Chewy Inc (CHWY) 2019 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Chewy Second Quarter 2019 Earnings Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Kelsey Turcotte. Please go ahead.

Thank you for joining us on the call today to discuss the results for our second quarter of fiscal 2019. Joining me on today's call are Sumit Singh and Mario Marte, Chewy's CEO and CFO, respectively. Our earnings release and the letter to shareholders, which we filed with the SEC on Form 8-K earlier today, have been posted to the Investor Relations section of our website, investor.chewy.com. A link to the webcast of today's conference call can also be found on our site.

We will be making forward-looking statements on this call, including statements concerning Chewy's future prospects, financial results, business strategies and industry trends. Such statements are forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties which could cause actual results to materially differ from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. For further information, please refer to the risk factors and other information in Chewy's 10-Q filed with the SEC on July 19, 2019, and the Form 8-K that we filed earlier today and our other filings with the SEC.

Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release or letter to our shareholders on our Investor Relations website which were filed with the SEC on Form 8-K earlier today. These non-GAAP measures are not intended to be a substitute for GAAP results.

Finally, this call in its entirety is being webcast on our Investor Relations website. A replay of this call will also be available on our IR website shortly.

I'd now like to turn the call over to Sumit.

Thanks, Kelsey, and thanks to all of you for joining us on the call. We are pleased with our results for the second quarter. As Kelsey mentioned, our shareholder letter is posted to our Investor Relations website, and I encourage you to review it. I'll start this afternoon by sharing financial highlights for the quarter, then I'll discuss a few business updates. And finally, I will turn the call over to Mario to discuss our financial results and guidance.

Net sales for the quarter grew 43% year-over-year to $1.15 billion, reflecting the strength of our underlying business model, including expansion in our customer base and higher spending among existing customers. Active customers grew 3.4 million year-over-year to 12 million customers. Net sales per active customer increased approximately 10% to $352, up from $320 in Q2 2018. Autoship customers' sales as a percent of net sales reached 69.3%. Gross margin for Q2 was 23.6%, up 300 basis points year-over-year as a result of continuing execution on the growth and margin vectors that we have shared with you previously. Finally, our adjusted EBITDA margin of negative 2.5% improved 410 basis points versus Q2 2018 as a result of gross margin expansion and scaling of operating expenses.

The inputs of our business remained strong, and we continue to drive top line growth at scale and optimize the business for margin expansion through disciplined data-driven decisions. Time and again, we hear from pet parents that their experience shopping with Chewy is one of the things that sets us apart in the industry. From our knowledgeable award-winning customer service teams to our broad assortment of brands, to our fast 1- to 2-day delivery, to the convenience of e-commerce, high-touch personalized experiences drive customer engagement which fuels brand loyalty and repeat purchasing. Keeping the customer at the center of everything we do is core to our mission of becoming the most trusted and convenient online destination for pet parents, and the team continues to execute well against our strategy of long-term sustainable growth.

Now I'd like to share a few business highlights from our Q2. Given the rapid and consistent payback levels from our customers, we strategically invest free cash flow in new customer acquisition marketing. We are disciplined on how we deploy this capital, closely monitoring key metrics like acquisition costs and lifetime value. To that end, in the second quarter, we launched a new Data Management Platform, or DMP, to more effectively manage our investments across current and future marketing channels. Moreover, we consider our relatively low levels of aided and unaided brand awareness as an opportunity to invest in studying the market and customer inputs more thoroughly so that this research can form the foundation of a broader brand strategy in the future. We expect that increased brand visibility and awareness will benefit all marketing channels, including search, and our team is excited about this next phase in our marketing strategy.

In Q2, another area where we made significant progress was on the data and customer segmentation front. We consolidated all customer pet and veterinarian data into a single master data set to create a proprietary customer data platform, allowing for clean, reliable and consistently formatted data. Our marketing and merchandising teams will utilize this data for enhanced customer targeting and segmentation across all our platforms: on-site and mobile app. Our team is constantly identifying new ways to improve the shopping experience for pet parents. To that end, we made further headway into launching new features on our mobile app platforms in the second quarter. A sample set of these include voice search to enable customers to conveniently find their products of choice using voice commands through search and browse and navigation redesigns which are now providing a consistent and enjoyable browsing experience across all our platforms.

Our newest business, Chewy Pharmacy, continues to deliver strong results and received favorable reviews from our customers who love our overall value prop space and then evangelize it to their network of family and friends. We are also proud to be taking a leading position in a joint effort with manufacturers in the introduction and enforcement of minimum advertised pricing, or MAP, in the pet pharma industry. We believe that fair and transparent pricing across channels in the space is a big trifecta win for our customers, our suppliers and the veterinarian community alike.

Furthering our goal of improving pet health and wellness, we continue to invest in product and business innovation that will make it easier for pet parents to shop at our Chewy Pharmacy and veterinarians to partner with us, including tools targeted specifically at improving the vet experience. Our newly launched RxManager is continuing to help customers better manage their pets' prescription diets and medications in a streamlined manner, making compliance and record-keeping easier for pet parents. And we continue to evolve this product to provide similar convenience to the vet community in the future.

Last but not least, we recently broke ground on our ninth fulfillment center location in Salisbury, North Carolina, which will enhance delivery capabilities across the Mid-Atlantic region. The 700,000-square-foot facility will be one of our largest in the network and is expected to employ approximately 1,200 Chewtopians once completed. New fulfillment centers like the one in North Carolina will enable us to reach millions of customers even faster. And we continue to improve our logistics infrastructure as well. Most recently, we've implemented an industrial-grade enterprise transport management system to drive continuous improvement in transportation and overall supply chain management. With the robust functionality the system will deliver, we will be able to better plan inbound and cross-fulfillment center transportation operations. These investments are all designed to further improve the customer experience, which is core to Chewy's mission.

Overall, we are pleased with our Q2 results and the underlying strength of our business. We will continue to look for and make thoughtful investments in the areas of marketing and new business opportunities which, when combined with our ever-expanding product selection, attractive prices and personalized customer service, will continue to raise the experienced bar for pet parents in this category. The team continues to make progress in executing our strategy and taking care of our customers.

Now I will turn the call over to Mario who will provide a more detailed review of our Q2 results and walk you through our financial outlook. Mario?

Thank you, Sumit. Good afternoon, everyone.

Our second quarter results highlight our business philosophy and focused execution. Net sales exceeded $1.15 billion, an increase of 43% compared to $805.6 million in Q2 2018. And Autoship customer sales reached $799.6 million, an increase of 49% compared to $538.4 million in Q2 2018, outpacing growth in overall net sales. We ended the second quarter with 12 million active customers, an increase of 3.4 million customers versus Q2 2018 and an increase of 1.4 million versus the end of fiscal year 2018. Gross margin for the quarter was 23.6%, a 300 basis point improvement driven by our disciplined execution to improve product margin and supply chain efficiencies.

Q2 operating expenses were $355.3 million or 30.8% of net sales, increasing 240 basis points versus Q2 2018. SG&A was $244.6 million or 21.2% of net sales. As we have shared previously, SG&A for us includes all fulfillment and customer service costs as well as credit card processing fees and share-based compensation, a noncash expense. Excluding share-based compensation expense in Q2 2019 and Q2 2018, SG&A as a percent of net sales increased 60 basis points year-over-year to 17.4%. The increase in SG&A as a percent of net sales was largely driven by costs related to operating as a public company. Advertising and marketing was $110.8 million or 9.6% of net sales, scaling year-over-year as a percent of net sales as a marketing investments continue to be primarily focused on customer acquisition. As a result, the recurring and long-term revenue stream from existing customers allows us to increase our acquisition marketing investments in absolute terms over time while also scaling this line as a percent of our net sales.

Q2 net loss was $82.9 million, an increase of $19.8 million compared to Q2 2018. Our net margin was negative 7.2%, improving 60 basis points year-over-year. Excluding the impact of share-based compensation in both Q2 2019 and Q2 2018, net loss improved $20 million or 33.8%, and net margin improved 390 basis points year-over-year. Q2 adjusted EBITDA loss was $29.2 million, an improvement of $24.2 million compared to Q2 2018. Our adjusted EBITDA margin was negative 2.5%, improving 410 basis points year-over-year. Improvements in both adjusted EBITDA and adjusted EBITDA margin reflect our ability to execute on the growth and margin vectors that we have previously shared with you and gradually scale our operating expenses at the same time.

We generated positive free cash flow of $9.9 million in Q2 2019 comprised of cash from operations of positive $21.8 million partially offset by capital investments of $11.9 million. In the second quarter, capital investments were primarily comprised of cash outlays for IT equipment, capitalization of internal labor and the launch of the Dayton, Ohio fulfillment center. We ended the second quarter with $150.8 million in cash and cash equivalents, including proceeds from the closing of our IPO, which added $117 million of cash to our balance sheet, net of underwriting cost.

Now I'll turn to guidance. As a reminder, fiscal 2018 was a 53-week year while fiscal 2019 will be a 52-week year. This will impact year-over-year growth for both full year 2019 and Q4 2019. We would also like to note that historically, we build our inventory levels when we launch a new fulfillment center and in the third quarter as we prepare for Q4 sales. This, coupled with our favorable cash conversion cycle, may lead our cash from operations to fluctuate from cash use to cash production between quarters.

For Q3 2019, we expect net sales between $1.19 billion to $1.21 billion, representing growth of 36% to 38% year-over-year. For fiscal year 2019, we expect the following: net sales between $4.75 billion and $4.8 billion, representing growth of 35% to 36% year-over-year. Adjusted for the extra week in fiscal 2018, year-over-year growth is expected to be between 38% and 39%. Adjusted EBITDA margin for the fiscal year is expected to improve 420 to 450 basis points versus fiscal 2018. Included in our EBITDA guidance are costs related to operating as a public company. We are excited about the financial and operating results for the second quarter.

And with that, I'll turn over the call to the operator for questions. Operator?

(Operator Instructions) And your first question comes from Brian Novak with Morgan Stanley.

I have 2. Just the first one, I think it's interesting to have a new Data Management Platform and marketing. Would be curious to hear about, as you're looking at data, what do you think are the 1 or 2 key factors you need to bring new pet owners onto the platform who are pet owners but not yet current buyers. How do you target those people? Then the second question is on health care. Maybe walk us through sort of the road map to really drive more of your current buyers to start purchasing health care and pharmacy products from you guys.

Hey, Brian, this is Sumit. Good to hear from you. I'll take the first one, and then I'll probably have you repeat the second question. On the marketing side, remember, we target -- I think it's helpful to recognize that primarily, our spend is acquisitory marketing direct response. And so not only are we able to target across off-line channels and online channels, such as the classical TV and direct mail techniques, but also across an array of digital techniques, starting with kind of the Google network moving over to social media networks and so forth and so on. And because of the nature of our spend and the response pattern, we're able to not only target, we're also able to attribute spend pretty accurately. And the investment that we're making in our marketing technology stack continues to refine that attribution so that we can essentially effectively recognize the fact -- we recognize already that our customers live full lives across marketing channels. So for us, it's about reaching them and then optimizing -- or optimizing both their experience as well as our spend on our site. That's how we think about it.

And then the second question was around health care and the road map to drive customers to start buying health care products. Yes, it's a great question. I think we think about it in multiple different angles. First of all, most of our current health care growth, which we're pleased with, is coming via organic momentum, both organic momentum of the business as well as the exposure that we're bringing to our existing active customers on the proposition of health and wellness, a broad catalog of superior customer experience and utilizing mostly our off-line and some part of our online tactics to be able to reach newer customers.

