Petco’s IPO: All Bark and No Bite?

The private equity-owned retailer’s market share has shrunk and staffing cuts mean employees are stretched

Private equity-owned pet supply retailer Petco is seeking to raise $744 million this week through an initial public offering (IPO).

The Private Equity Stakeholder Project is releasing an analysis of Petco’s financial filings ahead of the IPO, “Petco’s IPO: All Bark and No Bite?” (key points below)

In recent months, US pet supply retailers have faced widely different fortunes. On November 4, a day before Petco announced it had filed confidentially for the IPO, competitor Pet Valu (also private equity-owned) announced that it was winding down operations and closing all of its 358 stores and warehouses across the U.S. Meanwhile, online retailer Chewy (also private equity-owned) has seen its sales grow by 46% during the pandemic.

Petco’s recent performance under private equity ownership has been lackluster, with its sales growth significantly trailing industry growth in four of the past five years.  Petco’s market share has shrunk as competition from fast growing online competitors has increased – and stands to increase further as more consumers have shifted to buying online during the COVID-19 pandemic.

Petco has sought to differentiate itself by growing the variety of services it offers (e.g. grooming, training, veterinary clinics, etc.), but those still make up a small part (~10%) of its overall business.

In addition, the Petco employees that staff its stores, interact with customers, and provide those services are stretched thin. Since 2015, Petco has added 59 additional stores but cut nearly 5,000 employees. This has been especially clear during the COVID-19 pandemic, as Petco has laid off employees even as its sales have increased.

In September 2020, hundreds of Petco employees mobilizing with United for Respect signed on to a letter to Petco owner CVC Capital in which they asked the firm to provide protective equipment, hazard pay, and other protections to frontline Petco workers, reporting:

“The vast majority of us are working in stores that lack basic safety precautions, like adequate masks and gloves, and have drastically cut hours, while the rest of us are navigating the unemployment process due to the mass furloughs and layoffs in the midst of a global health crisis and recession.”

CVC Capital has not responded to Petco workers’ request.

The full analysis is available here:


Petco’s IPO: All Bark and No Bite?

Key points:

  • Petco’s sales growth has stagnated in recent years, growing by an average of 1.4% annually since private equity firm CVC Capital Partners and the Canada Pension Plan Investment Board (CPPIB) acquired the company in 2015, significantly lagging growth in the US pet care industry more broadly.
  • Petco’s online sales in particular have lagged competitors like Chewy, meaning it has missed out on an opportunity during the COVID-19 pandemic.
  • Petco’s adjusted EBITDA has grown by less than 0.4% on an annualized basis since 2015.
  • CVC Capital and CPPIB, the same ownership group that has overseen years of sluggish revenue and EBITDA growth at Petco, will remain in control of the company post-IPO.
  • Services accounted for just 9% of Petco’s overall sales between February and October 2020 and 10% last year, meaning the company faces significant risk from online competitors.
  • Multiple private equity buyouts have left Petco with a mountain of debt: Petco’s Net Debt-to-Adjusted EBITDA ratio over the last twelve months was around 6.5x, or 8.9x if operating lease liabilities are included.
  • While Petco has called itself a “category defining brand,” since 2017 the company has written down the value of its goodwill and intangibles such as brands by around $910 million.
  • While Petco has sought to distinguish itself by emphasizing its variety of service offerings, the employees that provide those services are stretched thin: since 2015, Petco has added 59 additional stores but cut nearly 5,000 employees.

The full analysis is available here: