 1, 2022 and January 30, 2022						Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 shares issued and outstanding as of May 1, 2022 and January 30, 2022	3,112		3,112
Additional paid-in capital	Additional paid-in capital	1,985,800		1,930,804		Additional paid-in capital	2,046,707		2,021,310
Accumulated deficit	Accumulated deficit	(1,914,925)		(1,936,958)		Accumulated deficit	(1,992,303)		(2,010,775)
Total stockholders’ equity (deficit)		75,053		(2,004)
Total liabilities and stockholders’ equity (deficit)		$	2,018,362	$	1,740,910
Total stockholders’ equity						Total stockholders’ equity	58,610		14,736
Total liabilities and stockholders’ equity						Total liabilities and stockholders’ equity	$	2,190,044	$	2,086,281

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)


		13 Weeks Ended				26 Weeks Ended					13 Weeks Ended
		August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020			May 1, 2022		May 2, 2021
Net sales	Net sales	$	2,155,036	$	1,699,859	$	4,290,214	$	3,321,252	Net sales	$	2,428,327	$	2,135,178
Cost of goods sold	Cost of goods sold	1,561,582		1,266,503		3,106,984		2,509,187		Cost of goods sold	1,760,507		1,545,402
Gross profit	Gross profit	593,454		433,356		1,183,230		812,065		Gross profit	667,820		589,776
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	437,672		343,181		843,892		663,238		Selling, general and administrative	504,283		406,220
Advertising and marketing	Advertising and marketing	171,968		122,446		316,403		228,584		Advertising and marketing	144,721		144,435
Total operating expenses	Total operating expenses	609,640		465,627		1,160,295		891,822		Total operating expenses	649,004		550,655
(Loss) income from operations		(16,186)		(32,271)		22,935		(79,757)
Income from operations										Income from operations	18,816		39,121
Interest expense, net	Interest expense, net	(500)		(546)		(902)		(930)		Interest expense, net	(344)		(402)
(Loss) income before income tax provision		(16,686)		(32,817)		22,033		(80,687)
Income before income tax provision										Income before income tax provision	18,472		38,719
Income tax provision	Income tax provision	—		—		—		—		Income tax provision	—		—
Net (loss) income		$	(16,686)	$	(32,817)	$	22,033	$	(80,687)
Net income										Net income	$	18,472	$	38,719

Net (loss) income per share attributable to common Class A and Class B stockholders, basic		$	(0.04)	$	(0.08)	$	0.05	$	(0.20)
Net (loss) income per share attributable to common Class A and Class B stockholders, diluted		$	(0.04)	$	(0.08)	$	0.05	$	(0.20)
Weighted average common shares used in computing net (loss) income per share attributable to common Class A and Class B stockholders, basic		416,665		404,377		415,957		402,891
Weighted average common shares used in computing net (loss) income per share attributable to common Class A and Class B stockholders, diluted		416,665		404,377		427,458		402,891
Earnings per share attributable to common Class A and Class B stockholders:										Earnings per share attributable to common Class A and Class B stockholders:
Basic										Basic	$	0.04	$	0.09
Diluted										Diluted	$	0.04	$	0.09
Weighted-average common shares used in computing earnings per share:										Weighted-average common shares used in computing earnings per share:
Basic										Basic	420,406		415,248
Diluted										Diluted	426,710		427,597

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(Unaudited)

13 Weeks Ended August 1, 2021
Class A and Class B Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)
Shares Amount
Balance as of May 2, 2021 415,395 $ 4,154 $ 1,963,107 $ (1,898,239) $ 69,022
Share-based compensation expense — — 21,778 — 21,778
Vesting of share-based compensation awards 2,274 23 (23) — —
Distribution to parent 93 1 (1) — —
Tax sharing agreement with related parties — — 939 — 939
Net loss — — — (16,686) (16,686)
Balance as of August 1, 2021 417,762 $ 4,178 $ 1,985,800 $ (1,914,925) $ 75,053
13 Weeks Ended August 2, 2020
Class A and Class B Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (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) — —
Distribution to parent 187 2 (2) — —
Contribution from PetSmart — — 325 — 325
Tax sharing agreement with related parties — — 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 May 1, 2022
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 30, 2022	420,106	$	4,201	$	2,021,310	$	(2,010,775)	$	14,736

Share-based compensation expense	—	—		25,794		—		25,794
Vesting of share-based compensation awards	553	6		(6)		—		—
Tax withholdings for share-based compensation awards	(53)	(1)		(2,467)		—		(2,468)

Tax sharing agreement with related parties	—	—		2,076		—		2,076
Net income	—	—		—		18,472		18,472
Balance as of May 1, 2022	420,606	$	4,206	$	2,046,707	$	(1,992,303)	$	58,610

	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)		—		—


Tax sharing agreement with related parties	—	—		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

See accompanying Notes to Condensed Consolidated Financial Statements.

~~CHEWY, INC.~~

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

~~(in thousands)~~

~~(Unaudited)~~

26 Weeks Ended August 1, 2021
Class A and Class B Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)
Shares Amount
Balance as of January 31, 2021 415,046 $ 4,150 $ 1,930,804 $ (1,936,958) $ (2,004)
Share-based compensation expense — — 44,884 — 44,884
Vesting of share-based compensation awards 2,623 27 (27) — —
Distribution to parent 93 1 (1) — —
Tax sharing agreement with related parties — — 10,140 — 10,140
Net income — — — 22,033 22,033
Balance as of August 1, 2021 417,762 $ 4,178 $ 1,985,800 $ (1,914,925) $ 75,053
26 Weeks Ended August 2, 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 — — 75,380 — 75,380
Vesting of share-based compensation awards 5,011 50 (50) — —
Distribution to parent 187 2 (2) — —
Contribution from PetSmart — — 650 — 650
Tax sharing agreement with related parties — — 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)

~~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 1, 2021		August 2, 2020			May 1, 2022		May 2, 2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income (loss)		$	22,033	$	(80,687)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income						Net income	$	18,472	$	38,719
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	24,117		15,336		Depreciation and amortization	17,340		11,426
Share-based compensation expense	Share-based compensation expense	44,884		75,380		Share-based compensation expense	25,794		23,106
Non-cash lease expense	Non-cash lease expense	16,399		11,082		Non-cash lease expense	9,109		8,365
Other	Other	179		216		Other	234		87
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	(12,734)		(13,298)		Accounts receivable	(9,723)		(16,866)
Inventories	Inventories	7,326		(135,232)		Inventories	(37,770)		22,417
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(31,695)		(2,010)		Prepaid expenses and other current assets	(14,248)		(27,653)
Other non-current assets	Other non-current assets	(3,324)		(99)		Other non-current assets	(1,469)		(1,874)
Trade accounts payable	Trade accounts payable	50,656		19,554		Trade accounts payable	73,678		26,158
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	78,233		92,650		Accrued expenses and other current liabilities	2,881		20,535
Operating lease liabilities	Operating lease liabilities	(10,562)		(7,196)		Operating lease liabilities	(5,338)		(5,223)
Other long-term liabilities	Other long-term liabilities	(2,061)		16,159		Other long-term liabilities	3,473		(831)
Net cash provided by (used in) operating activities		183,451		(8,145)
Net cash provided by operating activities						Net cash provided by operating activities	82,433		98,366
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Capital expenditures	Capital expenditures	(63,714)		(69,723)		Capital expenditures	(76,021)		(38,882)
Cash advances provided to PetSmart, net of reimbursements		—		(3,918)

