- January 15, 2021
- Posted by: Bastion team
- Category: Markets
Petco CEO Ron Coughlin
- Petco went public for the third time in its history Thursday.
- Rivals like Amazon and PetSmart, which owns Chewy, present big e-commerce challenges to Petco.
- Forrester Research analyst Sucharita Kodali said that Petco has benefited from more pet adoptions during the pandemic, though she added that the retailer has a long way to go to catch up with Amazon, Chewy, and other e-commerce options.
- Visit Business Insider’s homepage for more stories.
Petco is going public for the third time in its history. And this time, the company swears things are different.
The pet retailer started trading on the Nasdaq under the ticker “WOOF” Thursday. Its shares rose as high as 70% above their opening price Thursday afternoon. Petco priced its shares at $18 late Wednesday, above the range it anticipated earlier of between $14 to $17.
But Petco has been public twice before and was publicly preparing an IPO as recently as 2015. CEO Ron Coughlin told Insider that the offering will provide a way out for CVC Capital Partners and the Canada Pension Plan Investment Board, the two private investors who owned the company for the last several years.
But the proceeds from the IPO will also be used to pay off about half of the company’s debt, freeing it up to invest more in e-commerce, in-store veterinary services, and other growth areas.
“We come out stronger,” he said after Petco’s stock started trading. “We come out with lower cash dedicated to paying down debt, which enables us to fuel growth as well as tap into capital markets for great initiatives.”
Rival petcare chain PetSmart offers many of the same basic services as Petco, including veterinary appointments and automatic ordering for pet food. But Coughlin said that PetSmart has not integrated its retail stores with its veterinary clinics and Chewy, especially when it comes to sharing consumer data.
“When you go to the rest of PetSmart, they don’t have any data on what your pet’s experience was,” he said. “It might as well be a mall with a retailer inside that mall,” he said of PetSmart’s veterinary clinics, which are run by third-party provider Banfield Pet Hospital.
Petco’s Vital Care program, by contrast, offers discounts on vet care, food, grooming and other offerings through a single account, he said.
Revenue at Petco rose 9% to $3.6 billion during the company’s third quarter. Much of the retailer’s recent growth has been driven by new pet adoptions during the pandemic, including customers ordering online.
Founded as a mail-order business in 1965, Petco’s first stretch on the public markets lasted from 1994 until 2000, when a buyout by Texas Pacific Group and Leonard Green Partners took it private. The retailer went public again two years later, though an entity controlled by Leonard Green remained the majority shareholder.
Petco went private again in 2006 through a sale to investors led by TPG Capital. In 2015, it contemplated another IPO but ended up changing hands again, with CVC and the Canada Pension Plan Investment Board taking ownership.
Coughlin has pointed to $300 million that the company has invested over the last three years in key initiatives as evidence that Petco is trying to keep up with competitors like Chewy, PetSmart, and Amazon. Some of the most important investment areas include using stores to fill e-commerce orders and offering more services, such as grooming and veterinary care, at its stores. Coughlin said that Petco fills about 80% of its e-commerce orders using stores.
Other retailers have jumped on this trend of dedicating more of their real estate to fulfilling online orders. Companies including Target and Whole Foods also pick items for online orders from the same stores that customers browse in-person.
But those efforts obscure a staid retail business that is trying to play catch-up, said Sucharita Kodali, an analyst with Forrester Research.
“These IPO strategies are ‘Hail Mary’ passes to monetize a business and milk what remaining capital there is available,” she said. “I don’t know why, as an institutional investor, you’d buy into this. There are better growth stories out there, like Poshmark,” which are better at using technology to win customers in retail, Kodali added.
Poshmark shares, which also began trading Thursday, leapt 150% during the company’s early hours on the Nasdaq.
Using stores to host services like veterinary care and grooming, which are generally more profitable businesses than selling pet food and toys, could provide a reason for new pet owners to keep coming back to Petco, especially as customers return to shopping in stores after the pandemic subsides.
“It’s two battlefronts that they’re fighting: Retain your existing customers and make sure that you’re acquiring customers that are not your customers right now,” Kodali said.
Bastion Balance Seoul, Korea.