So I said 2 things there. On active customers, we're relying on, a, the great conversations we're having with our customers -- that our customer service teams are having with our customer base. We're also relying on the knowledge that we have, more than 3 million pet profiles on file, and the way that we -- and the fact that we have a connection and a direct reach into these customers. On newer customers, go back to the tactics that we deploy. And there, we're actively utilizing existing channels to layer on the proposition of health care, not just pharmacy, because we recognize how customers buy and shop across other prescription diet or medication but would also use the health and wellness supplements, et cetera, et cetera. And then last but not least, don't forget the site merchandising efforts that we put in. Rx product manager is an example that we put in. Our customer engagement there is something that we measure pretty maniacally, and we're happy with the way that customers are engaging with that particular product and across our site merchandising assets.

Your next question comes from Doug Anmuth with JPMorgan.

I just want to ask 2. Just first on gross margins, it looks like they expanded about 300 basis points year-over-year and then also 70 basis points sequentially. Can you just talk about the initiatives that are having the biggest impact there? And then how do you think about that as you're kind of approaching the low end of your longer-term target? And then on Autoship, a nice increase there to 69% in the quarter. Can you just talk about how much of that was driven around promotion, around Prime Day and then if there's anything early around retention for that cohort?

Hey, Doug, this is Mario. I'll take the first part of the question, and then Sumit will answer on the Autoship. In regards to second quarter gross margins, so there are a few factors here at play. One is, as we've shared before, as we grow, the scale and predictability of the revenue enables us to lower the cost out of the entire supply chain which benefits us and benefits our partners as well. The second item is that we expanded our catalog, and we're always looking for additional product to include in our product offering. In the second quarter alone, we expanded the SKU count by about 10%. And 3/4 of that was in hard goods which have a better margin profile, as we've shared before. And the third one is the mix of sales. As the percent of sales that come from existing customer increases, that provides a nice tailwind to our margin. I would say going forward, we do expect promotional activity seasonality to cause some gross margin fluctuations from quarter-to-quarter.

Doug, this is Sumit. I'll take the second part of your question around Autoship. So we are pleased by the fact that 69% of our net sales came from Autoship. I think there are a couple of different factors. And to hit the question head-on, nothing of this number was really driven by promotions around Prime Day. This is a longer-reaching number, and so there are a couple of different factors that are playing in here in the increase. One is, of course, the -- I'll pick up from the point that Mario mentioned as his third point which is, as the mix of sales increases, you're sort of seeing the power of active customers engage with Autoship program over a larger base. So that's one. Number two, I think I'll repeat the 2 inputs that we're constantly improving and improvising upon: one is the assortment that we put in front of our customers that is eligible for Autoship and then two is the fact that our recommendation and personalization engines continue to sense and our care [staff] recommend better and more meaningful choices for customers to be able to interact into when they're browsing and engaging with our site.

The third thing that we're seeing there, which is I think interesting for me to point out and for us to observe as an entity, are the hypotheses that our health care customers are building complementary baskets and engaging in the way that they're engaging with the Autoship product. It was our hypotheses that with our way of engaging with our customers, the tactics we use, the way we educate them, the products we develop and the way we communicate with them, the response pattern for Autoship should even be stronger for health care. And we're seeing that come through. So without getting into specific numbers today, I think I can leave you with some of those nuggets.

Your next question comes from Nat Schindler with Bank of America.

Probably expanding a little bit on what Doug asked, if you look at your gross margin growth and compare that also to your Autoship growth, one thing seems pretty clear is that you're actually not getting the benefit yet, or it seems that you're not getting the benefit yet, from mix shift towards your higher gross margin products, i.e., away from food. Autoship would mostly be food, I assume. If that's the case, how much more incremental margin do you think that you could get besides vendor efficiencies which seem to be driving these? How much more could you get just for simply increasing the share of your revenue coming from hard goods, house brands and also pharmacy?

Nat, elaborate on that question before I answer it. I think it's a bit of a broad question. I started tracking with you, but I lost track of the question kind of midway. Can you rephrase that?

Well, okay. Actually, could you just -- could you give us a little bit more data on your mix shift in the quarter? Are you continuing to see mix shift towards higher gross margin products like hard goods and pharma? And if they are not the major driver, as you have said, of gross profit, the 300 basis points improvement on a year-over-year, probably because they're too small at this point, I'm guessing, how -- if they became -- in your estimation, as you grow those businesses further, how much more could they contribute to gross margin?