Other						Other	(1,400)		—
Net cash used in investing activities	Net cash used in investing activities	(63,714)		(73,641)		Net cash used in investing activities	(77,421)		(38,882)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities

Proceeds from tax sharing agreement with related parties		42,405		23,213
Payments for tax withholdings related to vesting of share-based compensation awards						Payments for tax withholdings related to vesting of share-based compensation awards	(2,468)		—
(Payments for) proceeds from tax sharing agreement with related parties						(Payments for) proceeds from tax sharing agreement with related parties	(675)		14,968

Contribution from PetSmart		—		650

Principal repayments of finance lease obligations	Principal repayments of finance lease obligations	(490)		(323)		Principal repayments of finance lease obligations	(187)		(272)
Net cash provided by financing activities		41,915		23,540
Net increase (decrease) in cash and cash equivalents		161,652		(58,246)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(3,330)		14,696
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	1,682		74,180
Cash and cash equivalents, as of beginning of period	Cash and cash equivalents, as of beginning of period	563,345		212,088		Cash and cash equivalents, as of beginning of period	603,079		563,345
Cash and cash equivalents, as of end of period	Cash and cash equivalents, as of end of period	$	724,997	$	153,842	Cash and cash equivalents, as of end of period	$	604,761	$	637,525

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 and services for dogs, cats, fish, birds, small pets, horses, and reptiles. Chewy serves its customers through its retail website, www.chewy.com, and its mobile applications and focuses on delivering exceptional customer service, competitive prices, outstanding convenience (including Chewy’s Autoship subscription program, fast shipping, and hassle-free returns), and a large selection of high-quality pet food, treats and supplies, and pet healthcare products.

~~During the fiscal year ended January 31, 2021, the~~The Company ~~was~~is controlled ~~by PetSmart LLC (“PetSmart”). PetSmart is wholly-owned~~ by a consortium including private investment funds advised by BC Partners and its affiliates, La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP, and funds advised by Longview Asset Management, LLC (collectively, the “Sponsors”)~~, and~~. The Company was controlled by ~~affiliates of BC Partners.~~

~~On February 12, 2021,~~ PetSmart ~~completed~~LLC (“PetSmart”), a ~~refinancing transaction and in connection with such transaction all shares~~wholly-owned subsidiary of the Company’s common stock held by PetSmart and its subsidiaries were distributed to affiliates of BC Partners. Subsequent to the distribution, PetSmart no longer directly or indirectly owns any shares of the Company’s common stock.Sponsors through February 11, 2021.

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 1, ~~2021~~2022 are not necessarily indicative of the results for the entire fiscal year. The unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q for the quarterly period ended ~~August~~May 1, ~~2021~~2022 (“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 January ~~31, 2021~~30, 2022 (“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 ~~2021~~2022 fiscal year ends on January ~~30, 2022~~29, 2023 and is a 52-week year. The Company’s ~~2020~~2021 fiscal year ended January ~~31, 2021~~30, 2022 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

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 and intangible assets, valuation allowances with respect to deferred tax assets, contingencies, self-insurance accruals, evaluation of sales tax positions, and the valuation and assumptions underlying share-based compensation. On an ongoing basis, management evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

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 1, 2021		January 31, 2021			May 1, 2022		January 30, 2022
Outbound fulfillment	Outbound fulfillment	$	336,359	$	310,700	Outbound fulfillment	$	409,550	$	389,548
Advertising and marketing	Advertising and marketing	123,848		85,835		Advertising and marketing	86,809		86,285
Payroll liabilities	Payroll liabilities	64,118		72,467		Payroll liabilities	56,825		70,556
Accrued expenses and other	Accrued expenses and other	185,602		133,495		Accrued expenses and other	187,457		215,174
Total accrued expenses and other current liabilities	Total accrued expenses and other current liabilities	$	709,927	$	602,497	Total accrued expenses and other current liabilities	$	740,641	$	761,563

~~Recent Accounting Pronouncements~~

Fair Value of Financial Instruments

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

Level 1-Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

~~ASU 2019-12, Income Taxes (Topic 740): Simplifying~~

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

~~In December 2019,~~

Level 3-Valuations based on unobservable inputs reflecting the ~~FASB issued this Accounting Standards Update (“ASU”)~~Company’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The Company considers all highly liquid investments with an original maturity of 90 days or less to ~~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,~~be cash equivalents. Cash equivalents are carried at cost, which approximates fair value and ~~the recognition of deferred tax liabilities for outside basis differences. This ASU also clarifies and simplifies other aspects~~are classified within Level 1 of the ~~accounting for income taxes. This update became effective at the beginning~~fair value hierarchy because they are valued using quoted market prices.

The following is a summary of cash and cash equivalents (in thousands):


	As of
	May 1, 2022		January 30, 2022
Cash	$	452,814	$	401,119
Level 1 securities:
Money market funds	72,000		67,000
Commercial paper	79,947		74,965
U.S. Treasury securities	—		59,995

Cash and cash equivalents	$	604,761	$	603,079

Stockholders’ Equity

Conversion of Class B Common Stock

On April 12, 2021, Argos Intermediate Holdco I Inc. (“Argos Holdco”), which is controlled by affiliates of BC Partners, converted 6,150,000 shares of the Company’s ~~2021 fiscal year. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements~~Class B common stock into Class A common stock and ~~disclosures.~~sold such Class A common stock.

3. Property and Equipment, net

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


		As of					As of
		August 1, 2021		January 31, 2021			May 1, 2022		January 30, 2022
Furniture, fixtures and equipment	Furniture, fixtures and equipment	$	109,541	$	91,496	Furniture, fixtures and equipment	$	138,951	$	132,727
Computer equipment	Computer equipment	47,867		43,347		Computer equipment	57,035		55,164
Internal-use software	Internal-use software	79,000		56,977		Internal-use software	103,936		95,302
Leasehold improvements	Leasehold improvements	96,573		80,641		Leasehold improvements	160,748		153,797
Construction in progress	Construction in progress	72,724		41,914		Construction in progress	113,961		85,043
		405,705		314,375			574,631		522,033
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization	128,292		104,358		Less: accumulated depreciation and amortization	170,689		154,867
Property and equipment, net	Property and equipment, net	$	277,413	$	210,017	Property and equipment, net	$	403,942	$	367,166

Internal-use software includes labor and license costs associated with software development for internal use. As of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021,~~30, 2022, the Company had accumulated amortization related to internal-use software of ~~$28.6~~$39.5 million and ~~$22.5~~$35.1 million, respectively.

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

For the thirteen weeks ended ~~August~~May 1, ~~2021~~2022 and ~~August~~May 2, ~~2020,~~2021, the Company recorded depreciation expense on property and equipment of ~~$9.4~~$12.1 million, and ~~$6.6~~$8.6 million, respectively, and amortization expense related to internal-use software costs of ~~$3.3~~$4.4 million, and $1.4 million, respectively. For the twenty-six weeks ended August 1, 2021 and August 2, 2020, the Company recorded depreciation expense on property and equipment of $18.0 million, and $12.7 million, respectively, and amortization expense related to internal-use software costs of $6.1 million, and $2.6$2.8 million, respectively. The aforementioned depreciation and amortization expenses were included within selling, general and administrative expenses in the condensed consolidated statements of operations.

