Chewy Inc.
03/25/2026 | Press release | Distributed by Public on 03/25/2026 05:31
Annual Report for Fiscal Year Ending February 1, 2025 (Form 10-K)
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 consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K for fiscal year 2025 ("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, our actual results may differ materially from those anticipated in these forward-looking statements. Unless the context requires otherwise, references in this 10-K Report 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/), filings with the SEC, 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 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 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 approximately 4,000 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding private brands. Through our websites and mobile applications, we offer our customers approximately 190,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.
Macroeconomic Considerations
Macroeconomic conditions, including inflationary pressures, elevated interest rates, and broader economic uncertainty, have influenced consumer spending patterns and may continue to affect demand across our categories. We monitor these conditions closely and adjust elements of our logistics, transportation, supply chain, and merchandising strategies as appropriate. Changes in consumer behavior may impact product mix, purchasing frequency, and promotional intensity, and we manage our operations with a focus on maintaining value, service levels, and operational discipline in varying economic environments.
We are unable to predict the duration and ultimate impact of evolving macroeconomic conditions on the broader economy or our operations and liquidity. As such, macroeconomic risks and uncertainties remain. Please refer to the "Cautionary Note Regarding Forward-Looking Statements" and the section titled "Risk Factors" in Item 1A of this 10-K Report.
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 2025 fiscal year ended February 1, 2026 and included 52 weeks ("Fiscal Year 2025"). Our 2024 fiscal year ended February 2, 2025 and included 53 weeks ("Fiscal Year 2024"). Our 2023 fiscal year ended January 28, 2024 and included 52 weeks ("Fiscal Year 2023").
We have provided restated financial and operating data for the historical comparative periods in Management's Discussion and Analysis of Financial Condition and Results of Operations of this 10-K Report. For additional information related to this restatement, see section titled Basis of Presentation in Note 2 - Basis of Presentation and Significant Accounting Policies, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
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 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 and 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 that had an order 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 refunds, and net of any promotional offers (such as percentage discounts off current purchases and other similar offers) for that quarter. For a given fiscal year, Autoship customer sales equal the sum of the Autoship customer sales for each of the fiscal quarters in that fiscal year.
Autoship Customer Sales as a Percentage of Net Sales
We define Autoship customer sales as a percentage of net sales as the Autoship customer sales in a given reporting period divided by the net sales from all orders in that period. We view Autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention.
Components of Results of Consolidated Operations
Net Sales
We derive net sales primarily from sales of both third-party brand and private brand pet food, pet products, pet health and specialty products, and related shipping fees. Consumable products include retail pet food and veterinary diet products. Hard goods products include non-perishable pet supplies. Pet health and specialty products include prescription medications, non-prescription pet health care products and certain specialty animal products for categories such as equine, birds, fish, and other non-traditional pets. Other net sales include private brand sales and certain pet-related services including telehealth services, pet insurance-related offerings, loyalty program memberships, and veterinary clinic services. Revenues from these service-based offerings are not a significant component of net sales and are managed as part of the Company's integrated platform rather than as standalone service offerings.
Sales of third-party brand and private brand pet food, pet products, pet health and specialty products, and shipping revenues are recorded when products are shipped, net of promotional discounts and refunds and allowances. Taxes collected from customers are excluded from net sales. Net sales is primarily driven by growth of new customers and active customers, and the frequency with which customers purchase and subscribe to our Autoship subscription program.
We also periodically provide promotional offers, including discount offers, such as percentage discounts off current purchases and other similar offers. These offers are treated as a reduction to the purchase price of the related transaction and are reflected as a net amount in net sales.
Cost of Goods Sold
Cost of goods sold consists of the cost of third-party brand and private brand products sold to customers, inventory freight, shipping supply costs, inventory shrinkage costs, and inventory valuation adjustments, offset by reductions for promotions and percentage or volume rebates offered by our vendors, which may depend on reaching minimum purchase thresholds. Generally, amounts received from vendors are considered a reduction of the carrying value of inventory and are ultimately reflected as a reduction of cost of goods sold.
