Abercrombie & Fitch Co. remained the most attractive takeout target among a group of specialty retailers studied by Jefferies analyst Randal Konik as private equity interest in the sector has intensified.
In judging the attractiveness of companies for a leveraged buyout in his coverage universe, Konik incorporated both their stock valuations and a series of qualitative criteria, including the “compelling, differentiated” nature of a firm’s brand or brands and the strength of its management team.
On that basis, A&F remained in the top spot it held in May among firms considered most attractive to private equity suitors, with Guess Inc. moving up 14 slots to second place, Chico’s FAS Inc. up two slots to third place and American Eagle Outfitters Inc. up four spots to fourth place.
Zumiez Inc. moved to fifth place based on internal rate of return, essentially a measurement of payback on an acquisition, but rated poorly on qualitative attributes such as global and new market appeal, while Ann Inc. rose to sixth place from 13th and Urban Outfitters Inc. moved to seventh place from 16th 13 months ago.
Based on the IRR analysis of firms covered by Konik, Ross Stores Inc. was the least attractive takeout candidate, with a low IRR of 7 percent, followed by its off-price rival, The TJX Cos. Inc., and Tiffany & Co., both of which registered at 8 percent. IRR assumptions included a 30 percent premium to the firm’s current stock price and the use of free cash flow to pay down debt.
The IRRs for the companies considered most attractive ranged from 21 percent for A&F and Guess to 17 percent for American Eagle, Ann and Urban.
“Not only are companies in our coverage screening well from an LBO perspective,” wrote Konik, but “we see more seasonable weather patterns, leaner inventory levels, an improving macro backdrop, a normalized fiscal and holiday calendar and already negative sentiment as drivers of improved stock performance” in the second half of 2014. Even after rising 0.5 percent to 879.74 Monday, the S&P 500 Retailing Industry Group remained down 6.4 percent for the year.
Sycamore Partners last week revealed it had acquired a 9.9 percent stake in Express Inc. and made public its desire to conduct due diligence on the firm. Sycamore has in the past month also acquired the intellectual property of Coldwater Creek Inc. and extended financing to Aéropostale Inc. convertible into equity in the troubled specialty retailer.
Express isn’t part of Konik’s coverage group and Aéropostale was excluded from the survey because of its recent string of unprofitable quarters.
Companies highlighted in the study generally outperformed their peers in the retail sector on Wall Street on Monday. A&F shares rose 1 percent to $42.14, while Guess’ stock was up 3 percent to $26.83, Chico’s up 1.4 percent to $16.87, American Eagle’s ahead 2.9 percent to $11.64 and Ann’s up 1.4 percent to $40.94. Shares of Urban Outfitters dropped 0.6 percent to $33.32.
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)
@heriethpaul and @gracebol have a moment on the @victoriassecret fashion show 2017. See every look from the runway on WWD.com. Link in bio. (📷: @giovanni_giannoni_photo) #wwdfashion #victoriassecret #VSFashionShow
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia