CHEWY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

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 2021 ("10-K Report"). This discussion contains forward-looking
statements that involve risks and uncertainties. As a result of many factors,
such as those set forth under the "Risk Factors" and "Cautionary Note Regarding
Forward-Looking Statements" sections herein, 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/), 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 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 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, which we offer at great prices and deliver with an exceptional level
of care and a personal touch. We are the trusted source for pet parents and
continually develop innovative ways for our customers to engage with us. We
partner with more than 3,000 of the best and most trusted brands in the pet
industry, and we create and offer our own outstanding proprietary brands.
Through our website and mobile applications, we offer our customers more than
100,000 products, compelling merchandising, an easy and enjoyable shopping
experience, and exceptional customer service.

COVID-19[female[feminine


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

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

While conditions do appear to be improving as vaccination levels rise and state
and local economies have, for the most part, re-opened, the positive or negative
impacts that the COVID-19 outbreak will ultimately have on our business remain
difficult to predict, particularly as vaccine efforts face challenges and new
variants of the virus continue to emerge. We are still unable to predict the
duration of the COVID-19 pandemic and its ultimate impact on the broader economy
or our operations and liquidity. As such, risks and uncertainties regarding
COVID-19 remain. Please refer to the "Cautionary Note Regarding Forward-Looking
Statements" in this 10-K Report and in 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 2021 fiscal year ended January 30, 2022
and included 52 weeks ("Fiscal Year 2021"). Our 2020 fiscal year ended
January 31, 2021 and included 52 weeks ("Fiscal Year 2020"). Our 2019 fiscal
year ended February 2, 2020 and included 52 weeks ("Fiscal Year 2019").

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Key financial and operational 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 thousands, except net sales per
active customer and percentages)              2021                  2020                 2019             2021 vs. 2020         2020 vs. 2019
Financial and Operating Data
Net sales                               $  8,890,773           $ 7,146,264          $ 4,846,743                  24.4  %                47.4  %
Net loss (1)                            $    (73,817)          $   (92,486)         $  (252,370)                 20.2  %                63.4  %
Net margin (1)                                  (0.8)  %              (1.3) %              (5.2) %
Adjusted EBITDA(2)                      $     78,552           $    85,157          $   (81,025)                 (7.8) %               205.1  %
Adjusted EBITDA margin(2)                        0.9   %               1.2  %              (1.7) %
Net cash provided by operating
activities                              $    191,739           $   132,755          $    46,581                  44.4  %               185.0  %
Free cash flow(2)                       $      8,553           $     2,012          $    (2,055)                     n/m               197.9  %
Active customers                                  20,663               19,206               13,459                7.6  %                42.7  %
Net sales per active customer           $        430           $       372          $       360                  15.6  %                 3.3  %
Autoship customer sales                 $  6,245,011           $ 4,889,485          $ 3,362,835                  27.7  %                45.4  %
Autoship customer sales as a percentage
of net sales                                    70.2   %              68.4  %              69.4  %

n/m – not significant (1) Includes share-based compensation expense, including related taxes, of $85.3 million, $129.2 millionand $136.2 million, for fiscal year 2021, fiscal year 2020 and fiscal year 2019, respectively. (2) Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.

We define net margin as net 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-K 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-K Report
because each 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 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, 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:

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•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 loss, net margin, and our other GAAP results.

The following table presents a reconciliation of net 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)                                       Fiscal Year
Reconciliation of Net Loss to Adjusted EBITDA           2021                      2020                  2019
Net loss                                       $        (73,817)             $    (92,486)         $   (252,370)
Add (deduct):
Depreciation and amortization                            55,009                    35,664                30,645
Share-based compensation expense and related
taxes                                                    85,308                   129,208               136,237

Interest expense (income), net                            1,639                     2,022                  (356)
Management fee expense(1)                                     -                     1,300                 1,300
Transaction related costs                                 2,423                     2,369                 1,396
Other                                                     7,990                     7,080                 2,123
Adjusted EBITDA                                $         78,552              $     85,157          $    (81,025)
Net sales                                      $      8,890,773              $  7,146,264          $  4,846,743
Net Margin                                                 (0.8)     %               (1.3) %               (5.2) %
Adjusted EBITDA margin                                      0.9      %                1.2  %               (1.7) %
(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 consolidated financial statements during
Fiscal Year 2020 and Fiscal Year 2019, respectively.



