Retail stocks gained 1.5 percent Wednesday, hitting a new 52-week high and showing some of the bullishness that has new entrants, such as the private-equity owned Francesca’s Holdings Corp., ready to tap the public markets.
The S&P Retail Index rose 7.63 points to 533.07 and traded as high as 537.01 midmorning. The index, which tracks the broader retail market and in its current form goes back to 2002, is a stone’s throw from its all-time high of 538.50, set in February 2007.
Even though retail stocks are nearing their pinnacle, relative valuations for many chains are still considered low, reflecting an outlook clouded by higher supply chain costs related to cotton, oil and labor and a crowded U.S. marketplace.
But a group of hardy up-and-comers such as Francesca’s Collections, which has 236 doors and plans to open another 46 doors this year, have carved themselves a niche and have big plans for the future. WWD reported April 4 that Francesca’s, Charming Charlie and Love Culture were among the retailers considering initial offerings this year.
Francesca’s is looking to raise as much as $150 million in an initial public offering, according to a Securities and Exchange Commission filing this week. About $41 million of the net proceeds would be used to repay a credit facility.
The company has small stores, about 1,400 square feet, and caters to 18- to 35-year-old women with trendy apparel and accessories, including flirty dresses in floral motifs and jeans featuring retro paisley designs.
Francesca’s spends about $155,000 to open a new store and typically makes its money back in less than a year. The firm estimates it can ultimately blanket the country with 900 doors.
Last year, Francesca’s pulled in profits of $16.9 million on sales of $135.2 million. Apparel sales grew 54 percent for the year to $70.3 million. The balance of sales is in accessories and gifts.
Private equity firm CCMP Capital Advisors owns a controlling interest in the chain, which is led by co-founder, president and chief executive officer John De Meritt.
Better-than-expected March home sales and optimism in the tech sector buoyed the overall stock market Wednesday, pushing the Dow Jones Industrial Average up 1.5 percent, or 186.79 points, to 12,453.54. And gold for June delivery rose to 7.1 percent to $1,502.20 a troy ounce on the Comex division of the New York Mercantile Exchange.
Among the retailers gaining ground were American Apparel Inc., up 5.2 percent to $1.21 as it searches for a capital infusion, and Guess Inc., ahead 3.4 percent to $39.78.
Dov Charney, chairman and chief executive officer of American Apparel, declined to comment on reports that the company was close to securing about $15 million from private investors. Unless it can furnish audited financial statements that do not contain language about its ability to continue as a “going concern” by April 30, it will fall out of compliance with covenants in its loan agreements with Bank of America and Bank of Montreal.
Also on Thursday, Neiman Marcus Group Inc. said it is negotiating to increase its existing senior secured term loan to $2.06 billion from the current $1.51 billion and its senior secured revolving credit facility to $700 million from $600 million. Proceeds from the term facility would be used to repurchase or redeem $752.4 million in senior notes at 9 percent and 9.75 percent due in 2015.