forecasts-analysis
forecasts-analysis

IPO Climate Warming for Some Retailers

Value retailers seen best candidates in revival of public markets.

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Tricarico explained that investors are also willing to give credit for forward earnings, meaning companies looking at a spring IPO can rely on using projected 2011 earnings as a basis for valuations.

In addition, many retail IPOs have done well subsequent to going public.

According to data from ICR, a Westport, Conn.-based financial communications firm, the stock appreciation average was 190 percent for 10 IPOs in softgoods retail, apparel and footwear over the past five years from their IPO prices within the first two years of going public. Those 10 IPOs were: Under Armour Inc.; Zumiez Inc.; Citi Trends Inc.; J. Crew Group Inc.; Crocs Inc.; Lululemon Athletica Inc.; Ulta Salon, Cosmetics & Fragrance Inc.; New York & Company Inc.; DSW Inc., and Hanesbrands Inc.

The last successful one was Ulta, in October 2007. Before Ulta, the last two successful specialty-apparel retail IPOs were Lululemon in July 2007 and J. Crew in June 2006, with the latter one of the most successful flotations in history. Mall-based specialty retailer Metropark USA Inc. filed for an IPO in June 2008, but that was then pulled.

Tully & Holland’s Kampe said, “If these [upcoming] IPOs are successful, I would expect others will follow suit.”

Kampe noted the number of deals funded in the last few years by private equity firms, many with a high level of debt that needs to be paid down. “Many of those financial sponsors might want to exit their investments, and this new IPO market can appear exciting and very interesting. Ultimately, this could be the exit avenue for these private equity firms if the market proves to be vibrant,” he concluded.

On Monday, stocks gave back most of the morning’s gains and the S&P Retail Index finished up less than 0.1 percent at 387.83. After briefly topping 9,900, the Dow Jones Industrial Average finished the day at 9,885.80, up 0.2 percent while the S&P 500 closed at 1,076.18, up 0.4 percent.

Lest anyone get too positive, Piper Jaffray’s Hoffman cautioned the economy will have to show continued improvement for the IPO trend to continue. “If we lose momentum on the economic recovery, there’s the potential for the market to shut down again,” he stressed.

 

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