4. Commitments and Contingencies

Legal Matters

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

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

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~~declaratory judgment action in the United States District Court for the Southern District of New York (the “District Court”) against IBM seeking the ~~court’s~~District Court’s declaration that the Company is not infringing the 4 asserted IBM patents. On April 19, 2021, IBM filed an answer with counterclaims, alleging that the Company is infringing the 4 patents by operation of the Chewy.com website and mobile application, and seeking unspecified damages, including a request that the amount of compensatory damages be trebled, injunctive relief and costs and reasonable attorneys’ fees. The Company filed a motion to dismiss IBM’s claims against 3 of the asserted patents on May 14, 2021. In response, IBM filed an amended complaint on May 24, 2021 that included an additional assertion that the Company is infringing a fifth IBM patent. On ~~June 14,~~October 8, 2021, the parties had a claim construction hearing and on November 9, 2021, the claim construction rulings resulted in 1 of the 5 patents being eliminated from the case. The parties filed their motions for summary judgment which were fully briefed on February 24, 2022. A pre-trial conference was held on March 25, 2022, where the judge heard oral arguments on the motions for summary judgment. On April 11, 2022, the District Court granted the Company’s motions for summary judgment that the Company did not infringe 3 of the patents and that the fourth patent is invalid. On April 29, 2022, IBM filed a ~~motion~~notice of appeal in the United States Court of Appeals for the Federal Circuit to ~~dismiss IBM’s claims with respect to 4 of~~appeal the ~~asserted patents, which was denied on August 4, 2021.~~District Court’s judgment. 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 ~~was scheduled to mature~~matures in ~~June 2024~~August 2026 and ~~provided~~provides for non-amortizing revolving loans in an aggregate principal amount of up to ~~$300~~$500 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility ~~provided~~provides the right to request incremental commitments and add incremental asset-based revolving loan facilities in an aggregate principal amount of up to ~~$100~~$300 million, subject to customary conditions. The Company ~~was~~is required to pay a commitment fee of ~~between~~ 0.25% ~~and 0.375%~~ with respect to the undrawn portion of the commitments, which ~~was~~is generally based on average daily usage of the facility. Based on the Company’s borrowing base as of ~~August~~May 1, ~~2021,~~2022, which is reduced by standby letters of credit, the Company had ~~$264.0~~$450.3 million of borrowing capacity under the ABL Credit Facility. As of ~~August~~May 1, ~~2021,~~2022, the Company had no outstanding borrowings under the ABL Credit Facility.

On August 27, 2021, the Company amended the ABL Credit Facility to increase the aggregate principal amount to be up to $500 million and increase the amount available for incremental asset-based revolving loan facilities to $300 million. In addition, the amendments resulted in the commitment fee being modified from a range of 0.25% to 0.375% to a fixed 0.25% fee with respect to the undrawn portion of the commitments. The ABL Credit Facility now matures in August 2026.

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 expire at various dates through 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 2025.

The Company’s finance leases as of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021~~30, 2022 were not material and were included in property and equipment, net, on the ~~Company's~~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 1, 2021		January 31, 2021		Leases	Balance Sheet Classification	May 1, 2022		January 30, 2022
Assets	Assets						Assets
Operating	Operating	Operating lease right-of-use assets	$	338,334	$	297,213	Operating	Operating lease right-of-use assets	$	371,925	$	372,693
Total operating lease assets	Total operating lease assets		$	338,334	$	297,213	Total operating lease assets		$	371,925	$	372,693

Liabilities	Liabilities						Liabilities
Current	Current						Current
Operating	Operating	Accrued expenses and other current liabilities	$	21,956	$	19,142	Operating	Accrued expenses and other current liabilities	$	22,189	$	24,225
Non-current	Non-current						Non-current
Operating	Operating	Operating lease liabilities	372,400		328,231		Operating	Operating lease liabilities	413,828		410,168
Total operating lease liabilities	Total operating lease liabilities		$	394,356	$	347,373	Total operating lease liabilities		$	436,017	$	434,393

For the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2021~~2022 and ~~August~~May 2, ~~2020,~~2021, assets acquired in exchange for new operating lease liabilities were ~~$50.1~~$8.9 million and ~~$67.6~~$46.0 million, respectively. Lease expense primarily ~~related~~relates to operating lease costs. Lease expense for the thirteen weeks ended ~~August~~May 1, 2022 and May 2, 2021 ~~and August 2, 2020~~ was ~~$19.6~~$21.3 million and ~~$14.9 million, respectively. Lease expense for the twenty-six weeks ended August 1, 2021 and August 2, 2020 was $38.6 million and $28.3~~$19.0 million, respectively. The aforementioned lease expense was included within selling, general and administrative expenses in the condensed consolidated statements of operations.

Cash flows used in operating activities related to operating leases were approximately ~~$32.0~~$18.6 million and ~~$21.7~~$15.3 million for the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2021~~2022 and ~~August~~May 2, ~~2020,~~2021, respectively.

7. ~~Stockholders’ Equity (Deficit)~~

~~Common Stock~~

~~2020 Equity Offering~~

On September 21, 2020, the Company issued and sold 5,100,000 shares of Class A common stock in an underwritten public offering at a price of $54.40 per share to Morgan Stanley & Co. LLC, who acted as sole underwriter in the offering. The Company had granted the underwriter an option to purchase up to an additional 765,000 shares of Class A common stock at a price of $54.40 per share (“Option Shares”), which was exercised on September 30, 2020. The Company raised $318.4 million in net proceeds through the equity offering (including proceeds from the sale of the 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 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. The number of shares to be delivered will be determined based on, among other things, the 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.~~

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~~31.9 million shares of Class A common stock. No awards may be granted under the 2019 Plan after June 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

The Company ~~grants~~granted restricted stock units ~~that vest~~which vested upon satisfaction of both service-based vesting conditions and company ~~performance or market-based~~performance-based vesting conditions (“PRSUs”), subject to the employee’s continued employment with the Company through the applicable vesting date. The Company ~~records~~recorded share-based compensation expense for PRSUs over the requisite service period and ~~accounts~~accounted for forfeitures as they occur.

Service-Based Awards

The Company ~~grants~~granted restricted stock units with service-based vesting conditions (“RSUs”) which ~~vest~~vested subject to the employee’s continued employment with the Company through the applicable vesting date. The Company ~~records~~recorded share-based compensation expense for RSUs on a straight-line basis over the requisite service period and ~~accounts~~accounted 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 1, ~~2021~~2022 (in thousands, except for ~~weighted average~~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 January 31, 2021		13,011	$	35.95
Unvested and outstanding as of January 30, 2022					Unvested and outstanding as of January 30, 2022	6,573	$	36.16
Granted	Granted	32	$	80.85	Granted	86	$	43.59
Vested	Vested	(2,578)	$	35.93	Vested	(136)	$	28.99
Forfeited	Forfeited	(731)	$	35.01	Forfeited	(113)	$	37.87
Unvested and outstanding as of August 1, 2021		9,734	$	36.17
Unvested and outstanding as of May 1, 2022					Unvested and outstanding as of May 1, 2022	6,410	$	36.38

The total fair value of PRSUs that vested during the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2021~~2022 was ~~$198.0~~$5.7 million. As of ~~August~~May 1, ~~2021,~~2022, total unrecognized compensation expense related to unvested PRSUs was ~~$50.1~~$19.3 million and is expected to be recognized over a weighted-average expected performance period of 1.4 years.

