On Wednesday, CHWY increased the expected price range to $19-21 from $17-19. Then, this morning the pet e-tailer bumped the shares offered to 46.5 mln from 41.6 mln and priced its deal above the revised range at $22/share.
In all, its IPO generated $1.02 bln in total gross proceeds, about 23% more than anticipated.
Undoubtedly, the rebound in the stock market has provided a tailwind for the IPO market this week. However, each of the IPOs this week have also presented some attractive fundamental qualities.
In the case of CHWY, it is both a play on consumers' ongoing shift towards digital commerce and on growing spending on pet health. These trends are reflected in its strong revenue growth.
The company is also building out its own proprietary brand, which has helped to boost its margins.
These factors created robust demand in the primary market that could carry over into the public markets when the company's stock opens for trading later this morning on the NYSE.
CHWY is the largest pure-play pet e-tailer in the U.S., offering virtually everything a pet needs. It partners with more than 1,600 trusted brands in the pet industry, and it creates and offers its own private brands.
Through its website and mobile applications, it offers its customers more than 45,000 products. In addition, its Autoship subscription program makes shopping with CHWY easy, providing "pet parents" with a convenient and flexible automatic reordering process.
In 2016, it launched its first hardgoods private brand, Frisco, and in 2017, it launched two consumables private brands, American Journey and Tylee’s. In late 2018, CHWY also began selling its private brand products through PetSmart.
The pet industry in the U.S. -- including food, supplies, veterinary services, and non-medical services -- is a growing and highly-attractive market, with 2017 sales reaching approximately $70 bln.
The pet industry, like many other industries in the U.S., is in the midst of a shift in consumer prefence from in-store to online purchases, with e-commerce representing a 14% share of the food and supplies market segment in 2017, up from 4% in 2015, and projected to grow to approximately 25% by 2022. CHWY believes that the secular trend toward online shopping can continue to develop for a significant period as online pet product spending remains relatively low compared to the online penetration of some other sectors.
There is also an increased focus on the impact of diet on pet health, leading to higher spending per pet on premium, healthier pet foods that are more expensive. Half of dog and cat owners feel that natural/organic brand pet products are often better than standard national brand products, according to Packaged Facts.
Approximately 75% of pet product buyers in 2018 were willing to pay more for healthier pet food products, up from 67% in 2015, according to Packaged Facts.
In its IPO prospectus, CHWY provided some preliminary results for the 13-week period ending May 5, 2019.
It expects net sales to be $1.1 bln compared to $763.5 mln in the year ago period, representing yr/yr growth of 44%. The expected increase is primarily due to growth in its customer base.
Gross margin is expected to be 22.9% compared to 19.6% a year ago.
The growth in revenue and gross margin expansion shrunk its operating loss to ($30.3) mln from ($59.8) mln in the year ago period.