By Granth Vanaik and Siddharth Cavale
(Reuters) - Keith Gill, the meme stock trader "Roaring Kitty," thrust Chewy (NYSE:CHWY) Inc into the spotlight when he made a $245 million bet on the online pet products retailer on Monday.
What is Chewy and why has it attracted Gill's interest?
WHAT'S THE BUSINESS?
Chewy is an $11 billion e-commerce retailer that offers about 115,000 pet products, including food, beds, litter and vitamins to U.S. customers through its websites and mobile app. Their $9.99-a-month subscription plan, which targets dog and cat owners, has been a key driver of their business.
It sells products under brands including A Pet Hub, Bark and Slumber, and Nutro, and its market capitalization stands at $11.87 billion, according to LSEG data.
By marketing its products to a narrow group of shoppers - pet owners - Chewy has been able to keep its marketing costs and inventory levels low, enabling it to grow its profit margins over the years.
The company reported net sales of $11.15 billion and merchandise margins of 28.4% for its fiscal year ended on Jan. 28, 2024.
Chewy competes with the likes of Amazon.com (NASDAQ:AMZN) and Etsy (NASDAQ:ETSY), which also sell pet products online, in addition to Petco Health and Wellness, which operates over 1,500 stores in the United States.
WHAT'S CHEWY'S HISTORY?
GameStop (NYSE:GME) CEO Ryan Cohen and Michael Day founded Chewy in 2011. They then sold the business to larger rival PetSmart for $3.35 billion in 2017, the largest acquisition of an e-commerce website at the time.
Two years later, PetSmart sold most of its Chewy shares in an IPO, in part to trim the debt it had amassed as part of its acquisition of the company. Chewy began trading on the New York Stock Exchange at a $36 share price on June 14, 2019.
Chewy's shares peaked at nearly $119 in early 2021, as Americans adopted pets during the pandemic and spent lavishly to care for them.
Chewy is chaired by BC Partners' Raymond Svider. The private equity firm continues to own around 68.6% of Chewy following its IPO, representing 95.6% of the voting power, it disclosed in a May 24 proxy statement.
BC Partners is also a majority shareholder of PetSmart.
WHY IS ROARING KITTY INTERESTED IN CHEWY?
Gill said on Monday that he had amassed a 6.6% stake in the company valued at $245 million, which analysts said was partly influenced by the fact that the retailer was founded by GameStop's Cohen.
Gill has called Cohen "the man" and brilliant in the past.
His stake makes him the third largest shareholder, based on the ownership disclosures in Chewy's proxy statement.
Gill's Reddit posts championing GameStop in 2021 fueled a nearly 700% rise in the video game retailer's shares in 2021.
HOW HAS CHEWY'S STOCK FARED?
Chewy's stock has been volatile since Gill posted an uncaptioned picture of a puppy on social media platform X that resembled Chewy's logo and sent its shares to a near one-year high on Thursday.
But including Monday's trading, Chewy's shares have lost 13% since Thursday's tweet.
The stock is also highly shorted, with 15.7% of its free-float shares in short position, as of June 27, according to Ortex Technologies, an analytics firm. By comparison, about 0.9% of Amazon's free float are shorted.