Free movement of capital


To provide investors with additional information regarding our financial
results, we have also disclosed here and elsewhere in this 10-K 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, 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-K 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.

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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 provides a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated.


($ in thousands)                                                            

Fiscal year reconciliation between net cash provided by operating activities and free cash flow

                                               2021               2020              2019
Net cash provided by operating activities                   $ 191,739          $ 132,755          $ 46,581
Deduct:
Capital expenditures                                         (183,186)          (130,743)          (48,636)
Free Cash Flow                                              $   8,553          $   2,012          $ (2,055)



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.

Main operating parameters

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 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 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 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.

Sales to Autoship customers 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.

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Components of consolidated operating results

Net sales


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

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

Cost of Goods Sold


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

Selling, general and administrative expenses


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 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.

Presentation of Consolidated Results of 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 2021 to
Fiscal Year 2020. A similar discussion and analysis which compares Fiscal Year
2020 to Fiscal Year 2019 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 30, 2021, and is incorporated herein
by reference.

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Consolidated operating results


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 thousands)                   2021                 2020                 2019            2021 vs. 2020       2020 vs. 2019             2021                2020              2019
Consolidated Statements of
Operations
Net sales                     $ 8,890,773          $ 7,146,264          $ 4,846,743                24.4  %             47.4  %               100.0  %          100.0  %          100.0  %
Costs of goods sold             6,517,191            5,325,457            3,702,683                22.4  %             43.8  %                73.3  %           74.5  %           76.4  %
Gross profit                    2,373,582            1,820,807            1,144,060                30.4  %             59.2  %                26.7  %           25.5  %           23.6  %
Operating expenses:
Selling, general and
administrative                  1,826,858            1,397,969              969,890                30.7  %             44.1  %                20.5  %           19.6  %           20.0  %
Advertising and marketing         618,902              513,302              426,896                20.6  %             20.2  %                 7.0  %            7.2  %            8.8  %
Total operating expenses        2,445,760            1,911,271            1,396,786                28.0  %             36.8  %                27.5  %           26.7  %           28.8  %
Loss from operations              (72,178)             (90,464)            (252,726)               20.2  %             64.2  %                (0.8) %           (1.3) %           (5.2) %
Interest (expense) income,
net                                (1,639)              (2,022)                 356                18.9  %                 n/m                   -  %              -  %              -  %
Loss before income tax
provision                         (73,817)             (92,486)            (252,370)               20.2  %             63.4  %                (0.8) %           (1.3) %           (5.2) %
Income tax provision                    -                    -                    -                   -  %                -  %                   -  %              -  %              -  %
Net loss                      $   (73,817)         $   (92,486)         $  (252,370)               20.2  %             63.4  %                (0.8) %           (1.3) %           (5.2) %
n/m - not meaningful



Net Sales

                                                   Fiscal Year                                          2021 vs. 2020                               2020 vs. 2019
($ in thousands)                  2021                 2020                 2019               $ Change              % Change              $ Change              % Change
Consumables                  $ 6,102,367          $ 4,967,673          $ 3,596,778          $  1,134,694                  22.8  %       $  1,370,895                  38.1  %
Hardgoods                      1,305,937            1,153,639              705,087               152,298                  13.2  %            448,552                  63.6  %
Other                          1,482,469            1,024,952              544,878               457,517                  44.6  %            480,074                  88.1  %
Net sales                    $ 8,890,773          $ 7,146,264          $ 4,846,743          $  1,744,509                  24.4  %       $  2,299,521                  47.4  %



Net sales for Fiscal Year 2021 increased by $1.7 billion, or 24.4%, to $8.9
billion compared to $7.1 billion for Fiscal Year 2020. This increase was
primarily due to growth of our active customer base and increased spending per
customer. Our active customer base increased by 1.5 million, or 7.6%,
year-over-year. In addition, net sales per active customer increased $58, or
15.6%, to $430 in Fiscal Year 2021 compared to Fiscal Year 2020, driven by
ongoing catalog expansion and growth led by our consumables and healthcare
businesses.

Cost of goods sold and gross profit


Cost of goods sold for Fiscal Year 2021 increased by $1.2 billion, or 22.4%, to
$6.5 billion compared to $5.3 billion in Fiscal Year 2020. This increase was
primarily due to a 21.9% increase in orders shipped and associated product,
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 a change in mix of sales and continued gains in supply chain
efficiencies as we scale.

