“Whether you want to get your pet vaccinated, a check-up, groomed, trained or buy humane food – we are the only ones who can do it all under one roof,” he said.
Like other brick stores, Petco leverages its physical presence. The company uses its stores not only for care salons, but as micro-distribution centers with pickup and ship from store.
“These things that people thought were albatrosses have become an advantage,” Coughlin said, referring to Petco’s stores.
To take on
But Petco faces stiff competition from people like Chewy, who have emerged as one of the biggest winners of the pandemic.
“They are considered a juggernaut for customer acquisition. We feel very good about competitiveness,” he said.
Tough, however, grows much faster. It rose 45% in the third quarter as Americans continued to buy pets and supplies online. In comparison, Petco reported slower but solid quarterly growth of 16.3%.
Pet adoption is on the rise
“People are at home. They’re a little down. They’re looking for bundles of joy,” Coughlin said.
Kathleen Smith, chairman and co-founder of Renaissance Capital, said there is reason to believe these tailwinds in the pet business will continue, even after the pandemic.
“The pet industry will not fall off a cliff. We keep our pets when we go back to work,” said Smith, whose firm manages ETFs for recent IPOs.
Unlike tough, Petco is profitable right now. The company’s operating income increased by 84% in the first three quarters of 2020 to $ 127 million. “We turned the company around faster than expected,” Coughlin said.
But Petco is also saddled with $ 3.2 billion in debt, a legacy of its leveraged acquisitions in 2000 and 2016.
The company warned in its S-1 filing that its “significant indebtedness could adversely affect our cash flows and prevent us from meeting our obligations under existing debt agreements.”
Coughlin said Petco plans to use all of the proceeds from the IPO to repay debt. That would reduce its debt and interest payments by half, he said.
Blooming IPO market
The Petco agreement is yet another proof of the strong IPO market.
So far this year, U.S. listed companies have raised an incredible $ 14.2 billion through 49 IPOs, according to Dealogic. It is by far the highest for this point of the year in statistics dating back to 1995. By comparison, no companies had been published at this time in 2019 or 2020. And only four IPOs took place at this time in 2018, raising $ 1, 3 billion .
“This IPO is just on fire,” said Smith of Renaissance Capital. The company’s ETF with the ticker “IPO” more than doubled in 2020.
“With such returns,” Smith said, “companies are just hoping to become the stock market right now.”