Got it. Okay. Here's how we answer that question, right? The way we think about it is that we're going to go back to the way that we're executing our strategy. The first part is doing more of the same which is the larger the base of active customers, bringing on our customers to platform and growing our assortment in a meaningful manner are sort of the first bucket that we always talk about. And so the expansion that you're seeing today is attributed primarily to those 3, right? The second bucket that we always talk about is expanding -- or the way that we're differentiating ourselves with, a, the health care segment and then, b, bringing private-branded assortment not that it's competitive to our national brands but bringing private-branded assortment that is differentiating to our customers and filling out voids. These are 2 vectors that we fire that haven't fully landed.

And my previous response to Doug was in allusion of the -- was alluding to the fact that our health care hypotheses is, of course, the fact that when customers interact with health care, we should be seeing them engage with Autoship and build mix baskets. So a small portion of that is starting to show through. Essentially, our hypothesis is starting to show through but not much to talk about there. And then the third vector was -- or the third bucket is our strategy on vectors that we have not yet fired or launched which are future expansions. Does that help answer the question?

Yes. But just to maybe nail a little bit what Doug said before, you're already at 23.6%. You want to have 140 basis points to go to the low end of your 5-year target. With more mix shift, shouldn't you easily exceed that and way before 5 years?

I think the way that we think about it is we provided a 500 to 800 basis point expansion opportunity from the 20 points that we exited 2018 at, so just to sort of baseline it. And the way we think about it is that bucket number 1 and 2 that I talked about, right, should get us -- as you're seeing -- I mean that's the major progress that we're making, so that's where we're delivering the margin. And then a combination of bucket 1, 2 and 3 essentially over the long term gets us to the upper range of that. And honestly, we continue to improvise and innovate. So at some -- some part of this is we're kind of learning our way into this. And as we learn our way -- as we learn stronger, we update our guidance accordingly.

Your next question comes from Deepak Mathivanan with Barclays.

Two questions. So first, can you talk about the benefits of the new Data Management Platform and the master data set specifically with respect to the marketing initiatives? Should we expect to see ROI improve from better attribution and targeting from these? Is that something that would show up in net adds over the next few quarters? And then the second question related to SG&A in the quarter, it was a little bit higher than our forecast. Obviously, some of that was due to SBC and then the new fulfillment center launch. Are there other areas like transport management systems maybe from a technology standpoint or actually initiative standpoint where expenses aren't meaningfully incremental?

Thanks, Deepak. So Sumit will take the first question, I'll take the second one on the SG&A. Actually, let me just go ahead and answer the SG&A portion. I think to your point, the percent -- SG&A as a percent of revenue, it did increase. But it is really limited to a couple of items. One is we launched the new FC in Dayton, Ohio. We also booked higher share-based compensation expense, and that was a $37 million increase versus Q1. And then we also began to report some costs related to operating as a public company. If you normalize for those 3 items, Deepak, you are basically at the same percent of net sales as Q2 last year. So really, those 3 items drove the increase.

And the first one, Deepak, on the DMP. So there's 2 things that happened, right? So we -- one, we internally have now created a master data set that connects our pet data, our vet data, our customer data all at the same time, which is a pretty powerful combination to have, because if you think about us as -- I want us to think -- internally, right, Chewtopians, know that Chewy, we don't think ourselves as an e-tailer of products and supplies. We think of ourselves as building an experience-led proposition on the back of product technology and good data. And that's essentially the stepping-stone of this. So when you have data like that, it allows you to do a couple of different things tactically and strategically.

The measurement, since we just put it in, there's not much data or measurement to talk about, but I'll speak to you on 2 fronts on how we seek to utilize this information. One is obviously allowing us to better -- segmentation ability gets better and our targeting gets sharper. As we do that, the efficient frontier for us, to find the efficient frontier and drive efficiencies through our marketing, gets better. So that's kind of your point on are you going to attribute better. Yes, that's our learning hypotheses, and that's what we're leading in with. Number two, what it allows us to do is build experiences. I mean think about the fact that we have the millions of active pet profile data that allows us to connect and personalize that experience into a customer. But not just that, when we recognize health and wellness needs, we can actually surface that and connect the pet parent to the vet community. And that's the second angle that we're thinking of it as. So there's 2 there. And our -- and on the back of product and tech that we're bringing to the -- to our platform and to the marketplace, that's how we think about those 2 connecting.