Selling, General and Administrative
Selling, general and administrative expenses consist of fulfillment costs incurred in operating and staffing fulfillment centers, customer service centers, and veterinary clinics; payroll and related expenses for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources; costs associated with the use of facilities and equipment, such as depreciation expense and rent; share-based compensation, professional fees and other general corporate costs.
Fulfillment costs include costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, payment processing, providing pet health services, and responding to inquiries from customers. Included within fulfillment costs are merchant processing fees charged by third parties that provide merchant processing services for credit cards.
Advertising and Marketing
Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities.
Interest and Other Income (Expense), net
We generate interest income from our cash and cash equivalents and marketable securities. We incur interest expense in relation to our borrowing facilities, finance leases, and unrecognized tax benefits.
Our other income (expense), net consists of changes in the fair value of equity warrants, equity investments, tax indemnification receivables, foreign currency transaction gains and losses, and allowances for credit losses on marketable securities.
Income Tax Provision (Benefit)
Income tax provision (benefit) consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions, and the valuation allowance against deferred tax assets, as applicable.
Non-GAAP Financial Measures
To supplement our GAAP results, we present certain non-GAAP financial measures that management uses to evaluate operating performance, assess liquidity, and inform capital allocation decisions. These measures include Adjusted EBITDA and Adjusted EBITDA margin, Adjusted net income and Adjusted earnings per share, and Free cash flow.
Adjusted EBITDA excludes depreciation and amortization, share-based compensation and related taxes, income tax provision (benefit), interest income (expense), transaction-related costs, changes in the fair value of equity warrants, severance and exit costs, and other items not considered indicative of our core operations. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net sales.
Adjusted net income and Adjusted earnings per share exclude certain non-cash and non-recurring items, including share-based compensation and related taxes, releases of valuation allowances associated with deferred tax assets, changes in the fair value of equity warrants, and severance and exit costs.
Free cash flow represents net cash provided by operating activities less capital expenditures.
We believe these measures provide additional insight into the underlying trends in our business and facilitate comparisons across reporting periods. Reconciliations to the most directly comparable GAAP measures are provided below.
These non-GAAP measures have limitations and should not be considered in isolation or as a substitute for GAAP results. For example, Adjusted EBITDA does not reflect capital expenditures, working capital requirements, interest income (expense), income taxes, or share-based compensation, which remains a recurring component of our compensation structure. In addition, other companies may calculate non-GAAP measures differently, which may limit their comparability. Accordingly, these measures should be considered together with our GAAP financial statements and related disclosures.
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.
| Fiscal Year | % change | ||||||||||||||||||||||||||||
| (in millions, except net sales per active customer, per share data, and percentages) | 2025 | 2024 | 2023 | 2025 vs. 2024 | 2024 vs. 2023 | ||||||||||||||||||||||||
| Financial and Operating Data | |||||||||||||||||||||||||||||
| Net sales | $ | 12,601.5 | $ | 11,861.3 | $ | 11,147.7 | 6.2 | % | 6.4 | % | |||||||||||||||||||
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Net income (1)
