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Luxury IPOs a Go-Go: Burberry to Become 2nd Summer Offering

LONDON — Whatever the weather, one thing is certain about this summer — it’s going to be hot for luxury IPOs.GUS PLC today will confirm its plans to go for an initial public offering of up to 25 percent of the shares in its luxury...

LONDON — Whatever the weather, one thing is certain about this summer — it’s going to be hot for luxury IPOs.GUS PLC today will confirm its plans to go for an initial public offering of up to 25 percent of the shares in its luxury subsidiary Burberry. The long-expected news comes 12 days after Prada announced that plans for its own much-delayed IPO are back on track.

GUS will confirm the plans at a press conference to report its results for the year ended March 31. The results will results will show that Burberry continued to boom last year, with a 29.9 percent leap in operating profits to $131.8 million on a 17.4 percent rise in sales to $728.5 million. This compares with operating profits of $101.5 million on sales of $620.5 million a year earlier.The growth was across all categories, Rose Marie Bravo, Burberry’s chief executive officer, told WWD. It also was fueled by the first-time inclusion of Burberry’s Asian operations outside Japan, which the company acquired control of in January, and by continued growth in such key markets as Japan, Spain and the U.S.

“We were especially strong in Japan and the U.S., despite the horrible tragedy there,” Bravo said.

Details of the Burberry IPO will be scarce today, however. GUS will not indicate the percentage to be offered, the timing of the IPO or the price. But sources said the offering should value Burberry at approximately $1.8 billion to $2.3 billion when the company makes its debut on the London Stock Exchange. The offering will be available only to institutional investors, however, not to the general public.

As for timing, sources said the IPO is expected to take place early this summer.

That sets up a battle with Prada, which is expected to begin the road show for its IPO next month with a target date of early July. The Prada IPO is expected to be for up to 30 percent of the company, valuing it at about $5 billion.

Analysts said the collision of luxury IPOs has both pluses and minuses. “On the positive side, the two listings will draw more attention to the luxury sector as a whole,” Andrew Gowan, a luxury analyst at Lehman Brothers in London, said. “There will be a reasonable amount of due diligence done on the sector, for example. On the negative side, the valuations of the companies will be benchmarked against one another. They will be competing and investors will be inclined to engage in comparative share shopping.”Sagra Maciera de Rosen, vice president and head of the luxury goods team at JP Morgan Chase, said that it would be better if the timings of the two IPOs were as far apart as possible. “In the end, they are competing assets — they’re going after the same pool of money. As different as the brands are, they’re operating in the same sector and appealing to the same group of investors.”

De Rosen warned there’s an even more important issue: “Depending on who goes first — either Prada or Burberry — that could positively or negatively impact who goes second. If company one has a successful flotation, then company two will have an easier job with their listing. But if company one flops, then company two is going to have a heck of a time doing well.”

GUS continues to say the Burberry IPO “depends on market conditions,” a statement Patrizio Bertelli of Prada also has made. But for both companies, it appears to be a case of “now or never” — Prada needs the funds from an IPO to help reduce its debt mountain, while GUS wants its shareholders to gain from Burberry’s phenomenal growth over the last five years.

“The plan to float part of Burberry is an important step in the strategic focusing of GUS,” John Peace, chief executive of GUS, said in a statement, adding GUS will retain majority control.

Bravo, reflecting on the work she and her team have done since she took over as ceo in October 1997, said in a statement, “The strategy we have implemented over the past few years has transformed the business. We have established a strong platform for future growth through expanding our product ranges, taking control of our distribution channels and expanding our geographic reach.”

Bravo, who joined Burberry from Saks Fifth Avenue, has overseen one of the luxury sector’s more phenomenal turnarounds. Burberry was a dusty, traditionally British brand with all the attributes that implies: a long heritage, fantastic archives, a signature product in the trenchcoat — and endless licenses worldwide and declining profits and sales.

The new Burberry ceo and her team — many of whom were recruited from Saks or other U.S. department stores — immediately set about the task of trimming Burberry’s licenses, buying back such key franchises as Spain, renegotiating the brand’s deal in Japan and blowing the dust off its designs. Burberry initially recruited Roberto Menichetti from Jil Sander as its creative director but he left the company after three years in a disagreement over its focus on its signature check and his unwillingness to relocate to its London headquarters from his operations in Gubbio, Italy. He was replaced last year by Christopher Bailey, formerly of Gucci, whose women’s and men’s collections for Burberry have won strong reviews in the last three seasons.

Over the last few years, the company has continued to gain momentum with rising profits and sales, new store designs in flagships in London, Beverly Hills and, this year, New York, London and Barcelona, as well as a smaller store in SoHo in New York, and such new categories as shoes, active apparel and children’s wear. Bravo also has continued to strengthen Burberry’s management team with the appointment last fall of Thomas J. O’Neill as president of Burberry Worldwide. He joins Bravo and Mike Metcalf, the company’s chief operating officer and chief financial officer, as the top three executives of the company.

On Friday, Burberry announced the appointment of Kikuo Fukui as head of its new representative office in Japan, reporting to O’Neill. Fukui joins Burberry from Tiffany, where he was president of Tiffany & Co. Japan KK for 12 years.”