Petco is expanding veterinary services in a countrywide chain of pet hospitals after taking out its partner, as it caters to high-spending clients who adopted millions of dogs and cats during the pandemic.
Petco executives told investors Tuesday that customers at its in-store and stand-alone veterinary clinics spend nearly three times more on average than regular retail customers. Petco has over 1,500 sites in the United States, Mexico, and Puerto Rico.
That prompted Petco to move on with a previously anticipated expansion in pet healthcare services, announcing this week that it will acquire out Austin, Texas-based veterinarian firm Thrive Pet Healthcare, in which it had bought a 50% share in 2017.
Petco CEO Ron Coughlin said during a fourth-quarter earnings call that the company "made a big bet" four years ago on developing a comprehensive strategy based on research showing that 54 percent of Petco customers wanted a one-stop shop where they could not only buy food, leashes, and toys, but also get their pets' health checked.
"To me, Vital Care is the customer-facing incarnation of that bet," Coughlin told analysts, adding that the company's "main expansion emphasis going forward" will be veterinary services.
Petco executives claimed that in 2021, the company will open 72 in-store and stand-alone veterinary hospitals, bringing its total to over 200. Petco previously stated that its long-term ambition is to operate roughly 900 veterinary hospitals through in-store and stand-alone expansion.
Once the Thrive integration is complete, Chief Financial Officer Brian LaRose said the business aims to open 20 to 25 new hospital locations in the first half of 2022, before returning to a growth rate of around 18 per quarter, or 70 per year, in the third quarter.
The deal is slated to finalize in May, with Petco taking full ownership of 98 joint-venture-owned pet hospital locations around the country and rebranding them as Vetco Total Care.
Petco will also hire 800 of Thrive's in-house veterinarians as part of the deal, adding to the retailer's continuing veterinary staff expansion. "As we scaled our own model, we found that we were duplicating hospital support overhead with the joint venture," LaRose explained. "With this acquisition, we will be able to optimize" cost savings.
Coughlin told analysts that the growth of care services is part of the company's "next phase of retail," as it aims to create a "end-to-end health and wellness system" for dogs, as it expands digital services like as app-enabled product sales and grooming, training, and other pet services.
The company attracted 800,000 net new clients in 2021, increasing its total to 24 million by the end of the year, according to executives, as Gen Z and millennial pet owners in particular sought to offer care for newly adopted pets.
Since the epidemic began in March 2020, more than 23 million — nearly 20% — of all U.S. families have adopted a pet, according to the American Society for the Prevention of Cruelty to Animals.
Petco is also planning follow-ups to its decision earlier this year to open Petco "shop within a store" sections at numerous Lowe's sites, according to executives. Coughlin said the relationship with Lowe’s remains in early stages, and Petco will gauge sales results from that partnership before deciding whether to make similar arrangements with other chain retailers that have similar customer demographics.
Petco's revenue increased 13% year over year to $1.5 billion in its fourth quarter, which concluded on January 29. The company had a $29 million profit, compared to a $6.2 million deficit the year before.
Revenue climbed 18 percent to $5.8 billion in fiscal year 2021, with net gain of $164.4 million, compared to a net loss of $26.5 million the previous year.
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