During the twenty-six weeks ended August 1, 2021 and August 2, 2020, vesting occurred for 93,309 and 186,617 PRSUs, respectively, previously granted to an employee of PetSmart. For accounting purposes, the issuance of Class A common stock upon vesting of these PRSUs is treated as a distribution to a parent entity because both the Company and PetSmart are controlled by affiliates of BC Partners.

The fair value of the PRSUs with 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~~			—%

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 1, ~~2021~~2022 (in thousands, except for ~~weighted average~~weighted-average grant date fair value):

Number of RSUs Weighted Average Grant Date Fair Value
Outstanding as of January 31, 2021 713 $ 48.58
Granted 1,854 $ 80.16
Vested (142) $ 41.99
Forfeited (228) $ 68.24
Unvested and outstanding as of August 1, 2021 2,197 $ 73.69


	Number of RSUs	Weighted-Average Grant Date Fair Value
Unvested and outstanding as of January 30, 2022	3,207	$	68.96
Granted	5,824	$	43.59
Vested	(417)	$	76.66
Forfeited	(256)	$	64.14
Unvested and outstanding as of May 1, 2022	8,358	$	51.04

The total fair value of RSUs that vested during the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2021~~2022 was ~~$12.9~~$18.8 million. As of ~~August~~May 1, ~~2021,~~2022, total unrecognized compensation expense related to unvested RSUs was ~~$141.6~~$392.0 million and is expected to be recognized over a weighted-average expected performance period of ~~3.2~~3.3 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 1, ~~2021,~~2022, there were ~~6.6~~0.8 million additional shares of Class A common stock reserved for future issuance under the 2019 Plan.

Share-Based Compensation Expense

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

13 Weeks Ended 26 Weeks Ended
August 1,
2021 August 2,
2020 August 1,
2021 August 2,
2020
PRSUs $ 10,037 $ 32,138 $ 24,149 $ 74,148
RSUs 11,741 1,013 20,735 1,232
Total share-based compensation expense $ 21,778 $ 33,151 $ 44,884 $ 75,380


	13 Weeks Ended
	May 1, 2022		May 2, 2021
PRSUs	$	4,639	$	14,112
RSUs	21,155		8,994
Total share-based compensation expense	$	25,794	$	23,106

9.8. Income Taxes

Chewy is subject to taxation in the U.S. and various state, local, and ~~local~~foreign jurisdictions. Income taxes as presented in the Company’s condensed consolidated financial statements have been prepared based on Chewy’s separate return method. The Company’s losses and tax attributes were previously included in PetSmart’s consolidated tax return activity at the U.S. federal level and any applicable state 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 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 reduced the deferred tax attributes previously utilized by PetSmart, along with the associated valuation allowances, from 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 not have a current or deferred provision for income taxes for any taxing jurisdiction during the thirteen ~~and twenty-six~~ weeks ended ~~August~~May 1, ~~2021,~~2022, and ~~August~~May 2, ~~2020.~~2021. Additionally, the Company maintained a full valuation allowance on its net deferred tax assets.

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

During the ~~twenty-six~~thirteen weeks ended ~~August 1,~~May 2, 2021, ~~and August 2, 2020,~~ the Company collected ~~$42.4~~$15.0 million ~~and $23.2 million, respectively,~~ pursuant to the tax sharing agreement. Though the tax sharing agreement was effectively terminated with PetSmart 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 from Argos Holdco upon the filing of certain combined state tax returns for the fiscal year ended January ~~31, 2021~~30, 2022 and thereafter. As of ~~August~~May 1, ~~2021,~~2022, the Company had a receivable related to the tax sharing agreement of $2.3 million, which is expected to be collected during the fiscal year ended January 29, 2023. As of January 30, 2022, the Company did not have an outstanding position related to the tax sharing agreement. ~~As of January 31, 2021, the Company had a receivable related to the tax sharing agreement of $30.5 million, which has been collected during the twenty-six weeks ended August 1, 2021.~~

~~10. Net (Loss) Income~~9. Earnings per Share

Basic and diluted ~~net (loss) income~~earnings per share attributable to common stockholders isare presented using the ~~two class~~two-class method required for participating securities. Under the ~~two class~~two-class method, net ~~(loss)~~ income 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 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~~earnings per share isare calculated by dividing net ~~(loss)~~ income attributable to common stockholders by the weighted-average shares outstanding during the period.

~~For the twenty-six weeks ended August 1, 2021, the Company’s calculations of~~The following table sets forth 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 incomeearnings per share attributable to common stockholders ~~does not include 2.9 million potential common shares~~ for the ~~twenty-six weeks ended August 1, 2021.~~periods presented (in thousands, except per share data):

For the thirteen weeks ended August 1, 2021 and thirteen and twenty-six weeks ended August 2, 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 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 11.9 million and 16.6 million potential common shares for the thirteen weeks ended August 1, 2021 and thirteen and twenty-six weeks ended August 2, 2020, respectively. as the effect of their inclusion would have been antidilutive.


	13 Weeks Ended
	May 1, 2022		May 2, 2021
Basic and diluted earnings per share
Numerator
Earnings attributable to common Class A and Class B stockholders	$	18,472	$	38,719
Denominator
Weighted-average common shares used in computing earnings per share:
Basic	420,406		415,248
Effect of dilutive stock-based awards	6,304		12,349
Diluted	426,710		427,597
Anti-dilutive stock-based awards excluded from diluted common shares	3,110		—
Earnings per share attributable to common Class A and Class B stockholders:
Basic	$	0.04	$	0.09
Diluted	$	0.04	$	0.09

1312

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

13 Weeks Ended 26 Weeks Ended
August 1,
2021 August 2,
2020 August 1,
2021 August 2,
2020
Basic and diluted net (loss) income per share
Numerator
Net (loss) income attributable to common stockholders $ (16,686) $ (32,817) $22,033 $ (80,687)
Denominator
Weighted average common shares used in computing net (loss) income per share attributable to Class A and Class B stockholders, basic 416,665 404,377 415,957 402,891
Weighted-average effect of dilutive stock-based awards — — 11,501 —
Weighted average common shares used in computing net (loss) income per share attributable to Class A and Class B stockholders, diluted 416,665 404,377 427,458 402,891
Net (loss) income per common share
Net (loss) income per share attributable to common Class A and Class B stockholders, basic $ (0.04) $ (0.08) $ 0.05 $ (0.20)
Net (loss) income per share attributable to common Class A and Class B stockholders, diluted $ (0.04) $ (0.08) $ 0.05 $ (0.20)

~~11.~~10. 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 PetSmart for organizational oversight and certain limited corporate functions provided by its sponsors for the thirteen and twenty-six weeks ended August 2, 2020. Allocated costs are included within selling, general and administrative expenses in the condensed consolidated statements of operations.

~~Since launch on July 2, 2018, certain~~Certain of the Company’s ~~pharmacy~~healthcare operations ~~have been and continue to be~~are conducted through a wholly-owned subsidiary of ~~PetSmart. The~~PetSmart for which the Company ~~has~~and PetSmart entered into a services agreement ~~with PetSmart that~~which provides for the payment of a management fee due from ~~PetSmart with respect to this arrangement.~~PetSmart. The Company recognized ~~$9.1~~$1.3 million and ~~$19.7~~$10.6 million ~~during the thirteen and twenty-six weeks ended August 1, 2021~~ within net sales in the condensed consolidated statements of operations for the services provided ~~compared to $9.9 million and $21.6 million~~ during the thirteen ~~and twenty-six~~ weeks ended ~~August~~May 1, 2022 and May 2, ~~2020.~~2021, respectively.

