Petco is a winner on its first day of trading
Petco has shown that a 55-year-old retailer can learn new digital tricks and won the love of Wall Street with a successful IPO.
Investors jumped on the stock as soon as it became available, quickly sending it over 65% in the early hours of trading. The stock closed at $ 29.40, giving the company a market value of more than $ 6 billion.
The share price was above the expected range of $ 14 to $ 17 and entered its first oversubscribed day of trading.
It also received enthusiastic pre-negotiation approval from CNBC commentator and Mad Money host Jim Cramer, who called it a “big investment.” Cramer credited Petco CEO Ron Coughlin with running the retailer, calling him “one of those people who knows how to digitize” a company like Petco.
Coughlin, in an interview with CNBC before the talks began, said his experience at HP
“Over the past 18 months, we’ve rolled out online purchasing, in-store pickup; ship from store; curbside, same day delivery, a world class app, ”said Coughlin. “The more technologies we put in place, the faster our digital business has grown,” he said.
Currently, 30% of Petco’s e-commerce orders are delivered same day, helping get products to customers faster and more cheaply than a strictly online competitor like Chewy.
Coughlin says that 39% of pet consumers are omnichannel shoppers who prefer the option of shopping online or in a store. But he believes that even among the 20% of online-only shoppers, Petco stores give it a “distinct structural advantage” over Chewy and online competitors in terms of order processing and the ability to offer pickups. at the edge of the street.
He also noted that Petco has a strong position in private label products, as well as exclusives with its supplier partners, which means that 70% of its merchandise is not available anywhere else. This “gives us both uniqueness and isolation from our competition, both online and in bulk,” he said.
The success of Petco’s opening day shows that Wall Street believes the fast-growing pet market has enough leads to support several retail pet stocks. Online retailer Chewy has been the darling of Wall Street for the past year, with its inventory currently more than three times its opening day price. Chewy closed at $ 114.68, up just under 2% for the day.
Pets seem to be a safe bet to grow these days. According to the American Pet Products Association, spending on pets has grown at an average rate of 6% per year, and spending is expected to exceed $ 100 billion this year.
Petco’s success could bode well for the next big pet IPO on the horizon, the planned IPO of the Barkbox pet products subscription service, which is expected to take place early. of this year.
Small startups also applauded Petco’s victory today.
Jeff Safenowitz, CEO of Barkbus, a Los Angeles-based mobile dog grooming startup, saw Petco’s IPO as an indication of growth potential in the companion animal category. Barkbus, which owns nine mobile grooming vans operating in Southern California, recently received additional venture capital funding and is considering expansion. “We have big dreams and we are growing,” said Safenowitz.
“It’s an exciting day for this space,” he said Thursday. “Anytime our industry gets institutional attention and support, it’s great for us. It made us even more invigorated, ”he said.
He noted that much of Petco’s growth strategy, as outlined in its IPO prospectus, revolves around services, which shows the strength of the services market. “I am delighted to see that there are strong tail winds in space and we are ready to capture a good part of it.”
Petco, however, now needs to show that it can make money in this growing market, as Jim Cramer commented in his interview with Petco’s Coughlin. After the excitement of the day of the IPO, Petco will have to show that it can make a profit in the long term. The company, according to its IPO prospectus, recorded a net loss of $ 103 million in fiscal 2019 and a net loss of $ 413 million in fiscal 2018. As of October 31, 2020 , its year-to-date net loss was $ 93 million.
“We are on a growth path,” Coughlin replied. “We are showing a good conversion into profit. “
Petco will have to prove he can do it in order to keep the love he earned from Wall Street today.
And he also quickly learned that with an IPO, investors plan to use their shares to speak up at shareholder meetings.
Animal rights group PETA announced it was one of the opening day investors, buying enough shares to be able to attend shareholder meetings and submit shareholder resolutions. One of PETA’s first goals will be to urge the company to stop selling live animals, primarily betta fish.
PETA was a straightforward shareholder when Petco was previously a public company.
“PETA members have protested against Petco’s live animal sales online and on the streets, and now we are back in the boardroom,” PETA Executive Vice President Tracy Reiman said in a statement. Press.