Petco Files IPO…Again

“Pet ownership among the technology savvy millennial generation was 59% of households in 2014 compared to 50% of households in 2010. Millennials have higher average intended pet spend compared to baby boomers, with 76% of millennials indicating that they would splurge on certain items for pets compared to 50% of boomers.”

Can confirm: Petco is going public for the second time this decade. On Thursday, they filed to raise $100 million, but wouldn’t divulge how many shares they’d offer or where the price range lies. That being said, the $100 milly will likely serve as a short-term placeholder, especially if they agree to a sale. Methinks that’s precisely what they have in mind, but I’m not here to cast aspersions.

Petco is set to list on the Nasdaq under the ticker $WOOF, with Goldman Sachs and BofA Securities as the lead underwriters. This recent crack at an IPO comes four years after private equity firms CVC Capital Partners and Canadian Pension Plan Investment Board got their paws on the company in 2016 for $4.6B.

For the record, this IPO will be the third time Petco tries their hand in the equity markets. They originally went public in 1994, then back to private in 2000 when TPG and Leonard Green acquired them in a $600 million deal, then went public for a second time in 2002. Since their induction in 1965, Petco has dropped the played-out “retailer” moniker and pivoted into a “provider of pet health and wellness offerings.”

Petco operates more than 1,500 stores in the U.S., Puerto Rico, and Mexico, offering pet care products, veterinary services, an e-commerce presence, and an online health advice service known as PetCoach. The company reportedly had $4.4 billion in annual sales at the start of February, or almost 5% of the total $95.7 billion spent in the U.S. on pets.

Petco customers shopping on PetSmart’s online-only brand Chewy—while doubling from Jan’18 to Oct’20—is still relatively small at 16% and can be explained by Chewy’s still-growing customer base. The overlap of Petco shoppers also shopping at the PetSmart brand has remained flat at 30%.

In 2019, Petco stopped selling pet food and treats that made with artificial ingredients. They took shock collars off the shelves this year and started offering pet health insurance and a Vital Care membership which includes unlimited vet exams, dog nail trims and teeth brushing. While online shopping peaked at 24% of the company’s share in April, and remained elevated at roughly double pre-virus levels, it’s become abundantly clear that the majority of customers prefer shopping for pet supplies in-person. [Note: pet stores were deemed essential while many other retailers were forced to shut down during the spring.]

The pandy slapped Petco around a bit, which cut operations in many of its pet care centers. This precipitated a drop in pet care center revenues. This impending second round of shutdowns may “adversely affect such revenues for an uncertain period of time,” the company said in its filing.

Not throwing shade, but Petco just isn’t a profitable company. These are the objective facts, and although losses have narrowed, they reported $24.8 million in net losses for the 39 weeks ending Oct. 31. Compared to roughly $94 million in losses for the comparable time period in 2019. Net sales grew 9% to $3.58 billion for the 39 weeks ended Oct. 31. Petco is also highly leveraged. The company had about $3.3 billion in debt outstanding as of Oct. 31, the prospectus said. Yikes.

Petco expects the IPO to take place after the SEC finishes its review of the S-1 filing and upon other closing conditions.

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