Petco shares surge after market debut
Ron Coughlin, Petco CEO, joined Yahoo Finance Live to discuss the company's IPO.
Video Transcript
- We want to take a look at one of the outperformers in today's market, and returning to the public markets is Petco. And taking a look at that stock, it is taking off. You can see it trading right around $28 a share, up just over 55% in today's debut. We want to welcome Ron Coughlin. He is the CEO of Petco. We're also joined by Yahoo Finance correspondent Julia La Roche.
Ron, congratulations. Clearly, investors seemed very excited about Petco's return. I'm curious just because I think when people think about Petco, they associate with what your company was prior to the last several years. So just talk to us about the transformation process and, to put it in your words, how you're redefining the pet care industry.
RON COUGHLIN: Absolutely. Well, thanks for having me. It's such an exciting day for us. We really have transformed the company. We're the only company in the space that has a holistic solution for pet parents to take the best care of their pets. So whether you want televet, vet clinics, vet hospitals that we own or joint venture, whether you want to be groomed, trained, or have the best foods that have no artificial ingredients, or if you're a millennial wearing a puffer vest and you want your boxer to have a puffer vest to match you, you know, it's only Petco that brings that to life and brings it to life via our e-commerce channels or our pet care centers.
JULIA LA ROCHE: Ron, Julia La Roche here. And I'm certainly one of those guilty pet parents for my-- my own fur baby. Let's talk about the return to the public markets here, more than $800 million raised, as Adam was referencing earlier. What are you all planning to do with the funds raised here? And what is sort of the growth strategy going forward, even as we emerge past this pandemic?
RON COUGHLIN: Yeah, so the funds will 100% go to paying down debt, which is great because then our debt payments going forward will be cut in half. So it enables us both to invest in the business as well as to enhance our net income. So that's really good. And our growth strategies are really focused on differentiating our merchandise.
Today, 70% of our merchandise can't be found anywhere else. The second piece is building out the fastest vet network. And that really is focused on affordable vet care. 70% of pets don't get the care they need because of affordability. And we're going to roll out affordable vet care.
And then lastly, continuing our digital enhancement, in the last 18 months, we've rolled out repeat delivery; rolled out an app; we've rolled out ship-from-store, curbside, and now same-day delivery. Our digital business grew 90% in Q3. It was growing 20% to 30% before the COVID.
And if you look at our same-day delivery, we're shipping 30% of our e-commerce orders same day, which means it's faster to a customer, and it's lower cost than our online competitors. So in our view, that's the new paradigm in e-commerce.
- Ron, I was curi-- I was curious if the pandemic actually sped up the decision to go public because we've seen so many people embrace pet ownership. And the second part of that is, do you see it nationwide, or are there concentrated regions where there's really this skyrocketing pet ownership that we're witnessing?
RON COUGHLIN: Yeah, we were always going to end with a go-public event. We've had great investors in CVC and CPP. I couldn't be happier about my PE partners. But we were always going to have an IPO at some point. And it was, as I said, to reduce our debt level.
In terms of pets, 3.3 million new pets in 2020 and most think '21, first half, will look similar. There's really no geographic difference that we see. And there's very little geographic difference in our business performance, actually, as well.
JULIA LA ROCHE: Ron, now let's go back to the build-out of the veterinary clinics. I can tell you anecdotally, when I take my dog to the vet clinic, there is a pet store right next door. We're going to get treats, and we get toys. I just feel so guilty. So can you talk about that? And what does that mean? Like, what is kind of the unlock for you? When you see folks in the vet ecosystem, what is the bigger unlock? Are these kind of folks that are spending more with Petco, with-- across your channels?
RON COUGHLIN: Yeah, that's actually a great, great question. We have-- we over-index on the highest value pet customers in the pet space. So we already have those customers. And then when we put in a vet, what happens is not only are we helping the pet, but we put in a vet, we get a 4% center store lift on merchandise. So in essence, we're capturing more of the share of wallet for that pet owner who really is the type who wants to do the best thing for their pets.
- Hey, Ron, talk to us just about the demographic tailwind because I was reading some of your previous comments, and it's interesting because a lot of that is focused specifically on millennials and their spending habits.
RON COUGHLIN: Yeah, so basically, we've seen a 4% spend-per-pet increase for years. And millennials are even more likely to spend more. I use the puffer vest example. Or let's take the human grade food example with just food for dogs. You know, if the millennial's having fish and sweet potatoes, guess what the pet's eating? Fish and sweet potatoes. That's what my dog Yummy eats. So we see these macro trends of more spend per pet. And millennials are only going to accelerate that. So there's a tailwind to that dynamic.
JULIA LA ROCHE: And just to also go back to the whole pandemic, the pet ownership, the surge in it, I think we all have friends who have gotten rescues. I luckily have been a parent of a rescue for a couple of years now. How long do you think that trend extends? And I mean, just kind of what are you seeing? I know Adam kind of asked something similar, but what happens when we do kind of return to normal folks do go back to the office, are we going to see the kind of growth in the pet category?
RON COUGHLIN: Yeah, so the rescues do such important work. And with our Petco Foundation, we support the majority of rescues around the country. And we save-- roughly, our contributions save about 400,000 pets from euthanasia, which is just terrible. We're on a mission to eliminate euthanasia.
We see, as I said, continued acceleration of adoptions in the first half of 2021. Then we see a return to normalcy. And what does normal look like? It looks like about 1.6% pet growth. And then on top of that, you have 4% in change spend per pet growth. So what that means is you continue to have a healthy category into the future. Packaged Facts predicts a 7% pet category growth through 2024-- others are more like 6%. So it's somewhere in between there.
- Ron Coughlin-- again, a very, very strong start here to the return to the public markets for Petco, with shares up just over 50% with 20 minutes to go in the trading day. Ron Coughlin, CEO of Petco, thanks for joining us, and our thanks to Yahoo Finance correspondent Julia La Roche.