Okay. Mario, if I can just ask to elaborate, sort of related to that point on -- with respect to the full year guidance. Obviously, you raised the full year revenue guidance, and gross margins continue to see pretty good tailwinds. But the EBITDA margin was only revised like 20 basis points higher on the low end. I mean are there incremental costs that you think, as you go forward for the rest of the year, that we should be aware of?

Deepak, the way I would answer it is that we do have incremental costs but that we're beginning to see those reflected in the Q2 results and us operating as a public company, things like insurance and professional fees and filing fees and the like, but we've counted -- accounted for that in the guidance we provided.

Your next question comes from Brent Thill with Jefferies.

You've done a great job of adding customers to the base. I guess many are asking about the competitive differentiators that you're seeing that are helping to stand out and anything new that you're seeing from some of the larger players in the space that have been notable, either headwinds or tailwinds that you're seeing currently.

No problem. This is Sumit. I'll take that one. It's good to hear from you. I think it's -- we're completely focused on running our business, executing to the strategy that we've laid out and ensuring that our team is fully focused and feels empowered to go out and deliver the results that we seek to deliver. From that standpoint, as you can see, we're focused on innovation. We're focused on bringing the customer base on. We're focused on differentiating ourselves. We're focused on the same vectors that we always talk about: the health care, the private brands, the expansion of assortment, the experience building. I think now, what you're starting to hear us also talk about is our emphasis on building products -- experiences on the back of product and tech. And that's how we see ourselves. If there's a more specific question, happy to take it.

Yes. I guess just anything new competitively that you've seen from anyone in the last couple of quarters that's changed your view in terms of what the landscape looks like.

Nothing that I would characterize out of normal, run-the-business operation.

Your next question comes from Mark Mahaney with RBC Capital Markets.

Could you just drill down on customer acquisition costs, what you saw in the quarter, and then just talk about how you think though should trend going forwards?

Mark, this is Mario. I'll take that question. No difference in the trends that we've seen in years' past. Q2, some of the input costs tend to rise a bit. The TV is a bit more expensive in Q1 on a regular basis, and we've seen that in prior years. But other than that, we didn't see a significant difference in the acquisition cost. I would say if you look at what did happen in our active customers, we did see an increase, a significant increase year-over-year, 12 million active customers at the end of Q2, a 40% increase versus Q2 last year. So we feel really good about where we are in active customers.

Mark, this is Sumit. Here's what I will layer on, on top of that then. So when you think about -- recall the commentary on the way that we go to market today in a way that are -- in both our targeting and our response is acquisitory in spend. And we are starting to lean in, recognize the fact that there's opportunity for us to take advantage of our low awareness numbers and therefore connect the dots across lower, middle and upper funnel and refining our approach and sophistication in how we go to market. So I think that's what we mentioned in the earnings script as well. So as we go learn, I think we'll come back and talk to you more about that, but we expect that to drive a lot of good learning into our engine.

Your next question comes from Eric Sheridan with UBS.

Maybe one about Chewy Pharmacy. Obviously, it's still relatively early days but curious about what sort of uptake of the product you're seeing, how you're thinking about that product maybe arcing or changing the trajectory of customer lifetime value on the platform as people sort of adopt it and what are some of the key investments you think you need to make as you look out over the next 6, 12, 18 months to make sure you're successful in that vertical just so it's front of mind for investors.

Sure. It's good to hear from you, Eric. First of all, what we know is that greater than 75% of pet parents out there have at least one pet that has a necessity for a health and wellness check or a health and wellness need in some way or the other. Recognizing that, we also know that we have 12 million active customers, and we're early in that stage. Our level of focus and investment has gone in 2 areas so far: one, understanding our customer needs and providing an assortment in front of them; and then tying that back with an experience and targeted marketing which is where I think the comment that I made was that the Autoship subscribe rate into health care, the stickiness of that customer, the way that they're building baskets, our hypotheses across the board on these 3 or 4 different metrics that we're tracking, we're pleased with it.