As of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021,~~30, 2022, the Company had a net receivable from PetSmart of ~~$7.5~~$3.1 million and ~~$21.9~~$2.5 million, respectively, which was included in prepaid expenses and other current assets on the Company's condensed consolidated balance sheets.

PetSmart Guarantees

PetSmart previously provided a guarantee of payment with respect to certain equipment and other leases that the Company entered into and served as a guarantor in respect of the Company’s obligations under a credit insurance policy in favor of certain of the Company’s suppliers. As of ~~August~~May 1, ~~2021,~~2022, all such guarantees had been released, with the exception of guarantees pertaining to 21 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 1, ~~2021~~2022 (“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 January ~~31, 2021~~30, 2022 (“10-K Report”). This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections herein and in our 10-K Report, our actual results may differ materially from those anticipated in these forward-looking statements. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Chewy,” “the Company,” “we,” “our,” or “us” refer to Chewy, Inc. and its consolidated subsidiaries.

Investors and others should note that we may announce material 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~~these channels could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.

Overview

We are the largest pure-play pet e-tailer in the United States, offering virtually every product a pet needs. We launched Chewy in 2011 to bring the best of the neighborhood pet store shopping experience to a larger audience, enhanced by the depth and wide selection of products and services, as well as the around-the-clock convenience, that only e-commerce can offer. We believe that we are the preeminent destination for pet parents as a result of our broad selection of high-quality products and expanded menu of service offerings, which we offer at great prices and deliver with an exceptional level of care and a personal touch. We are the trusted source for pet parents and partners and continually develop innovative ways for our customers to engage with us. We partner with more than ~~2,500~~3,000 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding ~~proprietary~~private brands. Through our website and mobile applications, we offer our customers more than ~~75,000~~100,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.

COVID-19

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

Labor markets, particularly as they pertain to our fulfillment centers, have been, and remain, challenging. We expect this labor supply and demand imbalance to continue over the ~~near to medium term,~~foreseeable future, resulting in increased competition for personnel. ~~While~~In addition, global supply chain shortages and disruptions and inflation have emerged, which have impacted, and continue to impact, sales, margins and the ~~COVID-19 outbreak has not had a material adverse impact on our operations to date, and~~pace of economic recovery.

While conditions do appear to be improving as vaccination levels rise and state and local economies ~~begin to re-open,~~have, for the most part, re-opened, the positive or negative impacts that the COVID-19 outbreak will ultimately have on our business remain difficult to ~~predict.~~

~~As this crisis unfolded, we monitored conditions closely~~predict, particularly as vaccine efforts face challenges and ~~adapted our operations~~new variants of the virus continue to meet federal, state and local standards, while continuing to 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. While conditions appear to be improving, weemerge. We are still unable to predict the duration of the COVID-19 pandemic and ~~therefore what the~~its ultimate impact ~~of the COVID-19 pandemic will be~~ on the broader economy or our operations and liquidity. As such, risks ~~still~~ and uncertainties regarding COVID-19remain. Please refer to the “Cautionary Note Regarding Forward-Looking Statements” in this 10-Q Report and in the section titled “Risk Factors” ~~disclosed~~ in ~~our Annual Report on~~Item 1A of Form 10-K for the fiscal year ended January ~~31, 2021.~~30, 2022.

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 ~~2021~~2022 fiscal year ends on January ~~30, 2022~~29, 2023 and is a 52-week year. Our ~~2020~~2021 fiscal year ended January ~~31, 2021~~30, 2022 and was a 52-week year.

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 1, 2021			August 2, 2020			% Change		August 1, 2021			August 2, 2020			% Change		(in thousands, except net sales per active customer and percentages)	May 1, 2022			May 2, 2021			% Change
Financial and Operating Data	Financial and Operating Data																	Financial and Operating Data
Net sales	Net sales	$	2,155,036		$	1,699,859		26.8	%	$	4,290,214		$	3,321,252		29.2	%	Net sales	$	2,428,327		$	2,135,178		13.7	%
Net (loss) income (1)		$	(16,686)		$	(32,817)		49.2	%	$	22,033		$	(80,687)		127.3	%
Net income (1)																		Net income (1)	$	18,472		$	38,719		(52.3)	%
Net margin ~~(1)~~	Net margin ~~(1)~~	(0.8)		%	(1.9)		%			0.5		%	(2.4)		%			Net margin ~~(1)~~	0.8		%	1.8		%
Adjusted EBITDA(2)	Adjusted EBITDA(2)	$	23,272		$	15,458		50.5	%	$	100,626		$	18,901		n/m		Adjusted EBITDA(2)	$	60,516		$	77,354		(21.8)	%
Adjusted EBITDA margin(2)	Adjusted EBITDA margin(2)	1.1		%	0.9		%			2.3		%	0.6		%			Adjusted EBITDA margin(2)	2.5		%	3.6		%
Net cash provided by (used in) operating activities		$	85,085		$	(28,890)		n/m		$	183,451		$	(8,145)		n/m
Net cash provided by operating activities																		Net cash provided by operating activities	$	82,433		$	98,366		(16.2)	%
Free cash flow(2)	Free cash flow(2)	$	60,253		$	(56,035)		207.5	%	$	119,737		$	(77,868)		253.8	%	Free cash flow(2)	$	6,412		$	59,484		(89.2)	%
Active customers	Active customers	20,077			16,579			21.1	%	20,077			$	16,579		21.1	%	Active customers	20,601			19,765			4.2	%
Net sales per active customer	Net sales per active customer	$	404		$	356		13.5	%	$	404		$	356		13.5	%	Net sales per active customer	$	446		$	388		14.9	%
Autoship customer sales	Autoship customer sales	$	1,513,944		$	1,161,603		30.3	%	$	2,994,184		$	2,262,792		32.3	%	Autoship customer sales	$	1,753,681		$	1,480,240		18.5	%
Autoship customer sales as a percentage of net sales	Autoship customer sales as a percentage of net sales	70.3		%	68.3		%			69.8		%	68.1		%			Autoship customer sales as a percentage of net sales	72.2		%	69.3		%
n/m - not meaningful
(1) Includes share-based compensation expense, including related taxes, of $25.6 million and $50.4 million for the thirteen and twenty-six weeks ended August 1, 2021, respectively, compared to $37.8 million and $80.1 million for the thirteen and twenty-six weeks ended August 2, 2020, respectively.

(1) Includes share-based compensation expense, including related taxes, of $27.2 million for the thirteen weeks ended May 1, 2022, compared to $24.8 million for the thirteen weeks ended May 2, 2021.																		(1) Includes share-based compensation expense, including related taxes, of $27.2 million for the thirteen weeks ended May 1, 2022, compared to $24.8 million for the thirteen weeks ended May 2, 2021.

