NEW YORK — If recent initial public offerings in the retail and apparel market are any indication, J. Crew Group Inc.’s planned $200 million IPO probably will be a hit.
This past spring, the IPO market heated up in the specialty retail space as three relatively unknown apparel companies — Citi Trends Inc., Zumiez Inc. and Volcom Inc. — each successfully priced into the Nasdaq within a two-month period.
Since pricing its IPO at $14 a share on May 18, Citi Trends, a mainly strip mall-based, off-price retailer focused on the African-American, urban demographic, has seen its shares appreciate 72 percent after the first day of trading to about $27. The IPO raised $53.9 million.
Based in Savannah, Ga., where it was founded in 1946, and roughly half-owned by private equity fund Hampshire Equity Partners since 1999, the company expects to eventually more than triple its current store base of 221 stores, which are now located mainly in the Southeast. Competitors are seen as being not only smaller discount chains, such as Dots and Rainbow, but also larger off-price venues such as TJ Maxx, Ross Stores and Marshalls.
Financially, the company has projected that revenues will grow at a 20 percent rate annually, with net income growing at 20 to 25 percent. In fiscal 2005, total sales were $203.4 million, up 29.4 percent from the prior year, as net income increased 22.6 percent to $7.3 million.
Citi Trends caters to a niche market, according to senior analyst Jeffrey Klinefelter of investment bank Piper Jaffray. Citing U.S. Census Bureau data, Klinefelter noted that, by 2010, the African-American population is expected to grow by 13.1 percent, from 36 million in 2000. And buying power among that population is expected to rise to $965 billion in 2009 from $585 billion in 2000, he said.
“This is very encouraging, as the U.S. Census Bureau estimates that African-Americans spend approximately 5.7 percent of their income on apparel, compared to 4.2 percent for white and other consumers,” wrote Klinefelter in a June 27 research report. The analyst currently has a market perform rating and a $22 price target on the stock.
Zumiez, based in Everett, Wash., priced into Nasdaq at $18 a share on May 6; proceeds from the IPO totaled $58.5 million. Since the first day of trading, Zumiez shares have added roughly 25 percent to reach about $31.
The mall-based retailer operates 150 stores offering branded and private label product to 12- to 24-year-olds interested in “extreme sports” such as motocross, skateboarding and snowboarding. The company, which was founded in 1978 by Thomas D. Campion, chairman, and Gary Haakenson, is now partially owned by venture capital firm Brentwood Associates out of Los Angeles and is looking to expand to 600 stores. The company’s IPO proceeds will help fund much of this growth.
Klinefelter, who has a $34 price target and an outperform rating on shares of Zumiez, noted that the company has a unique position, despite its competition with Pacific Sunwear of California Inc., Abercrombie & Fitch Co.’s Hollister division and Quiksilver Inc.
“While other mall-based stores offer some of the same branded apparel, Zumiez is unique in that it also offers a selection of hardlines, lending the store an aura of authenticity,” Klinefelter wrote in a June 15 research report.
Revenues are expected to increase 20 to 25 percent annually in the next two to three years. Sales totaled $153.6 million in fiscal year 2005, up 30.3 percent from the prior year, while net income rose 63.1 percent to $7.3 million.
And the most recent IPO of the group took place on June 29, for skate and snowboard private label apparel vendor Volcom. The company, based in Costa Mesa, Calif., priced into the Nasdaq at $19 a share — above the $15 to $17 target price — and its shares have added 12 percent since the first day of trading, lately closing at around $30. The IPO raised a whopping $80.4 million.
Volcom designs, manufactures and distributes apparel and accessories though specialty shops, national and regional chains and internationally via licensees and distributors. The company was founded in 1991 by Richard Woolcott, chief executive officer and president, and Tucker Hall. It was formerly known as Stone Boardwear Inc., and the name was changed to Volcom in April.
J. Crew announced its planned IPO last week. On Friday, Standard & Poor’s Ratings Services placed J. Crew’s corporate ratings on CreditWatch “with positive implications.”