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$ | 222.8 | $ | 392.7 | $ | 39.6 | (43.3) | % | n/m | ||||||||||||||||||||
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Net margin (1)
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1.8 | % | 3.3 | % | 0.4 | % | |||||||||||||||||||||||
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Adjusted EBITDA (2)
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$ | 719.2 | $ | 570.5 | $ | 368.1 | 26.1 | % | 55.0 | % | |||||||||||||||||||
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Adjusted EBITDA margin (2)
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5.7 | % | 4.8 | % | 3.3 | % | |||||||||||||||||||||||
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Adjusted net income (2)
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$ | 540.5 | $ | 446.8 | $ | 296.2 | 21.0 | % | 50.8 | % | |||||||||||||||||||
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Earnings per share, basic (1)
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$ | 0.54 | $ | 0.93 | $ | 0.09 | (41.9) | % | n/m | ||||||||||||||||||||
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Earnings per share, diluted (1)
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$ | 0.52 | $ | 0.91 | $ | 0.09 | (42.9) | % | n/m | ||||||||||||||||||||
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Adjusted earnings per share, basic (2)
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$ | 1.31 | $ | 1.06 | $ | 0.69 | 23.6 | % | 53.6 | % | |||||||||||||||||||
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Adjusted earnings per share, diluted (2)
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$ | 1.27 | $ | 1.04 | $ | 0.69 | 22.1 | % | 50.7 | % | |||||||||||||||||||
| Net cash provided by operating activities | $ | 691.6 | $ | 596.3 | $ | 486.2 | 16.0 | % | 22.6 | % | |||||||||||||||||||
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Free cash flow (2)
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$ | 562.4 | $ | 452.5 | $ | 342.9 | 24.3 | % | 32.0 | % | |||||||||||||||||||
| Active customers | 21.327 | 20.514 | 20.083 | 4.0 | % | 2.0 | % | ||||||||||||||||||||||
| Net sales per active customer | $ | 591 | $ | 578 | $ | 555 | 2.2 | % | 4.1 | % | |||||||||||||||||||
| Autoship customer sales | $ | 10,497.1 | $ | 9,393.3 | $ | 8,493.2 | 11.8 | % | 10.6 | % | |||||||||||||||||||
| Autoship customer sales as a percentage of net sales | 83.3 | % | 79.2 | % | 76.2 | % | |||||||||||||||||||||||
| n/m - not meaningful | |||||||||||||||||||||||||||||
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(1)Includes share-based compensation expense, including related taxes, of $311.2 million, $332.1 million, and $248.5 million, for Fiscal Year 2025, Fiscal Year 2024, and Fiscal Year 2023, respectively.
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(2) Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP financial measures. See "Non-GAAP Financial Measures" above.
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We define net margin as net income divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.
Adjusted EBITDA and Adjusted EBITDA Margin
The following table presents a reconciliation of net income to adjusted EBITDA, as well as the calculation of net margin and adjusted EBITDA margin, for each of the periods indicated:
| (in millions, except percentages) | Fiscal Year | ||||||||||||||||
|
Reconciliation of Net Income to Adjusted EBITDA
|
2025 | 2024 | 2023 | ||||||||||||||
| Net income | $ | 222.8 | $ | 392.7 | $ | 39.6 | |||||||||||
| Add (deduct): | |||||||||||||||||
| Depreciation and amortization | 129.3 | 114.6 | 109.7 | ||||||||||||||
| Share-based compensation expense and related taxes | 311.2 | 332.1 | 248.5 | ||||||||||||||
| Interest income, net | (15.2) | (35.1) | (58.5) | ||||||||||||||
| Change in fair value of equity warrants | 2.6 | (2.3) | (13.1) | ||||||||||||||
| Income tax provision (benefit) | 40.5 | (241.0) | 8.7 | ||||||||||||||
| Severance costs | 6.3 | - | 14.4 | ||||||||||||||
| Exit costs | - | - | 6.8 | ||||||||||||||
