chwy-20240428

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 April 28, 2024

☐ 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.)
7700 West Sunrise Boulevard, Plantation, Florida						33322
(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 May 22, 2024
Class A Common Stock, $0.01 par value per share						137,046,700
Class B Common Stock, $0.01 par value per share						298,863,356

CHEWY, INC.

FORM 10-Q

For the Quarterly Period Ended April 28, 2024

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of April 28 , 202 4 and January 28 , 20 24	3
	Condensed Consolidated Statements of Operations and Comprehensiv e Income for the Thirteen Weeks Ended April 28 , 2 024 and April 30, 20 23	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen Weeks Ended April 28, 2024 and April 30, 20 23	5
	Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended April 28, 2024 and April 30, 2 023	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26
Item 4.	Controls and Procedures	26
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27

Item 5.	Other Information	53
Item 6.	Exhibits	54
	SIGNATURES	55

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 share repurchase program, 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.

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could cause actual results to differ materially from those in such forward-looking statements, including but not limited to, our ability to:

•sustain our recent growth rates and successfully manage challenges to our future growth, including introducing new products or services, improving existing products and services, and expanding into new jurisdictions and offerings;

•successfully respond to business disruptions;

•successfully manage risks related to the macroeconomic environment, including any adverse impacts on our business operations, financial performance, supply chain, workforce, facilities, customer services and operations;

•acquire and retain new customers in a cost-effective manner and increase our net sales, improve margins and maintain profitability;

•manage our growth effectively;

•maintain positive perceptions of the Company and preserve, grow and leverage the value of our reputation and our brand;

•limit operating losses as we continue to expand our business;

•forecast net sales and appropriately plan our expenses in the future;

•estimate the size of our addressable markets;

•strengthen our current supplier relationships, retain key suppliers and source additional suppliers;

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

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

•limit our losses related to online payment methods;

•maintain and scale our technology, including the reliability of our websites, 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;

•maintain consumer confidence in the safety, quality and health of our products;

•limit risks associated with our suppliers and our outsourcing partners;

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

•utilize net operating loss and tax credit carryforwards, and other tax attributes, and limit fluctuations in our tax obligations and effective tax rate;

•adequately protect our intellectual property rights;

•successfully defend ourselves against any allegations or claims that we may be subject to;

•attract, develop, motivate and retain highly-qualified and skilled employees;

•predict and respond to economic conditions, industry trends, and market conditions, and their impact on the pet products market;

•reduce merchandise returns or refunds;

•respond to severe weather and limit disruption to normal business operations;

•manage new acquisitions, investments or alliances, and integrate them into our existing business;

•successfully compete in new offerings;

•manage challenges presented by international markets;

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

•comply with the terms of our credit facility;

•raise capital as needed; and

•maintain effective internal control over financial reporting and disclosure controls and procedures.

You should not rely on forward-looking statements as predictions of future 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 28, 2024, our subsequent quarterly reports, 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 such information provides a reasonable basis for these statements, this 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/), filings with the Securities and Exchange Commission (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.

Item 1. Financial Statements (Unaudited)

CHEWY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	As of
	April 28, 2024		January 28, 2024
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	1,134,629	$	602,232
Marketable securities	3,490		531,785
Accounts receivable	172,209		154,043
Inventories	752,335		719,273
Prepaid expenses and other current assets	63,499		97,015
Total current assets	2,126,162		2,104,348
Property and equipment, net	524,850		521,298
Operating lease right-of-use assets	466,300		474,617
Goodwill	39,442		39,442
Other non-current assets	44,294		47,146
Total assets	$	3,201,048	$	3,186,851
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	1,143,725	$	1,104,940
Accrued expenses and other current liabilities	852,392		1,005,937
Total current liabilities	1,996,117		2,110,877
Operating lease liabilities	519,312		527,795
Other long-term liabilities	42,703		37,935
Total liabilities	2,558,132		2,676,607
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding as of April 28, 2024 and January 28, 2024	—		—
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 136,495,974 and 132,913,046 shares issued and outstanding as of April 28, 2024 and January 28, 2024, respectively	1,365		1,329
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 298,863,356 shares issued and outstanding as of April 28, 2024 and January 28, 2024	2,989		2,989
Additional paid-in capital	2,547,321		2,481,984
Accumulated deficit	(1,908,755)		(1,975,652)
Accumulated other comprehensive loss	(4)		(406)
Total stockholders’ equity	642,916		510,244
Total liabilities and stockholders’ equity	$	3,201,048	$	3,186,851

