Petco’s stock soared in the first day of trading, with shares up more than 60% for much of the day. … [+]
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Petco showed that a 55-year-old retailer can learn some new digital tricks, and won Wall Street’s love with a successful IPO.
Investors jumped on the stock as soon as it became available, quickly sending it up more than 65% in the first hours of trading. The stock closed at $29.40, giving the company a market value of over $6 billion.
The stock priced above the expected $14 to $17 range and went into its first day of trading oversubscribed.
It also got an enthusiastic endorsement, pre-trading, from CNBC commentator and Mad Money host Jim Cramer, who called it “a great investment.” Cramer credited Petco CEO Ron Coughlin with turning around the retailer, calling him “one of those people who knows how to digitize” a company like Petco.
Coughlin, in a CNBC interview before trading began, said his background at HP HPQ , where he was president of the PC division, and at Pepsico PEP , where he was chief marketing officer, helped get Petco’s technology up to speed.
“In the last 18 months we’ve rolled out buy online, pick up in store; ship from store; curbside, same day delivery, a world class app,” Coughlin said. “The more technology we’ve laid down, the faster our digital business has grown,” he said.
Currently, 30% of Petco’s e-commerce orders are same-day deliveries, getting products to customers faster and at lower cost than a strictly online competitor like Chewy.
Coughlin says 39% of pet consumers are omnichannel shoppers who prefer to have the option of shopping either online or in a store. But he believes that even among the 20% who are online-only shoppers, Petco’s stores give it a “distinct structural advantage” over Chewy and online competitors in terms of order fulfillment and the ability to offer curbside pickups.
He also noted that Petco has a strong position in private label products, as well as exclusives with its vendor partners, which means 70% of its merchandise isn’t available anywhere else. That “gives us both uniqueness and insulation from our competitors, both online and mass,” he said.
Petco’s opening day success shows Wall Street believes the fast-growing pet market has enough runway to support multiple pet retail stocks. Online retailer Chewy has been Wall Street’s darling over the past year, with its stock currently more than three times higher than its opening day price. Chewy closed at $114.68, up just under 2% for the day.
Pets look like a safe growth bet these days. According to the American Pet Products Association, spending on pets has been growing at an average rate of 6% a year, and spending is expected to top $100 billion this year.
Petco’s success could bode well for the next big pet IPO on the horizon, the planned IPO of pet goods subscription service Barkbox, expected to happen early this year.
Smaller startups also cheered Petco’s win today.
Jeff Safenowitz, CEO of Barkbus, a mobile dog-grooming startup based in Los Angeles, saw Petco’s IPO as an indication of the potential for growth in the pet category. Barkbus, which has nine mobile grooming vans operating in Southern California, recently received additional venture funding and is eyeing expansion. “We’ve got big dreams and we’re growing,” Safenowitz said.
“It’s an exciting day for this space,” he said Thursday. “Any time our sector gets institutional attention and support, that’s great for us. It’s invigorated us even more,” he said.
He noted that much of Petco’s strategy for growth, as outlined in its IPO prospectus, revolves around services, showing the strength of the services market. “I’m excited to see there’s some strong tailwinds in the space and we’re poised to capture a nice portion of it.”
Petco, however, now has to show it can make money off of this growing market, as Jim Cramer commented in his interview with Petco’s Coughlin. After the excitement of the IPO day, Petco in the long term will have to show it can make a profit. The company, according to its IPO prospectus, had a net loss of $103 million in fiscal 2019 and a net lost of $413 million in fiscal 2018. As of October 31, 2020, its year-to-date net loss was $93 million.
“We’re on a growth trajectory,” Coughlin replied. “We’re showing good conversion to profit.”
Petco will have to prove it can do that in order to keep the love it won from Wall Street today.
And it also learned quickly that along with an IPO comes investors who plan to use their stock to speak out at shareholder meetings.
Animal rights group PETA announced that it was one of the opening day investors, buying enough stock 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 an outspoken shareholder when Petco previously was a public company.
“PETA members have protested Petco’s live-animal sales online and in the streets, and now we’re heading back to the boardroom,” said PETA Executive Vice President Tracy Reiman in a press release.