| Transaction related costs | 13.2 | 1.6 | 7.8 | ||||||||||||||
| Other | 8.5 | 7.9 | 4.2 | ||||||||||||||
| Adjusted EBITDA | $ | 719.2 | $ | 570.5 | $ | 368.1 | |||||||||||
| Net sales | $ | 12,601.5 | $ | 11,861.3 | $ | 11,147.7 | |||||||||||
| Net margin | 1.8 | % | 3.3 | % | 0.4 | % | |||||||||||
| Adjusted EBITDA margin | 5.7 | % | 4.8 | % | 3.3 | % | |||||||||||
Adjusted Net Income and Adjusted Basic and Diluted Earnings per Share
The following table presents a reconciliation of net income to adjusted net income, as well as the calculation of adjusted basic and diluted earnings per share, for each of the periods indicated:
|
(in millions, except per share data)
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Fiscal Year | ||||||||||||||||
| Reconciliation of Net Income to Adjusted Net Income | 2025 | 2024 | 2023 | ||||||||||||||
| Net income | $ | 222.8 | $ | 392.7 | $ | 39.6 | |||||||||||
|
Add (deduct):
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|||||||||||||||||
| Share-based compensation expense and related taxes | 311.2 | 332.1 | 248.5 | ||||||||||||||
| Change in fair value of equity warrants | 2.6 | (2.3) | (13.1) | ||||||||||||||
|
Deferred tax asset valuation allowance release
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(2.4) | (275.7) | - | ||||||||||||||
| Severance costs | 6.3 | - | 14.4 | ||||||||||||||
| Exit costs | - | - | 6.8 | ||||||||||||||
| Adjusted net income | $ | 540.5 | $ | 446.8 | $ | 296.2 | |||||||||||
| Weighted-average common shares used in computing adjusted earnings per share: | |||||||||||||||||
| Basic | 414.1 | 421.4 | 429.4 | ||||||||||||||
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Effect of dilutive share-based awards
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11.7 | 9.6 | 2.6 | ||||||||||||||
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Diluted
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425.8 | 431.0 | 432.0 | ||||||||||||||
| Earnings per share attributable to common Class A and Class B stockholders | |||||||||||||||||
| Basic | $ | 0.54 | $ | 0.93 | $ | 0.09 | |||||||||||
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Diluted
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$ | 0.52 | $ | 0.91 | $ | 0.09 | |||||||||||
| Adjusted basic | $ | 1.31 | $ | 1.06 | $ | 0.69 | |||||||||||
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Adjusted diluted
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$ | 1.27 | $ | 1.04 | $ | 0.69 | |||||||||||
Free Cash Flow
The following table presents a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated:
| (in millions) | Fiscal Year | ||||||||||||||||
| Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow | 2025 | 2024 | 2023 | ||||||||||||||
| Net cash provided by operating activities | $ | 691.6 | $ | 596.3 | $ | 486.2 | |||||||||||
| Deduct: | |||||||||||||||||
| Capital expenditures | (129.2) | (143.8) | (143.3) | ||||||||||||||
| Free Cash Flow | $ | 562.4 | $ | 452.5 | $ | 342.9 | |||||||||||
Free cash flow may vary period to period based on the timing and level of capital expenditures, including investments in fulfillment capacity, pharmacy facilities, veterinary clinics, technology infrastructure, and other operational initiatives. Free cash flow may also be affected by changes in working capital, including fluctuations in inventory levels, vendor payment terms, and other components of the cash conversion cycle.
Presentation of Results of Consolidated Operations and Liquidity and Capital Resources
The following discussion and analysis of our Results of Consolidated Operations and Liquidity and Capital Resources includes a comparison of Fiscal Year 2025 to Fiscal Year 2024. A similar discussion and analysis which compares Fiscal Year 2024 to Fiscal Year 2023 may be found in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report filed with the SEC on March 26, 2025, and is incorporated herein by reference.
Results of Consolidated Operations
The following tables set forth our results of operations for the fiscal years 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.