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(Unaudited)


	13 Weeks Ended
	April 28, 2024		April 30, 2023
Net sales	$	2,877,725	$	2,790,639
Cost of goods sold	2,023,733		1,997,783
Gross profit	853,992		792,856
Operating expenses:
Selling, general and administrative	602,561		584,389
Advertising and marketing	186,815		183,733
Total operating expenses	789,376		768,122
Income from operations	64,616		24,734
Interest income, net	14,523		8,016
Other expense, net	(759)		(8,888)
Income before income tax provision	78,380		23,862
Income tax provision	11,483		1,003
Net income	$	66,897	$	22,859

Comprehensive income:
Net income	$	66,897	$	22,859
Foreign currency translation adjustments	402		—
Comprehensive income	$	67,299	$	22,859

Earnings per share attributable to common Class A and Class B stockholders:
Basic	$	0.15	$	0.05
Diluted	$	0.15	$	0.05
Weighted-average common shares used in computing earnings per share:
Basic	434,873		426,852
Diluted	436,424		430,471

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	13 Weeks Ended April 28, 2024
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 28, 2024	431,776	$	4,318	$	2,481,984	$	(1,975,652)	$	(406)	$	510,244

Share-based compensation expense	—	—		65,385		—		—		65,385
Vesting of share-based compensation awards	3,583	36		(36)		—		—		—
Tax withholdings for share-based compensation awards	—	—		(12)		—		—		(12)

Net income	—	—		—		66,897		—		66,897
Other comprehensive income	—	—		—		—		402		402
Balance as of April 28, 2024	435,359	$	4,354	$	2,547,321	$	(1,908,755)	$	(4)	$	642,916


	13 Weeks Ended April 30, 2023
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 29, 2023	425,349	$	4,253	$	2,171,247	$	(2,015,232)	$	—	$	160,268

Share-based compensation expense	—	—		48,553		—		—		48,553
Vesting of share-based compensation awards	1,759	18		(18)		—		—		—


Tax sharing agreement with related parties	—	—		(2,326)		—		—		(2,326)
Net income	—	—		—		22,859		—		22,859
Balance as of April 30, 2023	427,108	$	4,271	$	2,217,456	$	(1,992,373)	$	—	$	229,354

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	13 Weeks Ended
	April 28, 2024		April 30, 2023
Cash flows from operating activities
Net income	$	66,897	$	22,859
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	28,000		28,898
Share-based compensation expense	65,385		48,553
Non-cash lease expense	8,004		11,933
Change in fair value of equity warrants and investments	926		8,948
Unrealized foreign currency losses, net	633		—
Other	(1,929)		489
Net change in operating assets and liabilities:
Accounts receivable	(18,188)		(25,807)
Inventories	(33,147)		(54,260)
Prepaid expenses and other current assets	(8,467)		(10,699)
Other non-current assets	250		298
Trade accounts payable	38,798		82,085
Accrued expenses and other current liabilities	(58,325)		38,724
Operating lease liabilities	(8,197)		(5,229)
Other long-term liabilities	1,297		1,920
Net cash provided by operating activities	81,937		148,712
Cash flows from investing activities
Capital expenditures	(29,299)		(21,573)

Purchases of marketable securities	—		(394,098)
Proceeds from maturities of marketable securities	535,000		350,000
Cash paid for acquisition of business, net of cash acquired	—		(367)

Net cash provided by (used in) investing activities	505,701		(66,038)
Cash flows from financing activities


Income taxes paid for, net of proceeds from, parent reorganization transaction	(54,793)		—
Principal repayments of finance lease obligations	(262)		(175)
Payments for tax withholdings related to vesting of share-based compensation awards	(12)		—
Payments for tax sharing agreement with related parties	—		(3,761)
Payment of debt modification costs	—		(175)

Net cash used in financing activities	(55,067)		(4,111)
Effect of exchange rate changes on cash and cash equivalents	(174)		—
Net increase in cash and cash equivalents	532,397		78,563
Cash and cash equivalents, as of beginning of period	602,232		331,641
Cash and cash equivalents, as of end of period	$	1,134,629	$	410,204

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 websites and its mobile applications and focuses on delivering exceptional customer service, competitive prices, outstanding convenience (including Chewy’s Autoship subscription program, fast shipping, and hassle-free returns), and a large selection of high-quality pet food, treats and supplies, and pet healthcare products.

