Tory Burch will take her bow on the runway today, but will she ever ring the bell at the New York Stock Exchange?
This story first appeared in the February 14, 2012 issue of WWD. Subscribe Today.
There would be big bucks in an initial public offering for Burch and her investors. Michael Kors personally raised $117 million when his firm went public in December and the stock has jumped 68 percent to $33.61 so far, giving the growing company — which reports its results today — a market capitalization of $6.41 billion. That’s $860 million more than the market capitalization of PVH Corp., which owns Calvin Klein and Tommy Hilfiger and a host of other businesses.
Is Tory Burch in that league? There’s one way for her to find out — and no one is using the “TORY” ticker.
“We are very happy with the way the business is growing under the present private ownership structure,” Burch, who is her firm’s chief executive officer, told WWD. “As of now, we have no intention of an IPO.”
It’s that tease — the “As of now…” — and the company’s growth potential that has Wall Street so interested.
Still, an IPO is a doubled-edged sword. Public companies are under a microscope. They face a treadmill of quarterly updates to Wall Street and are pressured relentlessly to keep growing or to start paying out fat dividends. And when the primary brand eventually tops out, public fashion companies often start to take on other businesses to fuel growth, which can lead to ungainly portfolios of labels that only sometimes work together.
“You’re under an enormous amount of scrutiny as a public company and it’s very difficult to constantly please Wall Street when you’re trying to run a fashion business,” said Marc Federbush, partner in charge of the apparel and textile services group at the accounting firm Anchin, Block & Anchin. “It’s a fickle industry. You’re only as good as your last season. You can be out of fashion pretty quick and Wall Street doesn’t always understand that.”
Even so, the benefits can be pretty sweet.
“It’s very prestigious to say, ‘I am the ceo of a publicly trade company in the United States,” Federbush said. “If [a company has] in excess of $500 million or a billion of sales, then I see maybe there’s a reason, because that will open up some capital where they can fund growth overseas.”
Tory Burch is said to have sales in excess of $450 million and has 65 stores, including two outposts in Mainland China, a region that is a priority for the designer, who decided to take on the market without a partner. “It’s something I’m personally passionate about,” Burch said last year. “We don’t need immediate gratification. We want to do it organically…in an understated way.”
If the Chinese opportunity becomes too tempting or the company decides it wants to ramp up its business in the region quickly, it will have to spend some serious bucks to do so.
“If you really want to have a scalable business and have more than two stores in China, which is a market that can probably absorb a lot of Tory Burch, you need quite significant capital,” said Hana Ben-Shabat, a partner in A.T. Kearney’s retail practice. “In a brand like this, the future is really emerging markets. If she’s not happy with the current level of performance in her core market, it’s almost inevitable that she has to go to other markets. It’s difficult to drive high-single-digit or double-digit growth in the United States. It’s just not going to happen.”
Ben-Shabat said the company might also need to raise money if it wants to expand into other categories.
All that untapped potential for expansion has Wall Street salivating.
“It would be fantastic,” said Paul Lejuez, an equity analyst at Nomura Securities, of a Tory Burch IPO. “There’s a thirst in the market for growth stories right now and particularly in the accessories category, which seems to be performing very well. You look at a Kors, or even if you look at the performance of a Coach lately, it’s been just remarkable.”
Lejuez said the investment calculus for Tory Burch and Kors is similar and the window of opportunity for the firm to make an offering is wide open.
“It’s about growth,” he said. “It’s about being in the right categories, selling the right demographics and it’s about momentum. If Tory Burch has those three things, which I assume they do, the window’s open and I don’t see it closing.”
The glitz of fashion also doesn’t hurt. “It’s probably easier to tell a Michael Kors or a Tory Burch type story to Wall Street because they know the brand, because they shop the brand,” said Lejuez.
The value of Tory Burch the company was brought to the fore when Barclays Capital was hired to sell off the portion of the company still held by Chris Burch, the designer’s ex-husband who remains co-chairman of the firm.
On balance, though, Wall Street might need Tory more than Tory needs its money, at least for now.
“She can take enough off the table in salary and benefits,” said one industry source. “Her lifestyle is more than supported. I don’t think there’s pressure on her to take this company public. I don’t think Tresalia [the Mexican investment firm that owns a minority stake] really cares, but at some point the shareholders are going to want liquidity.”
There’s the pecking order to think of, too.
“There’s a competitive element of, ‘Hey, we’re better than Michael Kors,’” the source noted. “They’re right across the street from each other on Madison Avenue.”