(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 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 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 items that we do not consider representative of our underlying operations. We have provided a reconciliation below of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

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

We believe it is useful to exclude non-cash charges, such as depreciation and amortization and share-based compensation ~~expense and management fee~~ expense from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision; interest income (expense), net; transaction related costs; and litigation matters and other 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 items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; and

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

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

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

($ in thousands, except percentages) 13 Weeks Ended 26 Weeks Ended
Reconciliation of Net (Loss) Income to Adjusted EBITDA August 1,
2021 August 2,
2020 August 1,
2021 August 2,
2020
Net (loss) income $ (16,686) $ (32,817) $ 22,033 $ (80,687)
Add (deduct):
Depreciation and amortization 12,691 8,083 24,117 15,336
Share-based compensation expense and related taxes 25,589 37,797 50,361 80,138
Interest expense, net 500 546 902 930
Management fee expense(1)
— 325 — 650
Transaction related costs 140 — 971 —
Other 1,038 1,524 2,242 2,534
Adjusted EBITDA $ 23,272 $ 15,458 $ 100,626 $ 18,901
Net sales $ 2,155,036 $ 1,699,859 $ 4,290,214 $ 3,321,252
Net margin (0.8) % (1.9) % 0.5 % (2.4) %
Adjusted EBITDA margin 1.1 % 0.9 % 2.3 % 0.6 %
(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 and twenty-six weeks ended August 2, 2020.


($ in thousands, except percentages)	13 Weeks Ended
Reconciliation of Net Income to Adjusted EBITDA	May 1, 2022			May 2, 2021
Net income	$	18,472		$	38,719
Add:
Depreciation and amortization	17,340			11,426
Share-based compensation expense and related taxes	27,194			24,772
Interest expense, net	344			402

Transaction related costs	1,158			831
Other	(3,992)			1,204
Adjusted EBITDA	$	60,516		$	77,354
Net sales	$	2,428,327		$	2,135,178
Net margin	0.8		%	1.8		%
Adjusted EBITDA margin	2.5		%	3.6		%

Free Cash Flow

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

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

1716

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

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

($ in thousands) 13 Weeks Ended 26 Weeks Ended
Reconciliation of Net Cash Provided by (Used in) Operating Activities to Free Cash Flow August 1,
2021 August 2,
2020 August 1,
2021 August 2,
2020
Net cash provided by (used in) operating activities $ 85,085 $ (28,890) $ 183,451 $ (8,145)
Deduct:
Capital expenditures (24,832) (27,145) (63,714) (69,723)
Free Cash Flow $ 60,253 $ (56,035) $ 119,737 $ (77,868)


($ in thousands)	13 Weeks Ended
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow	May 1, 2022		May 2, 2021
Net cash provided by operating activities	$	82,433	$	98,366
Deduct:
Capital expenditures	(76,021)		(38,882)
Free Cash Flow	$	6,412	$	59,484

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

Key Operating Metrics

Active Customers

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

Net Sales Per Active Customer

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

Autoship and Autoship Customer Sales

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

Autoship Customer Sales as a Percentage of Net Sales

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

1817

Components of Results of Consolidated Operations

Net Sales

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

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

Cost of Goods Sold

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

Selling, General and Administrative

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

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

Advertising and Marketing

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

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
% of net sales % of net sales
($ in thousands) August 1,
2021 August 2,
2020 % Change August 1,
2021 August 2,
2020 August 1,
2021 August 2,
2020 % Change August 1,
2021 August 2,
2020
Consolidated Statements of Operations
Net sales $ 2,155,036 $ 1,699,859 26.8 % 100.0 % 100.0 % $ 4,290,214 $ 3,321,252 29.2 % 100.0 % 100.0 %
Cost of goods sold 1,561,582 1,266,503 23.3 % 72.5 % 74.5 % 3,106,984 2,509,187 23.8 % 72.4 % 75.5 %
Gross profit 593,454 433,356 36.9 % 27.5 % 25.5 % 1,183,230 812,065 45.7 % 27.6 % 24.5 %
Operating expenses:
Selling, general and administrative 437,672 343,181 27.5 % 20.3 % 20.2 % 843,892 663,238 27.2 % 19.7 % 20.0 %
Advertising and marketing 171,968 122,446 40.4 % 8.0 % 7.2 % 316,403 228,584 38.4 % 7.4 % 6.9 %
Total operating expenses 609,640 465,627 30.9 % 28.3 % 27.4 % 1,160,295 891,822 30.1 % 27.0 % 26.9 %
(Loss) income from operations (16,186) (32,271) 49.8 % (0.8) % (1.9) % 22,935 (79,757) 128.8 % 0.5 % (2.4) %
Interest expense, net (500) (546) 8.4 % — % — % (902) (930) 3.0 % — % — %
(Loss) income before income tax provision (16,686) (32,817) 49.2 % (0.8) % (1.9) % 22,033 (80,687) 127.3 % 0.5 % (2.4) %
Income tax provision — — — % — % — % — — — % — % — %
Net (loss) income $ (16,686) $ (32,817) 49.2 % (0.8) % (1.9) % $ 22,033 $ (80,687) 127.3 % 0.5 % (2.4) %


	13 Weeks Ended
							% of net sales
($ in thousands)	May 1, 2022		May 2, 2021		% Change		May 1, 2022		May 2, 2021
Consolidated Statements of Operations
Net sales	$	2,428,327	$	2,135,178	13.7	%	100.0	%	100.0	%
Cost of goods sold	1,760,507		1,545,402		13.9	%	72.5	%	72.4	%
Gross profit	667,820		589,776		13.2	%	27.5	%	27.6	%
Operating expenses:
Selling, general and administrative	504,283		406,220		24.1	%	20.8	%	19.0	%
Advertising and marketing	144,721		144,435		0.2	%	6.0	%	6.8	%
Total operating expenses	649,004		550,655		17.9	%	26.7	%	25.8	%
Income from operations	18,816		39,121		(51.9)	%	0.8	%	1.8	%
Interest expense, net	(344)		(402)		14.4	%	—	%	—	%
Income before income tax provision	18,472		38,719		(52.3)	%	0.8	%	1.8	%
Income tax provision	—		—		—	%	—	%	—	%
Net income	$	18,472	$	38,719	(52.3)	%	0.8	%	1.8	%

Thirteen ~~and Twenty-Six~~ Weeks Ended ~~August~~May 1, ~~2021~~2022 Compared to Thirteen ~~and Twenty-Six~~ Weeks Ended ~~August~~May 2, ~~2020~~2021

Net Sales


		13 Weeks Ended								26 Weeks Ended									13 Weeks Ended
($ in thousands)	($ in thousands)	August 1, 2021		August 2, 2020		$ Change		% Change		August 1, 2021		August 2, 2020		$ Change		% Change		($ in thousands)	May 1, 2022		May 2, 2021		$ Change		% Change
Consumables	Consumables	$	1,483,954	$	1,159,094	$	324,860	28.0	%	$	2,938,967	$	2,332,643	$	606,324	26.0	%	Consumables	$	1,698,139	$	1,455,013	$	243,126	16.7	%
Hardgoods	Hardgoods	318,593		296,666		21,927		7.4	%	662,222		539,504		122,718		22.7	%	Hardgoods	316,024		343,629		(27,605)		(8.0)	%
Other	Other	352,489		244,099		108,390		44.4	%	689,025		449,105		239,920		53.4	%	Other	414,164		336,536		77,628		23.1	%
Net sales	Net sales	$	2,155,036	$	1,699,859	$	455,177	26.8	%	$	4,290,214	$	3,321,252	$	968,962	29.2	%	Net sales	$	2,428,327	$	2,135,178	$	293,149	13.7	%

