RALPH’S SPRING IPO: WALL ST. ENDORSES IT, AND SO DOES TOMMY
Byline: Jennifer L. Brady
NEW YORK — “I’ll buy stock. I believe in him. I’d buy it early, for sure.”
That’s the reaction of a true Ralph Lauren buff, Tommy Hilfiger, when asked about Lauren’s plan to go public this spring, a story first reported in WWD Thursday.
“I think it creates more excitement for public apparel companies,” added Hilfiger, who, along with Gucci, blazed a new trail for fashion stocks a few years ago — and made a personal fortune in the process.
And while Wall Street is aglow with the prospect of Lauren tapping the public market, some analysts are wondering whether the timing will be right.
While the brand’s equity will likely bring a premium price for an IPO, some analysts noted that a key challenge for Lauren will be to sustain growth over the long term, as he is already well entrenched in most fashion categories. International potential and continued growth in women’s, as well as a stable image, are seen as major selling points.
“Ralph Lauren has a great name that doesn’t depend on fashion trends, or the ups and downs of what men and women want to wear. It is classic fashion for the upscale market,” said Linda R. Killian, analyst at Renaissance Capital Corp., a Connecticut-based research firm specializing in new issues.
She added that a plus for the Ralph Lauren name is the designer’s broad base extending beyond apparel, into accessories and home furnishings.
As reported, an anticipated IPO by Lauren is expected to be put together by a group of underwriters headed by Goldman Sachs & Co., which in August 1994 invested $135 million for a 28 percent stake in the designer firm.
Killian said, “With a company like that, I think it would be very much heralded by analysts and a lot of others no matter what the market is doing.”
Jay Meltzer, managing director at LJR/Redbook Research, said, “If it goes public with good underwriters at a respectable price, the outlook will be very positive because it’s a great company.”
Although Meltzer said that the company remains very private, he believes that its financial record is excellent and that its near-term outlook is strong.
“This company will take its rightful place with the successful apparel companies in the market,” he added.
Meltzer said that he expects the offering to be priced at a premium to the market and in line with other designer apparel companies.
Analysts said that Gucci, which went public at $22 a share in October 1995 and closed Thursday at 66 1/8, would be considered the company most comparable to Ralph Lauren.
“If the numbers are good, and we think they are, the IPO is going to be fabulous,” said Laurence C. Leeds Jr., at Buckingham Research.
“The questions are: What is this business? What has its growth been? How is it going to grow?” he added.
“It will be really well received if his historical performance is as good as we think it is.”
Commenting on the timing of the Lauren’s possible IPO, Ryan Jacob at IPO Value Monitor said, “It is surprising to me, given how other fashion companies have done in 1996.” He cited the low valuations of various other fashion companies that went public over the past year. They include Donna Karan, Guess, Mossimo and Designer Holdings, which have each seen turbulent stock prices.
Yet, he noted that some apparel firms have held up well, including Hilfiger, Nautica Enterprises and Jones Apparel, all seeing escalating stock prices after significant earnings gains.
“There is a lot of skepticism out there that designer-led apparel companies can live up to their promises and to the level that Wall Street expects,” Jacob said.
He added, “I don’t doubt the strength of his name. I don’t doubt that this type of offering could be successfully completed. I think its a tougher sell than it would have been in 1996.”
John E. Fitzgibbon Jr., editor of Lynch Jones & Ryan’s IPO Aftermarket newsletter, agreed that apparel firms may have already had their moment to shine in the public market. “The game has moved on to other areas.”
He noted that after several fashion firms went public, including retailers such as The Limited and Intimate Brands, opening doors for others, ultimately, they had to stand on their own and often faltered.
Still, Fitzgibbon noted that Goldman Sachs and the other underwriters expected to be involved in the deal — Merrill Lynch & Co. and Donaldson Lufkin & Jenrette — are a strong group.
“With those managing underwriters, if anyone can do it, they can and probably will.”
Lauren, with an estimated $4 billion worth of retail sales for all his products, has been on a roll the past few years. At the time of Goldman Sachs’ $135 million investment, the Lauren enterprise was valued at $480 million, but since then, Lauren has added several high-powered product categories. Over the last year, Lauren launched Polo Jeans, which hit stores in the fall with a $20 million ad budget and a wholesale volume projected to hit $300 million in its first few years.
His license with Jones New York has made Lauren an instant player in the better market, with projected sales of $100 million through this year.
In addition, he has added a hosiery license and laid the groundwork for an expanded Polo Sport activewear business, including stores in the U.S. and abroad.
Lauren also late last year signed a lease on a 45,000-square-foot building in London that will serve as his European headquarters.