How Will Petco Keep Growth Going?

How Will Petco Keep Growth Going?
Petco said net sales increased 9% year over year during the first 39 weeks of fiscal 2020.

Veterinary services and omnichannel retail promise to propel Petco’s growth in the coming years.

That’s according to the company’s latest filing with the U.S. Securities and Exchange Commission in advance of an initial public offering. Petco’s latest move toward an IPO — the retailer has gone public before — offers no proposed share price and lists a $100 million proposed offer, though that amount reportedly could balloon to $800 million.

Petco said net sales increased 9% year over year during the first 39 weeks of fiscal 2020, reaching $3.58 billion. Comparable sales grew 9.6% during that same period. Operating income hit $127.4 million, up 83.5%. Net loss attributable to members decreased by 77.1% to $20.3 million.

Looking ahead, Petco detailed its strategy and expectations for growth.

“We are 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,” according to the filing. “Our business transformation initiatives, accelerated by an increase in pet ownership and a shift in customer discretionary spend on pets, have driven strong top- and bottom-line growth in our business.”

E-Commerce and Stores

Petco said in its filing that “the number of customers who engage with us across multiple channels has grown by 20% over the last three years. Further, these multi-channel customers spend between 3x to 6x more with us compared to single-channel customers. In the last 12 months ended Oct. 31, we achieved approximately 80% retention of our multi-channel customers.”

But physical stores also matter even as the pandemic fuels further gains in online retail. “By strategically leveraging our extensive physical network consisting of approximately 1,470 pet care centers located within three miles of 54% of our customers, we are able to offer our comprehensive product and service offering in a localized manner with a meaningful last-mile advantage over our competition,” Petco said in its filing.

The retailer also said that the 39 weeks ended Oct. 31, approximately 80% of orders were fulfilled by our pet care centers, either as ship-from-store, buy online, pick up in stores (BOPUS) or curbside pickup. 

Additionally, “we have experienced increasing pet care center sales through our Petco app since its launch, with many pet parents electing to take advantage of BOPUS and curbside pickup for their orders,” Petco said. “For customers seeking even greater convenience, we offer repeat delivery options that facilitate recurring purchases. Our repeat delivery revenue stream increased 13% in fiscal 2019, and for the 39 weeks ended Oct. 31, BOPUS purchases and repeat deliveries of products accounted for 61% of sales.”

Pet Health care and Loyalty

Pet health care also is becoming an increasing important part of the Petco proposition.

In October, for instance, the retailer launched a service called the Vital Care Wellness Program. According to the San Diego-based retailer, it’s a paid annual plan providing pet parents with a convenient, affordable way to meet their pets' routine wellness needs. The new service also serves as an example of the ongoing embrace between retail and health care, including the pet space — a broader effort that Petco is promoting to investors.

“We are increasingly linking our offerings with subscription programs such as membership and pet health insurance that create deeper engagement with our over 21 million Active Customers,” the retailer said in the filing.  

In fiscal 2019, the retailer serviced over 400,000 customers through its veterinary offering platform.

“Additionally, sales of prescription food, which require an on-site veterinary hospital, are currently averaging an incremental $1,000 of sales per week per pet care center,” Petco said. “Our recent introduction of Petco Vital Care Membership, a subscription program that provides access to our holistic health and wellness offering, and Petco Insurance leverage our growing veterinary services network to provide incremental benefits and convenience for customers.”

Loyalty also plays a role for the retailer’s immediate future. As Petco put it, “our Pals loyalty program members accounting for approximately 80% of transactions in the 39 weeks ended Oct. 31.”

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