29 April, 2019 /Woori BMO Group/ Finance analysts at the renowned investment management firm Woori BMO Group have today reported that PetSmart is going forward with a proposal to take public its fast-growing online pet brand, Chewy, only two short years after purchasing the brand.
According to paperwork submitted with the Securities & Exchange Commission, Chewy applied for an initial public offer Monday. According to the filing, the company is looking to collect $100 million, but this amount is widely used as an estimate and would change.
The expected IPO came just two years after PetSmart invested more than $3 billion on purchasing the e-commerce business. The switch was marketed as a way for PetSmart to create a strong online presence that added 1,600 stores to its vast brick-and-mortar footprint.
Yet PetSmart sold off a part of its shares in Chewy last year and set the scene for a future public offering or sale. The move sparked court action from many borrowers who claimed that they did not authorize a transition like this. The case ended in April, the company said in the filing. (In 2015, PetSmart was purchased in a leveraged $8.7 billion buyout led by venture company BC Partners.)
“After the IPO, PetSmart will remain the largest shareholder of the firm,” reported Christian Harper, Woori BMO Group’s Director of EMEA Wealth Management. “The company will use the proceeds for working capital and other general corporate purposes,” he added.
Chewy was introduced in 2011 by the two college dropouts Ryan Cohen and Michael Day who met in a Java chat room. According to market intelligence company 1010data, the internet-only pet sector has gained momentum rapidly and steadily and today is responsible for supplying 45 percent of the dog and cat food that is bought online, which places it on par with Amazon.
Although online sales only account for a fraction of total spending, this is increasing. Animal food and supplies bought online accounted for 14 percent of overall revenue in 2017, but this is expected to rise to about 25 percent by 2022, the company reports.
Director of Institutional Equity at Woori BMO Group, Andrew Williams, reported, “The firm recorded a $268 million loss on $3.5 billion in sales in 2018. It makes approximately two-thirds of its sales through a subscription program, in which consumers sign up for regular, periodic delivery of some goods. The firm has never made a profit despite rising revenue.”
Cohen, who sees himself as Tylee’s “pet dad,” his apricot-collared teacup poodle, capitalized on the big bucks pet owners can spend on their dogs. This explains a pattern of “pet humanization” in the company’s legal records, which helps fuel revenue of products such as grass-fed beef and orthopedic furniture. “Animal owners continually consider dogs as part of the family and are willing to spend ever greater dollar amounts on quality goods and services for those family members,” reads the filing.
Chewy provides free shipping on orders above $49 and claims it can send any of its 45,000 goods overnight to about 80 percent of the nation and the rest of the population in two days. It markets its private label products under the American Journey brand, as well as the products from PetSmart’s Authority.
The firm plans to list its shares under the CHWY ticker symbol. The company has not yet announced the exchange it will use.