The type of investments that are making is we're investing sometimes ahead of the curve to protect customer experience, and that's how we do business, and I believe that's the right way to do business. And in that, we are expanding our capacity. Last week -- last time, I talked to you about expanding our presence in the Phoenix location. So we have -- so we're shipping out of Phoenix now. There, our licenses have expanded. We have now licenses to ship to 40 states from our Phoenix location, so we're coming along as planned. And then in Q2, we also opened another location where we brought on a wholesale license. So at this point, we have not only retail licenses, we also have wholesale licenses in the way that we want to service our customers as well as our vet community.

I will say one last thing. Our focus on building products for not only for pet parents but also for the vet community is something that we are completely focused on. Last time, I spoke about the RX product manager launch which our customers are engaging with. As we continue to interact with each other, I hope to come back and talk to you more about the products that we're building for the vet community which we believe should be tremendously powerful as well.

Your next question comes from Brian Fitzgerald with Wells Fargo.

A couple of questions on the Salisbury coming online. Can you remind us how the tempo progresses there in terms of on how it's been trending from ground break to launch? And on the transportation management system, is that fully rolled out across all the FCs? Finally, one more on the logistic side. Given the Ohio and North Carolina builds, how do you think about regional penetration or awareness differences? And how do you think you can penetrate those areas and those opportunities where you're less densely populated with consumers?

This is Sumit. I'll take a crack at that, so 3 questions there. North Carolina remains on track to open next year, no change there, nothing new to share. Second question is TMS. We rolled out TMS. We consider this a Phase 1 successful rollout. And we're rolling it out in 3 phases. And the next 2, we believe, are fast follows. And the full rollout will happen before the end of the year. The third question is how do we think about logistics across Ohio and North Carolina build and how can -- I'm trying to recall, how can we penetrate those areas of opportunities.

So yes. The question was around building more East Coast-centric versus West Coast-centric and how you think about regional penetrations and awareness differences maybe across different regions and how you penetrate those opportunities.

Sure. I mean if you look at it traditionally, logistics networks in North America are built to support where the demand and population density lies. So kind of roughly breaking down, that breakdown is generally 40% on the East Northeast, 30% Mid, 30% West. And if -- we're very diligent and very strategic about where we place FCs. We have a long planning process that goes behind it. We want to connect the logistics arc in the right way. We take -- we look at where our transportation partners are playing. We want to make sure that our click to deliver, our delivery to our customers is fast, reliable. All of those factors go into play. And on the back of that is how we're thinking about launching Ohio and North Carolina. If there's something more specific that you're going for, just ask.

Your next question comes from Mark Kelley with Nomura.

First one is can you just talk about the labor market a bit? I know it remains tight, but it sounds like some areas are tighter than others like Roxbury, for example. What are your thoughts on just how competitive you are in the market? And second, along with your DMP commentary, it sounds like your continuing to build out the marketing tech stack, just curious what else do you think you'll need at this point and what investments do you still need to make there.

Hey, Mark, this is Mario. I'll answer the first part of the question. In regards to labor market and how competitive we are, look, we believe we provide our nearly 11,000 team members with competitive wages, good and improving benefits and a great working environment. And we strive to do that every single day. So from our point of view, we've been successful in attracting talent in all our locations.

I'll take the second one. On our marketing stack journey, I would characterize us being 70% of the way there. We have a DMP, a DSP identification software and all that stuff already hooked up together. And now it's about really connecting [the stack] and understanding how we really -- rather than treating these as singular unit systems, how do we collectively go to market with smart segmentation and smart attribution in the back. That's what we have to do.

There are no further questions. I'll turn the call back to Sumit Singh for closing remarks.

Thank you all for your attention and participation today. We look forward to seeing many of you in the coming quarters. Have a nice evening.

This concludes today's conference call. Thank you for joining us. You may now disconnect.