Citi Trends operates 214 stores in the Southeast, and management believes it could grow to 735 stores.

Investors have given some new IPOs the cold shoulder, but the most recent public offerings of relatively small retail companies appear to break the pattern.

NEW YORK — Investors have given some new IPOs the cold shoulder, but the most recent public offerings of relatively small retail companies appear to break the pattern.

The positive reception generated by teen extreme sports retailer Zumiez and discount apparel retailer Citi Trends Inc. suggests an opportune time to jump into the IPO market for DSW Inc., the jewel of Retail Ventures, which is set to test the waters this week.

DSW plans to sell 14.1 million shares at $15 to $17 a share, according to filings with the Securities and Exchange Commission. It would use the proceeds to repay $190 million owed to parent Retail Ventures, and for other general corporate purposes.

Schottenstein Stores Corp. controls 59.4 percent of Retail Ventures, which also operates Value City Department Stores and Filene’s Basement stores. The Schottenstein family also owns 17 percent of American Eagle Outfitters as well as other retail and real estate-related interests.

After the IPO, the Schottensteins would still control DSW through Retail Ventures, which would hold 94 percent of the voting power of the footwear retailer. In addition, Stephen Feinberg of Cerberus Capital Management owns about 20 percent of Retail Ventures, and Dimension Fund Advisors Inc. owns a 6.7 percent stake.

There has been strong interest in the DSW public offering, said an institutional investor who plans to buy shares of the footwear retailer once it goes to market.

“Citi Trends and Zumiez have done very well,” said James Rice, analyst at Susquehanna Financial Group. “This is a good time to do a retail IPO … DSW should do well, too, because it has a good story to tell. The numbers are looking good, and there is an expectation of comps growth and profitability.”

Next up is the active sports and teen apparel brand Volcom Inc. The company said in an SEC regulatory filing last week that shares of Volcom are expected to be priced at $15 to $17 a share. The Costa Mesa, Calif.-based firm said it would issue about 4.2 million shares and hopes to raise as much as $91.4 million.

And, of course, there is the anticipated IPO of J. Crew in 2006. Still, the firms that have the advantage are the early movers, those which have recently gone to market or plan to soon.

This story first appeared in the June 28, 2005 issue of WWD. Subscribe Today.

To be sure, as investment banker Peter Solomon of the firm that bears his name pointed out, the “retail IPOs so far are of relatively small companies.”

Yet retail as a whole is doing better than most other sectors, with consumers still spending despite rising gas prices.

“We’re seeing something peculiar,” said Robin Lewis, chief executive officer of Robin Lewis Inc., a consulting firm. “Consumers are not denying themselves anything. They are consumption-driven, and will find a way to buy.”

Zumiez on May 6 — the day of the IPO — opened at $20.55 in Nasdaq trading and closed at $24.87. Zumiez closed Monday at $30.05.

Citi Trends Inc. followed on May 18, opening at $16.95 and closing at $15.70. Hitting an intraday high of $19.40 on June 3, shares of Citi Trends on Monday closed at $16.60 on the Nasdaq.

Joseph Teklits of Wachovia Securities wrote in a research note on June 15 that he was initiating coverage with an “outperform” rating. “Zumiez currently operates only 146 stores in 18 states, and many of its ‘teen retail’ peers have expanded to 600-plus stores,” he wrote. “Zumiez will likely be one of only a handful of retailers that could post over 20 percent square-foot growth annually for the foreseeable future.”

Teklits wrote that Zumiez stores offer a unique mix of branded and private label action sports apparel and hard goods such as skateboards and accessories, and classified Zumiez as a “true lifestyle retail concept.”

Piper Jaffray Co. analyst Jeffrey Klinefelter rated Citi Trends “outperform” in a June 27 research note. He said the retailer “primarily targets the African-American demographic, which is poised for significant increase in spending power, from $585 billion in 2000 to $965 billion in 2009,” according to a University of Georgia study. He also pointed out that urban brands tend to grow “significantly faster” than the overall apparel industry.

Citi Trends operates 214 stores in the Southeast, and management believes it could grow to 735 stores, which Klinefelter said would represent a growth potential of 343 percent. “The company has significant opportunity to grow in demographically favorable markets including Miami, Dallas, Philadelphia, Chicago and Detroit,” Klinefelter noted.

Zumiez and Citi Trends are in contrast to IPOs outside of the retail sector.

A few have lost some opening-day luster in “after-market” performance. High-profile IPO DreamWorks went public October 2004 at $28 a share. Investors quickly bid up the price to $39 on the first day of trading. The stock climbed as high as $41 a share, but now trades below its IPO price.

The IPO for investment bank Lazard Ltd. in May raised $855 million. It opened at $25 a share on May 5, but since then has never traded past its opening price. Flower delivery service FTD Group Inc. shares a similar history, opening on Feb. 9 at $13.90, but since then trading below its IPO price. Both are on the New York Stock Exchange.

As for some firms hoping to go to market, several have been pulled as the heat from the summer doldrums seem to have chilled the IPO market. Paper producer Boise Cascade Co., Jazz Semiconductor, and mattress maker Simmons Co. have elected to not to pursue a public offering.

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