WILL DONNA DO IT? HEAR KARAN TAKING A SECOND SHOT AT IPO
Byline: Sidney Rutberg, with contributions from David Moin, Valerie Seckler and Stan Gellers
NEW YORK — Donna Karan’s getting ready to try again.
Her company, The Donna Karan Corp., which backed away from an initial public stock offering in November 1993, is looking to go public this summer, possibly earlier, according to market reports.
Bear Stearns & Co., which led the underwriting group in 1993, is reportedly working on updating the Securities and Exchange Commission filings in order to bring the company public.
Michael L. Tarnopol, executive vice president of Bear Stearns, said, “I just can’t comment on this sort of thing.”
However, another investment banker said that he was aware of efforts by Bear Stearns to revive the issue.
Executives at Takihyo Group, which owns 50 percent of Donna Karan, and at the designer’s company did not return calls for comment. A spokeswoman for Donna Karan declined comment.
In August 1993, the designer company filed a registration statement covering the proposed sale of 11 million shares. That plan specifically omitted the Donna Karan beauty business from the public offering. The IPO currently being planned will now include that business, according to reports.
Another source said the Donna Karan business is in much better shape than it was a few years ago, with stronger management and an aggressively developed international business.
Stephen Ruzow, president of The Donna Karan Cos., said late last year that 1995 was an “incredible year,” with a 20 percent overall increase in the company and $600 million in wholesale volume. Thirty percent of that was international business, he said, with about $10 million alone coming from the DKNY boutique that opened in London early in the year.
“The shipping has improved — it’s on time. There’s a three-month window for sportswear, and it’s been at the beginning,” said a retailer.
Another retailer said DKNY sales have been excellent, including the jeans line and hosiery. “It fills a niche. It’s young and for a real fashion bridge customer, an older junior or younger misses’ customer, and has a great casual element. There’s no real competition.”
The closest competitor in the bridge area is CK Calvin Klein, itself a hot property, but retailers said CK has a different point of view and is not viewed as a direct competitive threat.
Mary Wang, a former Bloomingdale’s divisional merchandise manager who joined as DKNY president last year, was credited with strengthening operations. “She’s into the details,” said one source.
Retailers also spoke highly about Donna Karan men’s wear.
“Men’s wear is strong,” said a retailer. “The product is focused. It’s contemporary, modern and transcends age. She has really gone after the Armani male, though it’s more contemporary — between Armani and Prada.”
Observers said the better part of Karan’s men’s clothing business continues to grow at an estimated 10 percent a year. Reports are that men’s clothing is running at 12,000 units a year.
Donna Karan herself is the company’s best asset, said the retailer. “She’s not weak. She’s all over the place, which is good.”
However, the retail consensus is that the Collection probably loses money and has suffered from poor quality and fit, and shoes were also tough last fall.
“It wouldn’t surprise me if they’re getting ready to try an IPO again,” said Melvyn F. Plotzker, first vice president of middle-market lending, Bank Leumi Trust Co. of New York.
Plotzker cited the strong market for stock offerings by upscale fashion houses and the passage of time.
When Karan last flirted with an offering, the market was far less receptive to apparel firms.
The banker added: “I would also assume their financials are better now than they were the last time. When they were going to go public before, their sales volume was big, but the bottom line wasn’t so great.”
When Karan decided not to go ahead with the 1993 offering — designed to raise $159 million — the company held a press conference at the Parker Meridian Hotel. Karan and her husband, then co-chairman Stephan Weiss — who left the company last year — attended, along with Takihyo’s Frank Mori, several other company executives and a lineup of investment bankers.
The party line was that the company could have gone forward with the IPO, but due to market conditions and the fact that earnings in the third quarter of 1993 came in below plan, the full value of the company would not be realized.
Weiss said at the press conference that earnings for the first nine months of that year were “very solid,” with sales of $265 million and operating earnings topping $28 million. Sales in the nine months topped sales of the full year in 1992, when the company reported a volume of $258.5 million. Operating earnings in 1992 were reported at $33.5 million in the registration statement filed for the offering on Aug. 13, 1993.
Weiss and Karan also stressed at the press conference that the decision was only to postpone the offering, not to abandon the idea.
When Weiss left the company last September, some saw it as the removal of an obstacle to Karan’s growth.
Weiss, an artist with a limited business background, had been involved in directing Karan’s company since its inception and reportedly often took the firm in directions some observers found perplexing.
In one instance, Weiss clashed with Mori and Tomio Taki, the principals of Takihyo, over the direction of the beauty business.
Weiss insisted on keeping it in-house, while the other two wanted to follow a more typical business path and license it. Last summer, however, Weiss said the business was profitable, with $32 million in sales expected for 1995 and $64 million projected for this year.
Following the withdrawal of the original offering, the company quietly refinanced through public placement. But reports persisted that the company was struggling financially. Later that year, the company took the step — unusual for a private company — of disclosing some of its operating figures. In the three months ended June 30, 1994, the company said that earnings before interest, taxes, depreciation and amortization (EBITDA) more than tripled over the year-earlier period to $1.85 million from $603,000. Sales in the three months were up 27 percent to $88.9 million from $69.9 million.
According to the 1993 registration statement, Karan and her husband held 34.2 percent of the company and Mori and Taki owned 18.2 percent. The proceeds of the offering were to be used principally to repay $82.6 million in notes to Karan, Weiss and the Takihyo Group, which is owned by Mori and Taki. Another $44.3 million was supposed to be paid to the Takihyo Group, with $32 million used to reduce the company’s debt.
The time could hardly be better for Karan to revisit the stock market. Stocks in 1996 have been red hot, particularly glamorous fashion-oriented companies. One of the most visible has been Gucci. After being blocked from going public in Italy because of a requirement to show two consecutive years of earnings, a total of 24.5 million Gucci shares were sold in the U.S. and internationally (outside of Italy). Originally, the issue was supposed to total 16 million shares at a price ranging from $19 to $22 a share. The larger issue was priced at $22, the high end of the range, and it quickly ran away from the offering price. On Wednesday, Gucci stock closed at 46 3/8, up 1 1/8.
After underwriting expenses, the Gucci IPO raised $280.3 million for the company and $228.4 million for Codia Holdings, which owned 100 percent of Gucci before the offering. Codia is controlled by Investcorp, the Bahrain- and London-based investment company. After the offering, Codia still controlled 58.1 percent of Gucci. This was reduced to 51.8 percent through the sale by Codia of 3.7 million shares of the underwriters’ overallotment, bringing in another $80.8 million.
According to the Gucci prospectus, Codia shareholders had paid an average of $5.46 a share for their holdings, so they made a neat profit on the transaction.
Another Investcorp property, Saks Fifth Avenue, has apparently caught the public fever, with an IPO expected this spring, as reported (March 4 and 6, page one).
Other fashion firms that have done well in the market recently are Tommy Hilfiger, which went public in September 1992 at 7 1/2 (adjusted for a 2-for-1 split) and closed Wednesday at 41 7/8. St. John Knits went public at 17 in March 1993 and closed Wednesday at 61, up 1 3/4 to an all-time high. More recently, EstAe Lauder went public at 26 in November and closed Wednesday at 37 1/4. Just last week, Revlon went public and quickly ran away from its offering price of 24. Revlon closed Wednesday at 28.