Gross profit for Fiscal Year 2021 increased by $552.8 million, or 30.4%, to $2.4
billion compared to $1.8 billion in Fiscal Year 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 Fiscal Year 2021 increased by
approximately 120 basis points compared to Fiscal Year 2020, primarily due to
margin expansion across our consumables, hardgoods, and healthcare businesses.

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Selling, general and administrative expenses


Selling, general and administrative expenses for Fiscal Year 2021 increased by
$428.9 million, or 30.7%, to $1.8 billion compared to $1.4 billion in Fiscal
Year 2020. This increase was primarily due to an increase of $280.1 million in
fulfillment costs largely attributable to increased investments to support the
overall growth of our business, including the costs associated with the opening
and operating of new fulfillment centers in Archbald, Pennsylvania, Belton,
Missouri, Lewisberry, Pennsylvania, and Salisbury, North Carolina, a customer
service center in Dallas, Texas, growth of fulfillment and customer service
headcount, 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 $192.3
million, primarily due to the opening of a new corporate office in Seattle,
Washington, increased headcount as a result of business growth, and expenses
related to ongoing IT initiatives to support our customers and team members,
including the migration to cloud-based IT systems. These increases were
partially offset by a $43.5 million reduction in non-cash share-based
compensation expense.

Advertising and Marketing


Advertising and marketing expenses for Fiscal Year 2021 increased by $105.6
million, or 20.6%, to $618.9 million compared to $513.3 million in Fiscal Year
2020. The increase was primarily due to higher advertising and marketing spend
in existing channels, due in part to an increase in advertising input costs
since the pandemic-lows seen in the first half of Fiscal Year 2020, as well as
expanding our advertising and marketing to new channels. Our marketing efforts
and investments led to the addition of 1.5 million active customers during
Fiscal Year 2021.

Cash 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, U.S. Treasury securities,
certificates of deposit, and commercial paper. Cash and cash equivalents totaled
$603.1 million as of January 30, 2022, an increase of $39.7 million from
January 31, 2021.

We believe that our cash and cash equivalents and availability under our
revolving credit facility will be sufficient to fund our working capital,
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 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. Significant contractual obligations generally relate to obligations related to operating leases and real estate leases.


Operating and real estate lease obligations relate to fulfillment and customer
service centers, corporate offices and certain equipment under non-cancelable
operating leases, which expire at various dates through 2034. Real estate
obligations include legally binding minimum lease payments for operating lease
arrangements which have not yet commenced. As of January 30, 2022, operating and
real estate lease obligations included legally binding minimum lease payments of
$943.3 million. For additional information related to real estate and operating
leases, see Note 6 - Leases, in the "Notes to Consolidated Financial Statements"
included in Part II, Item 8, Financial Statements and Supplementary Data, of
this 10-K Report.

Initial Public Offering

During Fiscal Year 2019, we closed our initial public offering ("IPO"), in which
we issued and sold 5.6 million shares of our Class A common stock at a public
offering price of $22.00 per share, raising $110.3 million in net proceeds after
deducting underwriting discounts, commissions, and offering costs of $6.2
million. For additional information, see Note 7 - Stockholders' Equity
(Deficit), 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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2020 share offering


During Fiscal Year 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 $0.6 million. For additional
information, see Note 7 - Stockholders' Equity (Deficit), in the "Notes to
Consolidated Financial Statements" included in Part II, Item 8, Financial
Statements and Supplementary Data, of this 10-K Report.

Cash flow

                                                             Fiscal Year
($ in thousands)                                 2021            2020       

2019

Net cash flow generated by operating activities $191,739 $132,755

  $  46,581
Net cash used in investing activities        $ (193,272)     $ (123,695)     $ (49,861)
Net cash provided by financing activities    $   41,267      $  342,197      $ 127,037



Operating Activities

Net cash provided by operating activities was $191.7 million for Fiscal Year
2021, which primarily consisted of $73.8 million of net loss, non-cash
adjustments such as depreciation and amortization expense of $55.0 million and
share-based compensation expense of $77.8 million, and a cash increase of $141.7
million from the management of working capital. Cash increases from working
capital were primarily driven by an increase in other current liabilities and
payables, partially offset by an increase in inventories, receivables, and other
current assets.

