It has been quite a year for Petco. After quickly bolstering its e-commerce capabilities to keep up with shifting shopping patterns during the pandemic and rolling out a bold rebrand as “The Health & Wellness Co.,” the company began the process of once again going public by filing a registration statement with the U.S. Securities and Exchange Commission (SEC) for a proposed initial public offering (IPO) of shares of its common stock.
It is a move that could have a significant impact on Petco’s future success, as even a somewhat underwhelming IPO performance could bring the company a significant infusion of capital to further fuel its ongoing evolution as a retail powerhouse.
While this hardly makes the prospect of a Petco IPO good news for independent pet stores, there is something of a silver lining in that the SEC filing contains valuable insights about the company’s performance, operations and strategies over the past few years—insights that can help indies craft their own strategies to compete with the increasingly dangerous big-box chain. With this in mind, let’s take a look at some of the highlights:
Growth in Sales
After growing by about $42 million (1%) between FY2018 ($4.435 billion) and FY2019 ($4.392 billion), Petco’s net sales grew by more than $296 million (9%) YOY during the first 39 weeks of FY2020. This includes a $274.7 million increase in supplies and companion animal sales and a $24.2 million increase in dog and cat food sales.
That is not to say that the chain hasn’t been challenged by the pandemic, though. In fact, Petco’s sales in the services arena declined by $13.6 million during the first three quarters of FY2020, due to a temporary suspension and/or reduction of service offerings while stay-at-home orders were in place. However, this was somewhat offset by the $33.3-million growth in the company’s veterinary hospital business over the same period.
In addition to growing its net sales, Petco saw its gross profit increase by $128.9 million (9.1%), to $1.54 billion over the first three quarters of FY2020. According to the company’s SEC filing, “Gross profit rate was impacted by the shift in sales mix to our supplies category, which typically carries higher margins, from our services category, which typically carries lower margins…” However, Petco reported that the growth in profit was offset by a shift toward e-commerce sales, which usually carry lower margins than in-store sales.
Speaking of e-commerce, this has been a particular area of focus for Petco, which saw its online sales increase from seven percent of overall sales during the first three quarters of FY2019 to 13% of overall sales during the same period in FY2020. What’s more, the company says that its e-commerce sales margins benefitted from growth in in-store pickup, curbside delivery and ship-from-store services, which reduce or eliminate shipping costs associated with online sales. According to the SEC filing, approximately 80% of Petco.com orders were fulfilled by its brick-and-mortar stores.
Future in Focus
While it should probably come as no surprise to anyone who has been paying attention to Petco’s ongoing evolution over the past few years, the company reaffirmed in its SEC filing that it is “strategically focused on growing our presence in three of the fastest-growing areas of the market: services, e-commerce, and veterinary, which are projected to grow at 11%, 14%, and 9% CAGRs, respectively, from 2020 to 2024.”
In line with this strategy, the company has invested over $300 million to enhance its capabilities in e-commerce, private-label offerings, data analytics and on-site services like veterinary care. “Our investments have delivered a comprehensive, integrated, and technology-enabled ecosystem of channels and offerings, complemented by a rapid innovation capability that is disrupting the pet market and providing pet parents with a differentiated holistic solution for all their pet care needs,” the company said in its SEC filing.
Sounds an awful lot like a retailer that’s focused a new era of tough competition in the pet care category. Now the question is, are you?