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Petco gets lift from pet adoption surge ahead of IPO

Add Petco to the short list of retail’s big COVID-19 winners just in time for its return to the public stock markets.

The pet supplies and services chain has ridden a surge of pet adoptions during the pandemic. That, combined with Petco’s big e-commerce investments and store remodels in the last few years, has led to vastly improved financial results that have allowed it to finally pull the trigger on a long awaited IPO filing.

PET Acquisition LLC, the parent company of Petco Health and Wellness Company, said in an initial public offering prospectus filed late Thursday with U.S. regulators, that comparable sales have surged since the pandemic began, including a 16.3% increase in the most recent quarter.

That was the eighth straight quarter of comparable sales growth for Petco, and the biggest increase in that streak for Petco, which is on track to pass $5 billion in sales this year.

And Petco’s operating profit nearly doubled in the first nine-months of the fiscal year, crucial for a company owned by private equity firms and saddled with $3.3 billion in debt. CVC and the CPPIB acquired Petco for $4.6 billion from fellow private equity firms TPG and Leonard Green in 2016, ten years after they took Petco private. Media reports suggest Petco could be valued at $6 billion when it returns to the stock market, where it will list under the ticker “WOOF” on the Nasdaq.

Petco’s reversal of fortune was not obvious just a few years ago, as this current streak of accelerating growth followed a two-year period of decline. Petco was seen as having inadequate e-commerce, stale stores, tired house brands and did not offer sufficient services (such as veterinarians) to draw shoppers into stores (versus visiting PetSmart, Chewy or even Amazon).

But as Fortune detailed it in a May feature story, that changed under CEO Ron Coughlin, who was previously at HP, where he ran the personal systems business selling PCs and tablets. When he took the reins in 2018, the 1,470-store chain made becoming an e-commerce player a priority. Petco went from getting only got 4% of sales from e-commerce to the double-digits, and it’s rising fast.

Petco was able to quickly set up curbside picking for online orders for nervous customers once the pandemic started. That’s been essential to competing with Chewy, which was owned by its archrival Petsmart and went public last year.

Before the pandemic, Petco had begun remodeling hundreds of its stores, adding higher-end, adding more health-oriented brands, revamping its own store brand portfolio, and adding homey touches like wood shelf panels, a Treatery stand for baked goods for dogs, and a station where pet owners can get nutritional advice including information about Petco’s premium WholeHearted food brand. Petco is also making an aggressive push deeper into veterinarian services, an area of intense competition that includes PetSmart, Walmart, and Chewy’s online pharmacy.

That will be key for a retailer to keep its place in a booming $96 billion U.S. market.

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