Net cash provided by operating activities was $132.8 million for Fiscal Year
2020, which primarily consisted of $92.5 million of net loss, non-cash
adjustments such as depreciation and amortization expense of $35.7 million and
share-based compensation expense of $121.3 million, and a cash increase of $56.8
million from the management of working capital. Cash increases from working
capital were primarily driven by an increase in fulfillment and payroll
liabilities and payables, partially offset by an increase in inventories.

Investing activities


Net cash used in investing activities was $193.3 million for Fiscal Year 2021,
primarily consisting of $183.2 million of capital expenditures and $10.1 million
for the acquisition of rights to developed technology intangible assets. Capital
expenditures were related to the launch of new fulfillment centers, the launch
and expansion of corporate offices, and the capitalization of labor and license
costs associated with software development for internal use.

Net cash used in investing activities was $123.7 million for Fiscal Year 2020,
primarily consisting of $130.7 million of capital expenditures partially offset
by $9.0 million of cash reimbursements, net of advances from PetSmart. Capital
expenditures were related to the launch of new fulfillment centers, the
expansion of corporate and customer service offices, and additional investments
in IT hardware and software.

Financing activities

Net cash provided by financing activities was $41.3 million for Fiscal Year 2021 consisting mainly of $43.7 million received under the tax sharing agreement with related parties, partially offset by the payment of debt modification fees and principal repayments of finance lease obligations.


Net cash provided by financing activities was $342.2 million for Fiscal Year
2020, primarily consisting of $318.4 million of proceeds from our equity
offering in September 2020, net of offering costs and $23.2 million received
pursuant to the tax sharing agreement with related parties.

ABL credit facility


On June 18, 2019, we entered into a 5-year senior secured asset-backed credit
facility (the "ABL Credit Facility") which provides for non-amortizing revolving
loans, 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 subject to customary conditions.

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On August 27, 2021, we 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 a fixed 0.25% commitment fee with respect to the
undrawn portion of the commitments. The ABL Credit Facility now matures in
August 2026. Based on our borrowing base as of January 30, 2022, which is
reduced by standby letters of credit, we had $462.9 million of borrowing
capacity under the ABL Credit Facility. As of January 30, 2022, we had no
outstanding borrowings under the ABL Credit Facility.

For additional information with respect to our ABL Credit Facility, see Note 5 -
Debt in the Notes to Consolidated Financial Statements included in Part II, Item
8, Financial Statements and Supplementary Data, of this 10-K Report.

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 - Summary of
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.

Share-Based Compensation

We measure the cost of employee services received in exchange for a grant of a
share-based award using the grant-date fair value of the award. For grants of
restricted stock units subject to service-based and company performance-based
vesting conditions, the fair value is established based on the market price on
the date of the grant. The fair value of restricted stock unit grants subject to
market-based vesting conditions is determined on the date of grant using a Monte
Carlo model to simulate total stockholder return for Chewy and peer companies.
The Company accounts for forfeitures as they occur.

The Monte Carlo simulation requires the use of several variables to estimate the
grant-date fair value of our share-based compensation awards including our stock
price and a number of assumptions, including volatility, performance period,
risk-free interest rate and expected dividends. 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 our peer companies.

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 IRS, as well as actual operating results that
may vary significantly from anticipated results. For additional information on
deferred tax assets and liabilities, see Item 8 of Part II, "Financial
Statements and Supplementary Data", Note 9 - Income Taxes.

We also recognize liabilities for uncertain tax positions based on the two-step
process prescribed by the accounting guidance for uncertainty in income taxes.
We determine whether it is more likely than not that a tax position will be
sustained upon examination. The tax benefit of any tax position that meets the
more likely than not recognition threshold is calculated as the largest amount
that is more than 50% likely of being realized upon resolution of the
contingency. This measurement step is inherently difficult and requires
subjective estimations of such amounts to determine the probability of various
possible outcomes. We consider many factors when evaluating and estimating our
tax positions and tax benefits, which may require periodic adjustments and may
not accurately anticipate actual outcomes.




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Recent accounting pronouncements


Information regarding recent accounting pronouncements is included in Item 8 of
Part II, "Financial Statements and Supplementary Data", Note 2 in the "Notes to
Consolidated Financial Statements" of this 10-K Report.

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