Petco CEO Highlights Pet Industry Resilience as COVID-19 Drives Rise in Adoption

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Petco Health and Wellness Co. WOOF, + 63.33% began trading on Thursday, with the shares rising rapidly and closing more than 63%. The first trade at 12:13 p.m. ET was $ 26 after the stock traded at $ 18. IPOs have skyrocketed over the past year despite the COVID-19 pandemic. The Renaissance IPO ETF IPO, -0.24% has more than doubled over the past year, up 112.4% in the last 12 months, while the benchmark S&P 500 SPX index, -0.38% has gained 16.2%.

Petco CEO Ron Coughlin says his business has recovered, in part, due to the pandemic. “People are at home for COVID, they are a little bit depressed and they want that bundle of joy,” he told MarketWatch shortly after the company’s shares began trading. Coughlin has been CEO since June 2018, joining HP Inc.’s HPQ Personal Systems business with -0.35%. In a CEO letter posted with the company’s prospectus, Coughlin cites data from consumer market research firm Packaged Facts, which expects the number of households with pets to increase 4% in 2020, creating $ 4 billion in Incremental annual demand. Packaged Facts says that 56% of American households have pets, with dogs in 40% of households. Dog ownership rates have increased “exponentially” over the past decade. American households added more than 3.3 million pets in 2020, according to data provided by Petco. The US pet care industry serves 72 million households and had a total addressable market (TAM) of $ 97 billion in 2020, according to Petco’s prospectus. Since 2008, the industry has had a compound annual growth rate (CAGR) of 5%. “It had proven resilient during the Great Recession,” Coughlin said, referring to the pet care industry. “Cutting down on pets is one of the last things people will do.” And, Coughlin said, millennials are even more reluctant to cut back on items and services for their pets. See: Unemployment claims surge to a 5-month high of 965,000 as winter coronavirus hits business Founded in 1965 and based in San Diego, Petco aims to offer everything a “pet parent” would need in one place, from veterinary services to hygiene and food and toys. The Petco prospectus cites data showing that half of pet owners prefer a “unique experience.” Additionally, Petco is dedicated to advocating for pets, for example removing shock collars in October 2020 and pushing for training that emphasizes rewards for good behavior. Petco’s fiscal 2019 sales totaled $ 4.43 billion, versus $ 4.39 billion in 2018. Third-quarter fiscal 2020 revenue totaled $ 3.58 billion, versus $ 3.29 billion for the same period last year. Petco does not plan to pay dividends in the foreseeable future. And it will use a portion of the IPO’s proceeds to pay accrued interest on the floating rate senior notes that mature on January 26, 2024 and had a weighted average interest rate of 9.1% as of October 31, 2020. One of The Risks The factors Petco highlights in its prospectus is its “substantial indebtedness,” which stood at $ 3.30 billion as of October 31, 2020. Another is competition, particularly from “Internet-based” competitors. Inc. AMZN, -1.21% and eBay Inc. EBAY, -0.79% sell pet products on their sites. And Walmart Inc. WMT, -0.33% has also recently announced beefed up pet deals, including dog walking services. In pet food, General Mills Inc. GIS, + 0.65% spoke about the strength of that category in its most recent earnings. Read: General Mills Says Economic Troubles Will Boost Home Meals Even After Pandemic Ends Y: Target’s Holiday Sales Show Importance of Stores Even As COVID-19 Boosts Online Businesses Petco Also Emphasizes Investing From $ 300 million in e-commerce and digital capabilities that have helped you compete, including the introduction of same-day delivery and in-store and curbside pickup, which have made physical locations even more valuable. “The stores used to be albatrosses,” Coughlin told MarketWatch. “Now there are” structural advantages based on taking advantage of pet care centers. ”