ANALYSTS: SAKS IPO LOOKS GOOD
Byline: Valerie Seckler
NEW YORK — Saks Fifth Avenue’s public offering has a good chance to succeed if the chain maintains its high sales velocity, and successfully executes strategies that showed promise last year.
That was the word from Wall Street Friday, a day after Saks filed for an initial public offering with the Securities and Exchange Commission.
“The IPO is likely to be the first of many Saks stock offerings,” said Peter Schaeffer, retailing analyst at Dillon, Read & Co. “Their biggest problem is they have over $900 million in debt. If they take down their debt by $250 million, that would be a good start.”
Saks expects to raise about $345 million by going public, enabling it to pay off debt. “That will go a long way to improving its profitability,” observed Henry Jackson, principal partner in Peter J. Solomon Co., a New York investment banker.
The high-end retailer lost $64.1 million in 1995 on a 19 percent sales increase to $1.69 billion, according to its prospectus, filed Thursday with the SEC. The loss came after interest charges of $94.2 million, a write-down of assets of $36.4 million and a $6 million charge for early repayment of debt. Same-store sales were up 10.6 percent for 1995.
A Saks spokesman said Friday the retailer would divulge the number of shares it will offer shortly after the SEC completes its review of Saks’ filing. It typically takes four to six weeks for the SEC to review an IPO prospectus.
Investcorp, which controls Saks and has an 18.4 percent stake in the business, is expected to hold onto a chunk of its stock until Saks returns to profitability and pays off some debt, to maximize its return, analysts said. Wall Street expects the issue to be conservatively priced because of Saks’ debt load and because the stock is likely to show some quick gains that way, Schaeffer said. Schaeffer and other analysts declined to speculate on a price range.
The analyst continued, “I think this deal got accelerated by the hot IPO market for luxury goods firms.” In October 1994, Saks announced plans to go public in 1996 or 1997, depending on market conditions. “Saks is a specialty retailing powerhouse and the way for them to produce the most money, besides beefing up the balance sheet through the offering, is by continuing to focus on same-store sales growth,” said Arnold Aronson, partner in Levy, Kerson, Aronson & Associates, a consulting firm.
Aronson, a former chairman and chief executive of Saks, cited some solid strategies at Saks that should fuel growth, among them:
* Taking aggressive positions in affluent markets, particularly in Florida and California.
* Expanding the resort store business.
* Enhancing customer service, with such strategies as personal shopping and the Saks First program.
Analysts said Saks is in a good strategic position, considering several of its competitors have gone out of business, such as I. Magnin and independent local operators like Martha’s and Amen Wardy. And Barneys New York has weakened since going bankrupt last January.
Aronson added that department stores over the last several years have let go of much of the designer business.
Jackson expects Saks’ IPO to be successful because the company has “repositioned itself effectively” by closing weak stores, opening new ones, fine-tuning resort stores and getting the New York flagship going “great guns.”
“They bought some I. Magnins last year that were in very good locations and were very well maintained, and Saks should do very well with them,” Jackson added.
Andrew Jassin, founding partner in Marketing Management Group, noted the stock offering would give Saks “a great opportunity to expand their very productive off-price business.
“It’s a great profit center for them,” Jassin said. He noted, overall, the off-price industry is hurting, but added, “It isn’t dead. It’s just overabused.”
Fourteen new Off Fifth Avenue stores are expected to bow this year and another seven in 1997. Saks currently runs 19 Off Fifth units. The division produced sales of $108 million in 1995, a figure that could balloon to $200 million this year, according to one analyst’s estimate.
The expansion planned for the off-price stores is intelligent, said Aronson, “as long as its kept at a level where it doesn’t cannibalize Saks’ regular business.”
The Off Fifth Avenue stores help Saks remove slow-moving goods from its regular stores and bring in fresh merchandise, and sell special private labels that bring full markups.
Saks operates 40 full-line stores and plans to open three more over the next three years. It also plans to open two replacement stores and to complete nine remodelings in the same period.
Also over the next three years, Saks plans to open four new resort stores of 30,000 to 50,000 square feet each. It currently operates five resort units.
In the third quarter of this year, Saks plans to open a 35,000 square foot “main street” unit in Greenwich, Conn. — Fairchild News Service