| Fiscal Year | |||||||||||||||||||||||||||||||||||||||||||||||
| % change | % of net sales | ||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | 2025 | 2024 | 2023 | 2025 vs. 2024 | 2024 vs. 2023 | 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||
| Consolidated Statements of Operations | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 12,601.5 | $ | 11,861.3 | $ | 11,147.7 | 6.2 | % | 6.4 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||||||||||||||
| Cost of goods sold | 8,847.6 | 8,393.6 | 7,986.2 | 5.4 | % | 5.1 | % | 70.2 | % | 70.8 | % | 71.6 | % | ||||||||||||||||||||||||||||||||||
| Gross profit | 3,753.9 | 3,467.7 | 3,161.5 | 8.3 | % | 9.7 | % | 29.8 | % | 29.2 | % | 28.4 | % | ||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 2,674.7 | 2,551.0 | 2,442.7 | 4.8 | % | 4.4 | % | 21.2 | % | 21.5 | % | 21.9 | % | ||||||||||||||||||||||||||||||||||
| Advertising and marketing | 824.9 | 804.1 | 742.4 | 2.6 | % | 8.3 | % | 6.5 | % | 6.8 | % | 6.7 | % | ||||||||||||||||||||||||||||||||||
| Total operating expenses | 3,499.6 | 3,355.1 | 3,185.1 | 4.3 | % | 5.3 | % | 27.8 | % | 28.3 | % | 28.5 | % | ||||||||||||||||||||||||||||||||||
| Income (loss) from operations | 254.3 | 112.6 | (23.6) | 125.8 | % | n/m | 2.0 | % | 0.9 | % | (0.2) | % | |||||||||||||||||||||||||||||||||||
| Interest and other income, net | 9.0 | 39.1 | 71.9 | (77.0) | % | (45.6) | % | 0.1 | % | 0.3 | % | 0.6 | % | ||||||||||||||||||||||||||||||||||
| Income before income tax provision (benefit) | 263.3 | 151.7 | 48.3 | 73.6 | % | 214.1 | % | 2.1 | % | 1.3 | % | 0.4 | % | ||||||||||||||||||||||||||||||||||
| Income tax provision (benefit) | 40.5 | (241.0) | 8.7 | 116.8 | % | n/m | 0.3 | % | (2.0) | % | 0.1 | % | |||||||||||||||||||||||||||||||||||
| Net income | $ | 222.8 | $ | 392.7 | $ | 39.6 | (43.3) | % | n/m | 1.8 | % | 3.3 | % | 0.4 | % | ||||||||||||||||||||||||||||||||
| n/m - not meaningful | |||||||||||||||||||||||||||||||||||||||||||||||
Net Sales
| Fiscal Year | 2025 vs. 2024 | 2024 vs. 2023 | |||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | 2025 | 2024 | 2023 | $ Change | % Change | $ Change | % Change | ||||||||||||||||||||||||||||||||||
| Consumables | $ | 8,777.9 | $ | 8,396.1 | $ | 8,014.6 | $ | 381.8 | 4.5 | % | $ | 381.5 | 4.8 | % | |||||||||||||||||||||||||||
| Hardgoods | 1,436.3 | 1,267.1 | 1,209.2 | 169.2 | 13.4 | % | 57.9 | 4.8 | % | ||||||||||||||||||||||||||||||||
|
Pet health and specialty products
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1,980.5 | 1,771.2 | 1,454.5 | 209.3 | 11.8 | % | 316.7 | 21.8 | % | ||||||||||||||||||||||||||||||||
| Other | 406.8 | 426.9 | 469.4 | (20.1) | (4.7) | % | (42.5) | (9.1) | % | ||||||||||||||||||||||||||||||||
| Net sales | $ | 12,601.5 | $ | 11,861.3 | $ | 11,147.7 | $ | 740.2 | 6.2 | % | $ | 713.6 | 6.4 | % | |||||||||||||||||||||||||||
Net sales for Fiscal Year 2025 increased by $740.2 million, or 6.2%, to $12.6 billion compared to $11.9 billion for Fiscal Year 2024. Excluding net sales of $226.6 million in the 53rd week for Fiscal Year 2024, net sales for Fiscal Year 2025 increased by $966.8 million, or 8.3%, to $12.6 billion compared to $11.6 billion for Fiscal Year 2024. This increase was primarily driven by growth in autoship customer sales, which increased by 11.8% to $10.5 billion, higher net sales per active customer, which increased $13 or 2.2% to $591, and growth in active customers, which improved by 4.0% to 21.3 million in Fiscal Year 2025, compared to Fiscal Year 2024. This increase was attributable to growth across our consumables, pet health and specialty products, and hardgoods businesses.
Cost of Goods Sold and Gross Profit
Cost of goods sold for Fiscal Year 2025 increased by $454.0 million, or 5.4%, to $8.8 billion compared to $8.4 billion in Fiscal Year 2024. This increase was primarily due to higher sales coupled with increased outbound freight and shipping supply costs.