Net sales for the thirteen weeks ended ~~August~~May 1, ~~2021~~2022 increased by ~~$455.2~~$293.1 million, or ~~26.8%~~13.7%, to ~~$2.2~~$2.4 billion compared to ~~$1.7~~$2.1 billion for the thirteen weeks ended ~~August~~May 2, ~~2020.~~2021. This increase was primarily due to ~~growth in our~~increased spending per customer ~~base, with the number of~~and active ~~customers increasing by 3.5 million, or 21.1% year-over-year. Spending among our active customers also increased with net~~customer base. Net sales per active customer ~~increasing $48,~~increased $58, or ~~13.5%~~14.9%, in the thirteen weeks ended ~~August~~May 1, ~~2021~~2022 compared to the thirteen weeks ended ~~August~~May 2, ~~2020,~~2021, driven by ~~continued~~ongoing catalog expansion and growth across ~~all verticals.~~

~~Net sales for the twenty-six weeks ended August 1, 2021~~our consumables, healthcare, and specialty businesses. In addition, our active customer base increased by $1.0 billion, or 29.2%, to $4.3 billion compared to $3.3 billion for the twenty-six weeks ended August 2, 2020. This increase was primarily due to growth in our customer base, with the number of active customers increasing by 3.50.8 million, or ~~21.1%~~4.2% year-over-year. Spending among our active customers also increased with net sales per active customer increasing $48, or 13.5%, in the twenty-six weeks ended August 1, 2021 compared to the twenty-six weeks ended August 2, 2020, driven by continued catalog expansion and growth across all verticals.

Cost of Goods Sold and Gross Profit

Cost of goods sold for the thirteen weeks ended ~~August~~May 1, ~~2021~~2022 increased by ~~$295.1~~$215.1 million, or ~~23.3%~~13.9%, to ~~$1.6~~$1.8 billion compared to ~~$1.3~~$1.5 billion in the thirteen weeks ended ~~August~~May 2, ~~2020.~~2021. This increase was primarily due to a ~~24.7%~~8.9% increase in orders shipped, ~~and~~as well as an increase in associated product, ~~costs,~~ outbound freight, and shipping supply costs. The increase in cost of goods sold was ~~lower than~~consistent with the increase in net sales on a percentage basis, ~~primarily as~~resulting from a ~~result of realized supply chain efficiencies and~~ change in mix of sales as consumables and healthcare businesses continue ~~to grow faster than the overall business.~~

Cost of goods sold for the twenty-six weeks ended August 1, 2021 increased by $597.8 million, or 23.8%, to $3.1 billion compared to $2.5 billion in the twenty-six weeks ended August 2, 2020. This increase was primarily due to a 25.6% 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 healthcare and proprietary brands businesses continues to grow faster than the overall business.

Gross profit for the thirteen weeks ended ~~August~~May 1, ~~2021~~2022 increased by ~~$160.1~~$78.0 million, or ~~36.9%~~13.2%, to ~~$593.5~~$667.8 million compared to ~~$433.4~~$589.8 million in the thirteen weeks ended ~~August~~May 2, ~~2020.~~2021. This increase was primarily due to the year-over-year increase in net sales as described above. Gross profit as a percentage of net sales for the thirteen weeks ended ~~August~~May 1, ~~2021 increased by 200 basis points~~2022 remained virtually flat as compared to the thirteen weeks ended ~~August~~May 2, ~~2020, primarily due to margin expansion across our consumables, hardgoods~~2021, as surgical price increases in a subset of the catalog helped offset higher product and ~~healthcare businesses.~~transportation costs that materialized starting in the second half of 2021.

Gross profit for the twenty-six weeks ended August 1, 2021 increased by $371.2 million, or 45.7%, to $1.2 billion compared to $812.1 million in the twenty-six weeks ended August 2, 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 twenty-six weeks ended August 1, 2021 increased by 310 basis points compared to the twenty-six weeks ended August 2, 2020, primarily due to margin expansion across our consumables, hardgoods and healthcare businesses.

Selling, General and Administrative

Selling, general and administrative expenses for the thirteen weeks ended ~~August~~May 1, ~~2021~~2022 increased by ~~$94.5~~$98.1 million, or ~~27.5%~~24.1%, to ~~$437.7~~$504.3 million compared to ~~$343.2~~$406.2 million in the thirteen weeks ended ~~August~~May 2, ~~2020.~~2021. This increase was primarily due to an increase of ~~$68.8~~$46.5 million in fulfillment costs largely attributable to increased investments to support the overall growth of our business, including the costs associated with ~~the~~ opening ~~of new~~and operating fulfillment centers in Belton, Missouri and Lewisberry, Pennsylvania, ~~Archbald,~~opening and operating healthcare fulfillment centers in Pittston, Pennsylvania and ~~Belton, Missouri, a limited catalog fulfillment center~~Louisville, Kentucky, growth in ~~Kansas City, Missouri, a customer service center in Dallas, Texas, growth of~~ fulfillment and customer service headcount, ~~and~~as well as expanded investments in wages and benefits and higher recruiting costs for fulfillment and customer service team members. Facilities expenses and other general and administrative expenses increased by ~~$37.1~~$48.9 million, primarily due to the opening of new corporate offices in Seattle, Washington, increased headcount as a result of business growth, ~~as well as~~and expenses ~~incurred as a result of~~related to ongoing IT ~~initiatives. These increases were partially offset by a $11.4 million reduction in non-cash share-based compensation expense.~~

Selling, general and administrative expenses for the twenty-six weeks ended August 1, 2021 increased by $180.7 million, or 27.2%, to $843.9 million compared to $663.2 million in the twenty-six weeks ended August 2, 2020. This increase was primarily due to an increase of $138.7 million in fulfillment costs largely attributable to increased investmentsinitiatives to support ~~the overall growth of~~ our ~~business,~~customers and team members including the ~~costs associated with the opening of new fulfillment centers in Lewisberry, Pennsylvania, Archbald, Pennsylvania, Salisbury, North Carolina, and Belton, Missouri,~~continued migration to cloud-based IT systems. The increase also included a limited catalog fulfillment center in Kansas City, Missouri, a customer service center in Dallas, Texas, growth of fulfillment and customer service headcount, and investments in wages and benefits for fulfillment and customer service team members. Facilities expenses and other general and administrative expenses increased by $72.5$2.7 million ~~primarily due to increased headcount as a result of business growth as well as expenses incurred as a result of IT initiatives. These increases were partially offset by a $30.5 million reduction~~increase in non-cash share-based compensation expense.

Advertising and Marketing

Advertising and marketing expenses for the thirteen weeks ended ~~August~~May 1, ~~2021~~2022 increased by ~~$49.5~~$0.3 million, or ~~40.4%~~0.2%, to ~~$172.0~~$144.7 million compared to ~~$122.4~~$144.4 million in the thirteen weeks ended ~~August~~May 2, 2020. The increase was primarily due to higher advertising and marketing spend in existing and new channels as well as an increase in advertising input costs since the pandemic-lows seen in the first half of 2020.2021. Our marketing efforts and investments led to the addition of ~~3.5~~0.8 million active customers since ~~August~~May 2, ~~2020.~~2021.

