DELIA’S INTERNET IPO SEEKS TO RAISE $45 MILLION
Byline: Thomas J. Ryan
NEW YORK — Delia’s Internet operation — iTurf Inc. — plans to raise up to $45 million in an initial public offering.
As reported, Delia’s, the teen direct marketer, in December said it planned to take its Internet division public. Its Web offerings include delias.com, which sells apparel from the Delia’s catalog; gurl.com, a gateway to third-party Web sites; droog.com, a boys’ site; and tsisoccer.com.
The amount of shares to be sold and the offering price were not included in the preliminary prospectus for the offering. Proceeds will be used for marketing activities, capital expenditures and purchase of the common stock of its parent, Delia’s. In over-the-counter trading, Delia’s stock closed Tuesday at 17 3/4, up 2 11/16.
The prospectus noted that the Internet business has a limited operating history. Tsisoccer.com bowed in 1995 and gurl.com was launched in 1996, but the company didn’t start selling merchandise from its Delia’s catalog on the Internet until May 1998. Sales in the quarter ended Oct. 31 were $1.06 million against $53,000 a year ago.
ITurf also said it expects to record substantial losses for the “foreseeable future” as it pays to increase brand awareness and enhances its systems, technology and customer support to handle increased traffic to its Web site. Still, iTurf earned $52,000 in the nine months ended Oct. 31 on sales of $1.9 million.
However, iTurf boasted of the potential of e-commerce shopping, particularly in reaching the Generation Y market, or the demographic group between the ages of 10 and 24.
The firm noted that according to eMarketer, an Internet market research firm, the number of teens and college students who regularly access the Internet will rise to 22.3 million in the year 2000 from an estimated 12 million in 1998.
ITurf noted that the Generation Y market is hard to reach for traditional retailers and advertisers and said it believes creating an online destination that caters exclusively to Generation Y “is essential to marketing to this group.”
“The major Internet navigational hubs are generally designed to appeal to a broad audience and do not exclusively address the issues that are relevant to teens, such as peer, parental and school-related pressures, as well as issues revolving around friendship, sexuality and competition. Accordingly, we believe there is a need for a Generation Y online destination consisting of an integrated network of community and commerce in a trusted environment,” the prospectus said.
Delia’s noted that by selling a selection of branded and proprietary products, it has been able to achieve higher gross margins per order than many other e-commerce companies. In the nine months ended Oct. 31, iTurf’s gross margins were about 49 percent.
ITurf also noted that it has many advantages over other potential Generation Y e-commerce providers because of its association with Delia’s, which provides access to a proprietary nine million-name database, merchandise expertise and advertising space in Delia’s catalogs.
Besides merchandise sales, iTurf gets revenues from fees paid for advertising on its sites; fees from licensing its gURL brand, and subscription fees paid by members of its discountdomain.com discount shopping service.
“Our goal is to build iTurf into the premier Generation Y online destination so that we can realize superior revenue growth opportunities in the form of expanded e-commerce offerings and, eventually, advertising opportunities, including sponsorship, promotion and distribution agreements with leading brand marketers and media companies.”
Stephen I. Kahn, Delia’s president, chief executive officer and chairman, holds the same titles at iTurf, as do many other members of Delia’s management. However, iTurf plans to create a separate marketing and sales team.
Delia’s is one of the many apparel firms angling to take advantage of the investor’s hunger for Internet-related stocks. Shares of Active Apparel shot up in late December after the activewear maker said it launched a online-selling Web site, and a number of catalogs and retailers have seen their shares rise as they’ve announced new initiatives for their Web sites.
Ken Cassar, an analyst at Jupiter Communications, an Internet research firm, said he expects more traditional retailers and catalog firms to spin off their Internet businesses, noting that Barnes & Noble is planning to spin off its book Internet business.
“You have to be crazy not to take advantage of some of the capitalizations these Internet companies are getting,” Cassar said.
He noted that a spinoff allows an investor to choose risks between investing in the core business or the newer and more volatile Internet business.
However, the downside, according to Cassar, is that spinoffs eliminate some of the synergies possible with the parent, such as the motivation for in-store advertising.