Gross profit for Fiscal Year 2025 increased by $286.2 million, or 8.3%, to $3.8 billion compared to $3.5 billion in Fiscal Year 2024. This increase was primarily due to the year-over-year increase in net sales as described above. Gross margin for Fiscal Year 2025 was 29.8%, an increase of 60 basis points compared to 29.2% in Fiscal Year 2024, and is driven by growth in sponsored ads and margin growth across our consumables business.
Selling, General and Administrative
Selling, general and administrative expenses as a percentage of net sales decreased 30 basis points to 21.2% for Fiscal Year 2025 compared to 21.5% in Fiscal Year 2024. Selling, general and administrative expenses for Fiscal Year 2025 increased by $123.7 million, or 4.8%, to $2.7 billion compared to $2.6 billion in Fiscal Year 2024. The majority of the increase is associated with network-wide fulfillment costs, including modest increases in depreciation and amortization, which were collectively incurred to support the overall growth of the business, our pharmacy fulfillment network, and veterinary clinics. This also included modest increases in other selling, general, and administrative expenses primarily associated with expanded hosting and software infrastructure requirements.
We commenced a project in Fiscal Year 2024 to modernize our finance information technology architecture. At the conclusion of this project, we aim to have, among other things, (i) the ability to produce financial information across different segments of the Company, which supports scalability for future growth, (ii) expanded visibility and analytical capabilities with respect to our data, and (iii) an infrastructure that enables the use of artificial intelligence and other system advancements that will create further efficiencies for our team members. While we have made progress on this project, we also identified additional system automations that expanded our original scope. As a result, we expect that this project will go live towards the end of Fiscal Year 2026. The project will not require meaningful capital investment.
Advertising and Marketing
Advertising and marketing expenses for Fiscal Year 2025 increased by $20.8 million, or 2.6%, to $824.9 million compared to $804.1 million in Fiscal Year 2024. Our marketing expenses increased due to additional investment in our lower and upper funnel marketing channels to new customer acquisition and improved customer retention.
Interest and Other Income (Expense), net
Interest income, net for Fiscal Year 2025 decreased by $19.9 million, to $15.2 million compared to interest income of $35.1 million in Fiscal Year 2024. This decrease was primarily due to a decrease in interest income generated from cash and cash equivalents and marketable securities, primarily due to maturities of marketable securities during Fiscal Year 2024.
Other expense for Fiscal Year 2025 increased by $10.2 million, to $6.2 million compared to other income of $4.0 million in Fiscal Year 2024. This increase was primarily due to the termination of equity warrants and decreases in the fair value of equity investments partially offset by a decrease in foreign currency losses.
Income Tax Provision (Benefit)
Our effective tax rate for Fiscal Year 2025 was lower than the U.S. federal statutory rate, primarily due to federal and state research and development credits and tax benefits from share-based compensation, partially offset by state income taxes.
Income tax provision for Fiscal Year 2025 increased by $281.5 million, to $40.5 million compared to income tax benefit of $241.0 million in Fiscal Year 2024. The increase was primarily due to the release of the valuation allowance on the Company's U.S. federal and certain state deferred tax assets during Fiscal Year 2024.
Liquidity and Capital Resources
We finance our operations and capital expenditures primarily through cash flows generated by operations. Our principal sources of liquidity are expected to be our cash and cash equivalents, marketable securities, and our revolving credit facility. Cash and cash equivalents consisted primarily of cash on deposit with banks. Cash and cash equivalents totaled $860.1 million as of February 1, 2026, an increase of $264.3 million from February 2, 2025. Marketable securities consisted primarily of corporate bonds and equity investments and totaled $18.7 million as of February 1, 2026, an increase of $17.8 million from February 2, 2025 due to purchases that occurred during Fiscal Year 2025.
We believe that our cash and cash equivalents, marketable securities, 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, share repurchases, 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 this 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.
We have contractual obligations and other commitments that will need to be funded in the future, in addition to our working capital, capital expenditures and other strategic initiatives. Material contractual obligations generally relate to operating and real estate lease obligations.
