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Chewy Shares Surge in Market Debut


Online pet-products seller

Chewy
Inc.


CHWY 59.05%

posted strong gains in its market debut Friday, reflecting continued strength in initial public offerings of e-commerce companies despite some high-profile stumbles among consumer-technology firms.

Chewy’s stock opened at $36 a share, up 64% from its IPO price of $22 a share. At $36 a share, Chewy’s stock market valuation was roughly $14.3 billion.

The shares, listed on the New York Stock Exchange under the symbol CHWY, closed at $34.99, up 59%.

The Florida-based company, which sells pet food, supplies and pharmacy items, sold roughly 5.6 million shares while its majority owner PetSmart Inc. sold 40.9 million shares. PetSmart also granted underwriters the right to buy up to an additional roughly 7 million shares.

The online retailer had initially priced the range for its IPO at $17 to $19 a share, then raised it earlier this week to between $19 and $21 a share, before finally arriving at $22 a share.

Chewy, which launched in 2011, has said it expects to net more than $100 million from the IPO, money it will use for working capital and general purposes. PetSmart will use proceeds from the offering to pay down debt.

PetSmart’s notes were one of the most heavily traded corporate bonds Friday, with close to $60 million in two separate tranches changing hands, according to MarketAxess.

PetSmart’s bonds have surged since Chewy’s April IPO filing, with the company’s unsecured notes due 2023 gaining over 7 cents to 96.46 cents on the dollar, according to MarketAxess. The company’s secured notes due in 2025 gained nearly 10 cents to 99.5 cents on the dollar over that same period, also, according to MarketAxess.

Chewy’s debut comes as part of a strong week for IPOs, including cybersecurity company

CrowdStrike Holdings
Inc.

and freelance services marketplace

Fiverr International
Ltd.

Tel Aviv-based Fiverr’s shares climbed 90% in its public market debut to close at $39.90 Thursday. Friday, the stock fell 21% amid a broader decline in U.S. indexes.

CrowdStrike’s stock soared in its first day of trading Wednesday, closing up 71% from its IPO price. Friday, shares were down 5%.

This year has been among the busiest IPO markets in years, following high-profile venture-backed tech debuts such as ride-hailing companies

Uber Technologies
Inc.,

Lyft
Inc.,

as well as online image-board company

Pinterest
Inc.

Uber and Lyft, however, are trading below their IPO prices as investors weigh the companies’ abilities to sustain growth with steep losses.

“It is generally sort of a mixed bag of IPOs,” said Anand Sanwal, chief executive and co-founder of CB Insights. “What we are seeing here is that the public market is receptive and they are still skeptical. Just because you are tech doesn’t mean you are going to have a run up.”

Chewy’s IPO also comes on the heels of PetSmart’s settlement of a legal fight over the transfer of minority stakes in Chewy to units that are out of the grasp of creditors.

Under a settlement with lenders, PetSmart pledged to use proceeds of Chewy share offerings, in part, to pay down its top-ranking loans and bonds, The Wall Street Journal has reported. PetSmart has a debt pile of more than $8 billion.

Private-equity firm BC Partners led an investor group that bought PetSmart in 2015. PetSmart bought Chewy for $3.35 billion in 2017.

Chewy generates the bulk of its sales through its subscription feature, which allows customers to have repeat orders automatically shipped at specified intervals.

Annual spending on pets has more than doubled in the U.S. since 2005 to an estimated $75.38 billion in 2019, with about $31.68 billion expected to be spent on pet food alone, according to the American Pet Products Association, an industry trade group.

The company had $3.53 billion in sales in its year ended Feb. 3, up 68% from a year earlier. But the company has yet to turn a profit, reporting its net loss narrowed to $267.9 million from $338.1 million in the prior year.

Chewy has said in securities filings it expects to generate operating losses in the near-term as it expands the business. Over the next several years, the company said its operating expenses will increase as it invests more in advertising to attract new customers, launching new fulfillment centers and expanding its offerings.

The company also plans to hire additional employees and to continue developing features on its website and mobile apps.

Investors see Chewy’s potential because the company has a record operating in the rapidly-growing market sector, said Brian Kochisarli, a corporate attorney at Davidoff Hutcher & Citron LLP. “If Chewy can become the default option for pet owners… the company has an opportunity to achieve great success,” said Mr. Kochisarli, who advises tech companies preparing for IPOs, but didn’t work on the Chewy deal.

Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com



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