The Company is controlled by a consortium including private investment funds advised by BC Partners Advisors LP (“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”).

On October 30, 2023 (the “Closing Date”), the Company entered into certain transactions (the “Transactions”) with affiliates of BC Partners pursuant to an Agreement and Plan of Merger (the “Merger Agreement”). The Transactions resulted in such affiliates restructuring their ownership interests in the Company and Chewy Pharmacy KY, LLC (“Chewy Pharmacy KY”) becoming an indirect wholly-owned subsidiary of the Company.

On the Closing Date, affiliates of BC Partners transferred $1.9 billion to the Company to be used to fund: (i) tax obligations of its affiliates that were inherited by the Company as a result of the Transactions and (ii) expenses incurred by the Company in connection with the Transactions. The Merger Agreement requires affiliates of BC Partners to indemnify the Company for certain tax liabilities and includes customary indemnifications related to the Transactions.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The Company’s 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 (“ASC”). 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 April 28, 2024 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 April 28, 2024 (“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 28, 2024 (“10-K Report”).

In connection with the Transactions described in Note 1 – Description of Business, the Company has provided recasted condensed consolidated financial statements and related notes for the historical comparative periods in this 10-Q Report reflecting the operations of Chewy Pharmacy KY as part of the Company’s condensed consolidated financial statements. The recasted financial information was accounted for as a common control transaction, with Chewy Pharmacy KY’s net assets transferred at the previous parent company’s historical basis.

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 2024 fiscal year ends on February 2, 2025 and is a 53-week year. The Company’s 2023 fiscal year ended January 28, 2024 and was a 52-week year.

Significant Accounting Policies

Other than policies noted herein, there have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in the 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 for inventory, 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 and equity warrants. 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
	April 28, 2024		January 28, 2024
Outbound fulfillment	$	416,390	$	491,251
Advertising and marketing	141,029		106,339
Payroll liabilities	44,539		83,880
Accrued expenses and other	250,434		324,467
Total accrued expenses and other current liabilities	$	852,392	$	1,005,937

Stockholders’ Equity

Conversion of Class B Common Stock

On May 8, 2020, Buddy Chester Sub LLC, a wholly-owned subsidiary of the Sponsors, 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 (the “Contract”) to deliver up to 17,584,098 shares of the Company’s Class A common stock at the exchange date, with the number of shares to be issued based on the trading price of the Company’s common stock during a 20-day observation period. On each of May 15, 2023 and May 16, 2023, Buddy Chester Sub LLC settled its obligations under the Contract and delivered a total of 17,584,098 shares.

Interest Income (Expense), net

The Company generates interest income from its cash and cash equivalents and marketable securities and incurs interest expense in relation to its borrowing facilities, finance leases, and uncertain tax positions. The following table provides additional information about the Company’s interest income (expense), net (in thousands):


	13 Weeks Ended
	April 28, 2024		April 30, 2023
Interest income	$	15,858	$	8,878
Interest expense	(1,335)		(862)
Interest income, net	$	14,523	$	8,016

Other Income (Expense), net

The Company’s other income (expense), net consists of: (i) changes in the fair value of equity warrants, investments, and tax indemnification receivables, (ii) foreign currency transaction gains and losses, and (iii) allowances for credit losses. The following table provides additional information about the Company’s other income (expense), net (in thousands):


	13 Weeks Ended
	April 28, 2024		April 30, 2023
Change in fair value of equity warrants	$	(683)	$	(8,934)
Foreign currency transaction (losses) gains	(527)		60
Change in fair value of equity investments	(40)		(14)
Change in fair value of tax indemnification receivables	491		—
Other expense, net	$	(759)	$	(8,888)

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

Recently Issued Accounting Pronouncements

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. In December 2023, the FASB issued this ASU to update income tax disclosure requirements, primarily related to the income tax rate reconciliation and income taxes paid information. This update is effective beginning with the Company’s 2025 fiscal year annual reporting period, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued this ASU to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. This update is effective beginning with the Company’s 2024 fiscal year annual reporting period, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

3. Financial Instruments

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.

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

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

Cash equivalents are carried at cost, which approximates fair value and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

SEC Form 10-Q filed by Chewy Inc.