Operating and real estate lease obligations relate to fulfillment and customer service centers, veterinary clinics, corporate offices and certain equipment under non-cancelable operating leases, which expire at various dates through 2038. Real estate obligations include legally binding minimum lease payments for operating lease arrangements which have not yet commenced. As of February 1, 2026, operating and real estate lease obligations included legally binding minimum lease payments of $857.4 million. For additional information related to real estate and operating leases, see Note 8 - Leases, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
Cash Flows
| Fiscal Year | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Net cash provided by operating activities | $ | 691.6 | $ | 596.3 | $ | 486.2 | |||||||||||
| Net cash (used in) provided by investing activities | $ | (151.8) | $ | 394.6 | $ | (287.4) | |||||||||||
| Net cash (used in) provided by financing activities | $ | (276.0) | $ | (996.7) | $ | 71.6 | |||||||||||
Operating Activities
Net cash provided by operating activities was $691.6 million for Fiscal Year 2025, which primarily consisted of i) $222.8 million of net income, ii) non-cash adjustments of $503.9 million, including share-based compensation expense of $297.9 million, and depreciation and amortization expense of $129.3 million, as well as iii) a decrease of $4.2 million from working capital changes. This decrease was primarily driven by an increase in receivables, inventories, and other current assets, partially offset by an increase in other current liabilities and payables.
Net cash provided by operating activities was $596.3 million for Fiscal Year 2024, which primarily consisted of i) $392.7 million of net income, ii) non-cash adjustments of $197.1 million including share-based compensation expense of $306.4 million and depreciation and amortization expense of $114.6 million, partially offset by a deferred income tax benefit of $257.5 million, as well as iii) an increase of $33.9 million from working capital changes. This increase was primarily driven by an increase in other current liabilities and payables, partially offset by an increase in inventories, receivables, and other current assets.
Investing Activities
Net cash used in investing activities was $151.8 million for Fiscal Year 2025, primarily consisting of $17.4 million for the purchase of marketable securities, net of maturities and sales and $129.2 million for capital expenditures related to expanding operations at our Houston, Texas fulfillment center, veterinary clinics, future pharmacy facility capabilities, and investments in our fresh and frozen infrastructure.
Net cash provided by investing activities was $394.6 million for Fiscal Year 2024, primarily consisting of $538.4 million for the maturities and sales of marketable securities, partially offset by $143.8 million for capital expenditures related to the launch of new and future pharmacy facilities, veterinary clinics, and fulfillment centers as well as additional investments in IT hardware and software.
Financing Activities
Net cash used in financing activities was $276.0 million for Fiscal Year 2025, primarily consisting of $262.5 million for repurchases of common stock, $9.2 million for income taxes paid for, net of proceeds from, the parent reorganization transaction, as well as payments for secondary offering costs, and principal repayments of finance lease obligations.
Net cash used in financing activities was $996.7 million for Fiscal Year 2024, and consisted of $942.8 million for repurchases of common stock, $51.9 million for income taxes paid for, net of proceeds from, the parent reorganization transaction, as well as payments for secondary offering costs, and principal repayments of finance lease obligations.
ABL Credit Facility
We have a senior secured asset-based credit facility (the "ABL Credit Facility") which matures on April 1, 2030 following an amendment entered into on April 1, 2025, and provides for non-amortizing revolving loans in the aggregate principal amount of up to $800 million, subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility provides the right to request incremental commitments and add incremental asset-based revolving loan facilities of (i) $250 million, (ii) the amount of permanent reductions of commitments thereunder and (iii) if greater than zero, the amount by which the borrowing base as of the date of incurrence exceeds the commitments thereunder, subject to customary conditions. Borrowings under the ABL Credit Facility bear interest at a rate per annum equal to either a base rate or a term Secured Overnight Financing Rate ("SOFR") (with no credit spread adjustment) at the Company's option, plus a margin determined based on the Company's average excess availability, which is either (i) 0.25%, 0.50%, or 0.75% for borrowings at the base rate, or (ii) 1.25%, 1.50%, or 1.75% for SOFR borrowings. We are required to pay a 0.25% per annum commitment fee with respect to the undrawn portion of the commitments, which is generally based on average daily usage of the facility. Based on our borrowing base as of February 1, 2026, which is reduced by standby letters of credit, we had $783.1 million of borrowing capacity under the ABL Credit Facility. As of February 1, 2026, we did not have any outstanding borrowings under the ABL Credit Facility.