Advertising and marketing expenses for the twenty-six weeks ended August 1, 2021 increased by $87.8 million, or 38.4%, to $316.4 million compared to $228.6 million in the twenty-six weeks ended August 2, 2020. The increase was primarily due to higher advertising and marketing spend in existing and new channels as well as an increase in advertising input costs since the pandemic-lows seen in the first half of 2020. Our marketing efforts and investments led to the addition of 3.5 million active customers since August 2, 2020.

Liquidity and Capital Resources

We finance our operations and capital expenditures primarily through cash flows generated by operations and equity offerings. Our principal sources of liquidity are expected to be our cash and cash equivalents and our revolving credit facility. Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market ~~funds.~~funds, U.S. Treasury securities, certificates of deposit, and commercial paper. Cash and cash equivalents totaled ~~$725.0~~$604.8 million as of ~~August~~May 1, ~~2021,~~2022, an increase of ~~$161.7~~$1.7 million from January ~~31, 2021.~~30, 2022.

We believe that our cash and cash equivalents and availability under our revolving credit facility will be sufficient to fund our working capital, 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 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
($ in thousands)	($ in thousands)	August 1, 2021		August 2, 2020		($ in thousands)	May 1, 2022		May 2, 2021
Net cash provided by (used in) operating activities		$	183,451	$	(8,145)
Net cash provided by operating activities						Net cash provided by operating activities	$	82,433	$	98,366
Net cash used in investing activities	Net cash used in investing activities	$	(63,714)	$	(73,641)	Net cash used in investing activities	$	(77,421)	$	(38,882)
Net cash provided by financing activities		$	41,915	$	23,540
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	$	(3,330)	$	14,696

Operating Activities

Net cash provided by operating activities was ~~$183.5~~$82.4 million for the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2021,~~2022, which primarily consisted of ~~$22.0~~$18.5 million of net income, non-cash adjustments such as depreciation and amortization expense of ~~$24.1~~$17.3 million and share-based compensation expense of ~~$44.9~~$25.8 million, and a cash increase of ~~$91.8~~$14.8 million from working capital. Cash increases from working capital were primarily driven by an increase in payables, partially offset by an increase in inventories, other current assets, and receivables.

Net cash provided by operating activities was $98.4 million for the ~~management~~thirteen weeks ended May 2, 2021, which primarily consisted of $38.7 million of net income, non-cash adjustments such as depreciation and amortization expense of $11.4 million and share-based compensation expense of $23.1 million, and a cash increase of $24.6 million from working capital. Cash increases from working capital were primarily driven by a decrease in inventories, an increase in payables, as well as an increase in other current liabilities, partially offset by an increase in receivables and other current assets.

Net cash used in operating activities was $8.1 million for the twenty-six weeks ended August 2, 2020, which primarily consisted of $80.7 million of net loss, non-cash adjustments such as depreciation and amortization expense of $15.3 million and share-based compensation expense of $75.4 million, and a cash decrease of $38.3 million from the management of working capital. Cash decreases from working capital were primarily driven by an increase in inventories and receivables, partially offset by payables and other current liabilities.

Investing Activities

Net cash used in investing activities was ~~$63.7~~$77.4 million for the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2021,~~2022, primarily consisting of capital expenditures related to the launch of new fulfillment centers and additional investments in IT hardware and software.

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 to PetSmart, net of reimbursements.~~software.

Financing Activities

Net cash ~~provided by~~used in financing activities was ~~$41.9~~$3.3 million for the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2021~~2022 and consisted of ~~$42.4~~$2.5 million ~~received~~for payments of tax withholdings related to vesting of share-based compensation awards, payments pursuant to the tax sharing agreement with related parties, ~~partially offset by~~and principal repayments of finance lease obligations.

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 related parties, ~~as well as 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 payments of finance lease obligations.

Other Liquidity Measures

ABL Credit Facility

We have a ~~five year~~five-year senior secured ~~asset backed~~asset-backed credit facility (the “ABL Credit Facility”) which ~~was scheduled to mature~~matures in ~~June 2024~~August 2026. and ~~provided~~provides for non-amortizing revolving loans in anthe aggregate principal amount of up to ~~$300~~$500 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility ~~provided~~provides the right to request incremental commitments and add incremental asset-based revolving loan facilities ~~in an aggregate principal amount of up~~ to ~~$100~~$300 million, subject to customary conditions. We ~~were~~are required to pay a 0.25% commitment fee ~~of between 0.25% and 0.375%~~ with respect to the undrawn portion of the commitments, which ~~was~~is generally based on average daily usage of the facility. Based on our borrowing base as of ~~August~~May 1, ~~2021,~~2022, which is reduced by standby letters of credit, we had ~~$264.0~~$450.3 million of borrowing capacity under the ABL Credit Facility. As of ~~August~~May 1, ~~2021,~~2022, we had no outstanding borrowings under the ABL Credit Facility.

On August 27, 2021, we amended the ABL Credit Facility to increase the aggregate principal amount to $500 million and increase the amount available for incremental asset-based revolving loan facilities to $300 million. In addition, the amendments resulted in the commitment fee being modified from a range of 0.25% to 0.375% to a fixed 0.25% fee with respect to the undrawn portion of the commitments. The ABL Credit Facility now matures in August 2026.

~~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 January ~~31, 2021.~~30, 2022.

Item 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

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

As of the end of the period covered by this 10-Q Report, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of ~~August~~May 1, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the thirteen weeks ended ~~August~~May 1, ~~2021.~~2022. We have not experienced any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the impact of remote working on our internal controls.

Limitations on the Effectiveness of Controls

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information concerning legal proceedings is provided in Item 1 of 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 January ~~31, 2021.~~30, 2022.

Item 6. Exhibits

Exhibit No.

Exhibit Description

~~Filed Herewith~~

10.1

*Form of Performance-Based Restricted Stock Unit Agreement

~~10.1~~10.2

*~~First Amendment to Award Notice and~~Form of Restricted Stock Unit Agreement ~~between J.K. Symancyk and Chewy, Inc.~~

31.1

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

31.2

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

32.1

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

101.INS

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

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

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

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

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 1, ~~2021~~2022	By:	/s/ Mario Marte
			Mario Marte
			Chief Financial Officer
			(Principal Financial Officer)

2524


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

Share-based compensation expense	—	—		21,778		—		21,778
Vesting of share-based compensation awards	2,274	23		(23)		—		—
Distribution to parent	93	1		(1)		—		—
Tax sharing agreement with related parties	—	—		939		—		939
Net loss	—	—		—		(16,686)		(16,686)
Balance as of August 1, 2021	417,762	$	4,178	$	1,985,800	$	(1,914,925)	$	75,053

	13 Weeks Ended August 2, 2020
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (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)		—		—
Distribution to parent	187	2		(2)		—		—
Contribution from PetSmart	—	—		325		—		325
Tax sharing agreement with related parties	—	—		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)



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

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

Tax sharing agreement with related parties	—	—		10,140		—		10,140
Net income	—	—		—		22,033		22,033
Balance as of August 1, 2021	417,762	$	4,178	$	1,985,800	$	(1,914,925)	$	75,053

	26 Weeks Ended August 2, 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	—	—		75,380		—		75,380
Vesting of share-based compensation awards	5,011	50		(50)		—		—
Distribution to parent	187	2		(2)		—		—
Contribution from PetSmart	—	—		650		—		650
Tax sharing agreement with related parties	—	—		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)