By  on June 27, 1994

NEW YORK -- The hot initial public offering market has clearly cooled, but a number of fashion firms continue to tap the market.

New issues are generally coming in below their IPO price targets and are not performing as well out of the gate, particularly compared with the IPO market's heady run in 1992 and 1993. During that period, most IPO stocks exceeded targeted offering prices and strongly outperformed the broader market.

"May was the first month since January 1993 in which more IPOs were priced below the indicated range at the time of the registration than were priced above or within the range," said Elizabeth M. Eveillard, managing director at Paine Webber. "That is a sign of weakness in the IPO market."

Peter J. Solomon, who heads his own investment banking firm, concurred.

"What you're finding is that it's sort of a lackluster performance and it's a lull time for retailers and consumer products companies to do initial public offerings," Solomon said.

Market trackers said softness in the IPO market can be traced to weakening and increased volatility in broader stock markets.

"The overall market valuations have dropped and it's certainly more of a buyer's market than it was six months ago," said Linda Killian, who covers apparel issues at Renaissance Capital Corp., based in Greenwich, Conn.

Also, some watchers said that, given the flood of IPOs to reach the market in the last two years, the quality of offerings may be slipping, with many firms tending to be much smaller than in the past. They also said the pricing on some deals may have become "too aggressive."

Among fashion firms, Jos. A. Bank Clothiers came out at $10 a share in May, well below its expected offering price of $13 to $15 a share. Kenneth Cole Productions hit the market at $12 in June, sharply below its projected price range of $13.50 to $15.50 a share. Both issues are trading below their offering prices, reversing the trend in which IPOs tended to outperform the market in the first six to nine months.

American Eagle Outfitters Inc. went public in April at $16 a share, topping its projected range of $13 to $15 a share, but it is also trading below its offering price now. Marisa Christina Inc. hit the market on June 22 at $13 a share, landing in the middle of its projected range.Demand has been somewhat worse for apparel and fashion firms than other industries, reflecting weakness in those businesses. Some analysts also suspect that high-profile problems at firms such as The Gitano Group and The Leslie Fay Cos. have made investors more wary of the apparel industry.

"I think people always get reinforced about how difficult the fashion business is every three or four years," said Solomon. "When people have forgotten how fickle fashion is, they get reminded." Robert S. Natale, who covers emerging and special situations for Standard & Poors Corp., suspects that the withdrawal last fall of a proposed offering by Donna Karan Co. may make it more difficult for designer firms to go public.

"I think there were a lot of important issues that were brought to bear with trying to bring that deal to market, and I thought there were a lot of serious questions as to whether designer firms should be public at all," Natale said, pointing to the highly entrepreneurial style in which designer businesses are run, the fickleness of fashion and the overall retail shift in the Nineties away from high-priced goods.

Nonetheless, market experts said fashion firms with proven track records should have no problem reaching the market, noting that Ann Taylor Stores Corp., Tommy Hilfiger Corp., Cygne Designs Inc., Donnkenny Inc. and Farah Inc. have all recently completed secondary offerings. Most of the fashion IPOs to reach the market before April are trading above their offering prices.

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