WITH CONDITIONS RIPE, SAKS SAID TO BE READY TO MAKE STOCK OFFERING

Byline: Sidney Rutberg

NEW YORK — Saks Fifth Avenue may be the next big fashion name to go public.
With the stock market hitting new highs almost every week and upscale fashion stocks running at a brisk pace, the timing for a Saks IPO could be ideal.
According to market reports, Saks is assembling an investment banking group to bring the company public soon. One of the investment banking firms that reportedly would be involved in a Saks IPO is Morgan Stanley & Co.
A spokeswoman for Morgan Stanley declined comment.
Morgan Stanley was the lead underwriter of the stellar 25.4 million share offering last October by Gucci. Both Saks and Gucci are owned by Investcorp, an investment company based in London and Bahrain. In light of its public success with Gucci, Investcorp appears ready to cash in its chips on Saks.
Since 1990, when Saks was purchased by Investcorp, the industry has been awaiting a Saks public issue. Now everything seems to be finally falling into place. Saks’ business is on the upswing, and there’s a very receptive market for luxury issues.
A Saks spokesman declined to comment on the reports.
Investcorp sank $1.6 billion into the purchase of the luxury retailer in 1990 and was forced to invest another $300 million about a year and a half later when the business was struggling.
Although conventional wisdom at the time of the acquisition held that Investcorp had grossly overpaid for Saks and the chances of a decent return on its investment were slim, Investcorp made it clear it planned to improve the operation and eventually take Saks public.
In the last couple of years, Saks has reportedly made a dramatic recovery, while most of the industry — excluding certain other luxury firms — has sagged.
Despite the industry’s volatility, fashion stocks have become a very hot commodity lately.
Gucci, which had lost money in 1991, 1992 and 1993, but turned profitable in 1994 and produced sharply higher profits in 1995, was priced initially at 22 a share. Its first trade on the New York Stock Exchange was at 26, and the stock has been going almost straight up. Gucci closed Monday at 43 7/8, up 2 5/8. Other fashion stocks that have risen dramatically in the last part of 1995 and so far this year include EstAe Lauder Cos., which came out Nov. 16 at 26, first traded on the NYSE at 32 and closed Monday at 37 1/2. Revlon, which came out last week, also hit the market running. It was priced at 24 a share and its first trade on the NYSE was at 27 1/4 on Thursday. Revlon, which carries a $1.3 billion debt load and managed to turn a small profit in the last quarter of l995 after a succession of losses, closed Monday at 27 7/8.
As a private company, Saks does not disclose the specifics of its earnings or sales, but in a review issued in May of 1995, the company said sales in the fiscal year ended January 1995 topped $1.4 billion. The company also noted that from 1991 through 1994, operating earnings increased steadily as a percentage of sales while the expense ratio declined.
Since the 1990 acquisition, the company said, earnings before interest, taxes, depreciation and amortization (EBITDA) have more than doubled. Also, in 1994, Saks posted record earnings, up 20 percent from the prior year.
In the past few years, Saks has accelerated its expansion, especially in California, by grabbing up former I. Magnin sites, adding a men’s and special sizes unit in Beverly Hills and expanding its existing store there. The retailer has also rolled out clearance stores across the country and charged into Florida, where a month ago it held a groundbreaking in Sarasota for a resort store. Additional Florida units are planned for Fort Meyer and Orlando, while Tampa/St. Petersburg is currently being eyed by Saks.
Saks has also been aggressively positioning itself as a major launch store, particularly in the beauty business. Some of its more flamboyant launches include Casmir, L’Eau d’Issey and Giy by Giorgio Armani. In fashion, Saks has staked a claim for various high-profile bridge launches, including Isaac by Isaac Mizrahi and Bill Blass USA.
Last Christmas, Saks was one of the few solid performers in an otherwise dismal season: The store claimed 9 percent comparable-store increases for December, through Christmas, and over 13 percent total sales increases in the same period.
— Fairchild News Service

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