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Chewy, PetSmart is web based business, so 85% are on IPO



Chewy CEO Sumit Singh (C) calls the opening call to begin today's trading for Chewy Inc. IPO on the New York Stock Exchange (NYSE) June 14, 2019.

Andrew Kelly | Reuters

Shwy shares, the Pet Smart online store, owned by PetSmart, increased as much as 85% Friday morning after the company had public debut.

The dealer's stock opened on Friday at $ 36 and gave the company a market value of $ 14.3 billion. Early in the afternoon, the share price was up 57% and traded at $ 34.53.

Thursday night, Chewy priced 46 million shares at $ 22, over the indicative $ 1

9 to $ 21 range it had given. The number of shares offered in the deal was 5 million more than expected and increased $ 1 billion.

Chewy, founded in 2011 by Ryan Cohen and Michael Day, calls himself "the largest clean-play pet e-tailer in United States." It has separated from many of its competitors with customer service that includes 24/7 access and two-day delivery of online orders.

The loyal customer base, 60% growth and $ 3.5 billion in sales helped attract investors in their IPO, said Kathleen Smith, rector of Renaissance Capital, who manages IPO-focused listed funds.

"Today, in the US, we're only about 14% penetrated from an online point of view," said Chewy CEO Sumit Singh on CNBC's "Squawk on the Street" before the company began trading. "Twenty-one, if you look at it – it's a $ 70 billion industry – we are penetrated in about 10% of households."

Nevertheless, the company is not all positive. The high price of shipping has eaten in its margins. From the fiscal year 2017 to 2018, it reported a net loss of $ 268 million, which was reduced from a net loss of $ 338 million.

But sales have grown rapidly and climbed from $ 26 million in fiscal 2012 to $ 3.5 billion in fiscal 2018, according to the company's S-1 filing with the Securities and Exchange Commission.

After the acquisition, parents PetSmart will own about 70% of the company's stockpiles and hold 77% voting power. PetSmart, supported by private equity firm BC Partners, acquired Chewy in 2017 for $ 3 billion.

"The acquisition of Chewy made strategic sense for the company as it provided online expertise and scope and complements PetSmart's brick and mortar business while increasing PetSmart's online intrusion," Moody's analysts said in a February report. "But at $ 3 billion, the acquisition of Chewy was funded primarily through additional debt, and as most high-growth premier gaming dealers we estimate, Chewy will be EBITDA negative for at least the next 12-24 months."

Since the sale to PetSmart, Chewy has expanded its private label business and launched "Chewy Pharmacy", an online pet pharmacies.

Chewy said in the prospectus that it will seek continued growth by expanding the reach of the products it offers, finding new customers and expanding its pharmacy.

The company is now trading on the New York Stock Exchange under the ticker CHWY.


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