XOXO: TAKING STOCK, EYEING OPTIONS
Byline: Kristi Ellis
LOS ANGELES — Gregg Fiene is not only courting underwriters for a possible IPO this year, he’s also considering a private placement through venture capitalization.
“They [investment firms] can inject cash, take us to the next level and help us prepare to go public later versus just rushing into the market,” said Fiene, an owner of Lola Inc., the maker of the XOXO label.
“If I could open more stores and expand more, the stock will be worth more later,” he reasoned. “That may be the better way to go now.”
At the same time, he’s moving ahead with expansion plans while keeping an eye on the movement of the stock market.
Interviewed at his new 168,000-square-foot complex in the City of Commerce, Fiene outlined plans for a new division as well as stores and in-store shops — moves that could force Wall Street analysts to take a serious look at the junior/contemporary company.
He said he is prepared for a roller-coaster ride, in light of the market volatility of the last few weeks. The timing of an IPO, of course, is crucial.
“I might think that I’m right for an IPO but that doesn’t mean that the community and the market think I’m right,” he added.
He acknowledged that the market soured somewhat in 1996 for those apparel companies that faltered on Wall Street.
“We are not going to plunge into anything and have the problems that Guess and Donna Karan and Mossimo have had,” he said. “I don’t want to be a fad. We have been here for almost seven years and we’re not about being trendy. We are about selling pretty clothes that women always wear.
“I am not looking to do this as a ‘get-rich-quick’ scheme,” continued Fiene. “The reason why this company would do an IPO is to take the company forward and expand with more stores and more licensed products.”
Fiene started XOXO in mid-1991 with two silent partners, Marc and Michelle Bohbot of Bisou Bisou. The first office was in downtown Los Angeles and there were four people on board, including Fiene. Initially, Fiene made Lycra spandex bodysuits and leggings and knit-related separates. Today the company employs 309 workers and makes two sportswear lines: XOXO, its junior collection, and Lola by XOXO, a contemporary line.
The Bisou Bisou partners will remain if the company goes public. If it opts to do a private placement offering, the three partners would bring in private investors who would own a portion, said Fiene.
The company has grown from a $3.5 million business in its first year to $71 million last year.
Fiene expects to generate $100 million for its current fiscal year, which began at the end of January. Some $72 million to $80 million will be done with the core XOXO sportswear and dress line, including $5 million in Lola by XOXO, and the remainder in licensed products. XOXO launched a dress division three years ago. It currently represents 30 percent of the total volume.
Fiene projected that the current eight licensees will do a combined volume of approximately $20 million in their first year in business.
Fiene based the company on his own sense of fashion, leading the junior/contemporary market with prints one season and polyester the next. In the past, the company has offered frequent deliveries that create a fresh mix at retail. But for fall, Fiene plans to narrow the focus with fewer and, he hopes, more successful groups with a greater number of items in each.
For fall, the wholesale price range for XOXO is $12 to $32 for sportswear and $15 to $40 for dresses. Lola by XOXO wholesales from $22 for a shirt to $112 for a jacket, and includes stretch suedes, sweaters and plaids.
As the search goes on for an underwriter, Fiene is expanding the business.
Last November, the company opened an XOXO concept store at 732 Broadway in New York’s Greenwich Village, after having opened two outlet units in Camarillo and Barstow, Calif. There are plans for another concept store in Roosevelt Field, Garden City, N.Y., in June, and one in Los Angeles by the end of the year. Another outlet store in Jackson, N.J., is slated to open by yearend.
The Manhattan store has a total of 7,000 square feet, including a basement. Only 3,500 square feet on the street level is being used at present. Fiene’s first-year volume projection of $2 million is on plan so far, he said.
Other expansion plans include the launch this month of a new separate woven blouse division called XOXO Chemise. The division will include cotton poplin and satin blouses that wholesale from $12 to $19.
In the past year, the company has also signed licenses for swimwear, children’s wear, sunglasses, watches, shoes, leather and suede outerwear, handbags and accessories.
Last May, XOXO signed a denim license with Jeans Plus, Los Angeles, but Fiene said the agreement was terminated in January after Jeans Plus failed to come through with designs and product. Jeans Plus has since gone out of business due to union problems, said an XOXO spokeswoman. Fiene said XOXO is currently looking for a new denim licensee.
XOXO signed a swimwear license with Beachfront Inc., New York, last year.
Marci Wittenberg, president of Beachfront, said she expects a first-year wholesale volume of $3 million to $5 million. The full line was launched last July.
XOXO is also focused on international expansion.
It has an arrangement with Royal Sporting House, based in Wisma Gulab, Singapore, for store expansion in Asia. Royal Sporting House, which acquires licenses for concept stores in Asia, opened two XOXO concept stores, one in Jakarta and one in Singapore, last September. It has since opened a second unit in each of those cities.
The company exports to Japan, Canada, South America, Italy, Singapore and Jakarta.
On the home front, XOXO plans to expand its boutiques within department stores. Between May and July, it is scheduled to launch eight new in-store shops — two at Macy’s West, one at Macy’s East, four in Burdine’s and one in Rich’s.
XOXO expects to spend $2 million on advertising this year — even with a year ago.
Although analysts would not comment specifically on XOXO because they haven’t seen a prospectus, some noted that the stock market is receptive to junior apparel companies.
Catherine DePuy, vice president and analyst at Buckingham Research, said the junior market has bounced back somewhat in the first quarter after struggling in the second half of 1996.
“IPO activity slowed down dramatically last year because the market was incredibly volatile,” DePuy said. “During the first half, the teen group had momentum and valuations went through the roof so a lot of companies came out. But in the back half of the year, there were a few disappointments and people got out.”
One of the disappointments was Mossimo Inc., which peaked at $50 per share and has since dropped to 8. “That will leave a foul taste in peoples’ mouths,” DePuy said.
Maria Medaris O’Shea, an analyst at Alex. Brown, was more optimistic about the junior market.
She said the teenage population is growing twice as fast as the general population. And as it started growing in the early Nineties, the market was ripe for companies such as Gadzook’s, Pacific Sunwear and Hot Topics, each of which filed successful public offerings, said O’ Shea.
O’Shea said the market is in the early stages of a teenage population wave that is predicted to peak at 31 million in 2010. The teenage population today is at 28 million.
“We are moving from a fashion environment that hurt youth retailers to one that is beneficial,” she said. “Companies like XOXO can do well in this environment.”
According to retailers, the XOXO labels are performing strongly.
Martha Williams, divisional merchandise manager of Dillard’s in Fort Worth, Tex., said XOXO’s new spring sportswear is doing well in 30 Dillard’s stores in her region.
“It’s because the quality is very good,” said Williams. “It’s a step above the rest. Their price points are higher and so is their quality. They are in a league of their own.”
Wendy Red, fashion director at Up Against the Wall, an 18-unit chain based in Washington, D.C., said she started with XOXO in four stores and has since expanded the line into all of her stores, placing different groups in different branches. She said she sells about $255,000 worth of XOXO a year.
Red said XOXO’s camouflage grouping, which included long skirts and mesh printed tops and khaki twill shorts, is performing well now.
“I built a name with this line and it is so hard to build a name with junior lines,” Red said. “XOXO has been consistent every season with all of its lines and the customer now recognizes it as a better junior label.”