For additional information with respect to our ABL Credit Facility, see Note 7 - Debt, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
Share Repurchase Activity
On May 24, 2024, our Board of Directors authorized the Company to repurchase up to $500 million of its Class A common stock and/or Class B common stock, pursuant to a share repurchase program (the "Repurchase Program"). The actual timing and amount of any share repurchases remains subject to a variety of factors, including stock price, trading volume, market conditions, compliance with applicable legal requirements, and other general business considerations. We are not required to repurchase any specific dollar amount or to acquire any specific number of shares of common stock. The Repurchase Program has no expiration date and may be modified, suspended, or terminated at any time.
On June 26, 2024, the Company entered into an agreement (the "Stock Repurchase Agreement") with Buddy Chester Sub LLC, an entity affiliated with the Sponsors (the "Seller"), to repurchase an aggregate of 17,550,000 shares of Class A common stock from the Seller at a price per share of $28.49, resulting in an aggregate repurchase price of $500 million (the "Stock Repurchase").
On September 18, 2024, the Company entered into an agreement (the "September 2024 Concurrent Stock Repurchase Agreement") with the Seller to repurchase $300 million of shares of Class A common stock from the Seller at a price per share of $29.40, resulting in the repurchase of an aggregate of 10,204,081 shares of Class A common stock (the "September 2024 Concurrent Stock Repurchase").
On December 9, 2024, the Company entered into an agreement (the "December 2024 Concurrent Stock Repurchase Agreement") with the Seller, to repurchase $50 million of shares of Class A common stock from the Seller at a price per share of $31.32, resulting in the repurchase of an aggregate of 1,596,424 shares of Class A common stock (the "December 2024 Concurrent Stock Repurchase").
On June 20, 2025, the Company entered into an agreement (the "June 2025 Concurrent Stock Repurchase Agreement") with the Seller, to repurchase $100 million of shares of Class A common stock from the Seller at a price per share of $41.75, resulting in the repurchase of an aggregate of 2,395,210 shares of Class A common stock (the "June 2025 Concurrent Stock Repurchase").
During Fiscal Year 2025, 4,453,622 and 2,395,210 shares of Class A common stock were repurchased and subsequently cancelled and retired pursuant to the Repurchase Program and June 2025 Concurrent Stock Repurchase for a total cost of $156.8 million and $100.0 million, respectively, excluding the cost of commissions and excise taxes. The authorized value of shares available to be repurchased under the Repurchase Program excludes the cost of commissions and excise taxes and as of February 1, 2026, the remaining value of shares of common stock that were authorized to be repurchased under the Repurchase Program was $249.9 million.
As of February 2, 2025, the total unpaid cost of share repurchases was $5.6 million, which included $5.1 million for excise taxes. During Fiscal Year 2025, the Company paid $5.7 million for excise taxes, accrued repurchases, and commissions.
Future Acquisitions
On February 2, 2026, the Company completed the acquisition of SmartPak Equine, LLC ("SmartPak"), a leading provider of equine health and nutrition products. The purchase price was $175 million for a 100% membership interest in SmartPak, and was purchased using cash on hand.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below involve a significant level of estimation uncertainty and have the greatest potential impact on our financial condition and results of operations and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates, assumptions, and judgments on an ongoing basis. Our actual results may differ from these estimates under different assumptions, judgments, and conditions. See Note 2 - Basis of Presentation and Significant Accounting Policies, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report for a description of our significant accounting policies as well as a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this 10-K Report.
Income Taxes
Estimates of deferred income taxes reflect management's assessment of actual future taxes to be paid on items reflected in the consolidated financial statements, giving consideration to both timing and the probability of realization. Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the Internal Revenue Service, as well as actual operating results that may vary significantly from anticipated results. For additional information on deferred tax assets and liabilities, see Note 12 - Income Taxes, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 2 - Basis of Presentation and Significant Accounting Policies, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
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