ANALYSTS WARM TO PROSPECTS OF GUESS IPO
Byline: Valerie Seckler
NEW YORK — A potent brand name and a consumer that’s dressing down has whetted Wall Street’s appetite for an eventual public offering by Guess Inc., especially if the sportswear empire continues to expand its top ranks.
That enthusiasm is there even though the stock market has largely cooled to apparel offerings.
Guess, which earned $98 million on sales of $507 million in 1994, on Tuesday disclosed plans to expand its retail division and named former Ann Taylor executive Andrea Weiss to head the unit, feeding speculation Guess is readying itself to go public, perhaps sometime next year.
Weiss, who was senior vice president and director of stores at Ann Taylor, joined Guess as president of retail and general manager, as noted. Guess is privately held, but the company reports its financial results due to public debt issued in conjunction with its recapitalization in August 1993.
It is widely known that Paul, Maurice and Armand Marciano, the brothers who own Guess, have long hankered to take Guess public. Maurice acknowledged Tuesday that the firm is interested in an IPO, but it probably wouldn’t happen this year (see WWD, January 24, page 1).
“Guess has a great brand and if they could combine it with strong management — a strong financial executive would be key — it could be an attractive offering,” said Todd Slater, analyst at UBS Securities.
“My feeling is that there’s something very compelling about widely recognized brands like Guess,” Slater continued. “Also, consumers are in a very dressed down, casual mode.
“It would probably be a lot harder for Norton McNaughton to do an IPO today than Guess, because McNaughton has a lot of career wear.
“Guess is clearly a company that has done a lot of things well for a long time, and I think the market would be receptive to an IPO,” said Faye Landes, analyst at Smith Barney.
Andrew Jassin, founding partner of Marketing Management Group, an apparel consulting company, said a Guess IPO sounds like “a pretty good idea” because the Guess brand name would help attract investors. Also boding well for such a deal, he said, are a “good amount” of licensing royalties, which are virtually pure profits. Guess has licenses for various apparel categories, footwear and accessories.
“It sounds like Guess may have read the Nautica and Tommy Hilfiger stories,” Jassin quipped.
“I think there’s growth for Guess in licenses,” said Jennifer Black Groves, analyst at Black & Co. “It’s a dominant brand in its field, and brands from Liz to Jones to Nike have come back so big.”
Another opportunity for Guess lies in expanding its retail stores, said Slater, “largely thanks to the failure of Merry-Go-Round and others in the young, casual fashion business.”
UBS Securities estimated a total of 2,800 apparel stores were shuttered in 1995, contributing to a net decrease of 8 percent, with 1,100 units closed in regional malls and most of the rest in strip centers. This year, UBS is projecting another 1,600 stores will be closed, about 400 in regional malls.
“It’s like a forest fire that will cut down smaller, weaker trees and clear the forest for new growth,” said Slater.
Expansion on the retail front could also fire up licensed sales, lift gross margins and boost brand recognition to the next level, said Jassin. Guess currently has 68 stores and 42 outlets in the U.S.
Despite their upbeat outlook, analysts stressed the need for Guess to build its executive team to court investors. The Marciano brothers make up the top management: Maurice, chairman and chief executive officer; Paul, president and chief operating officer, and Armand, senior vice president. Roger Williams, who came from The Donna Karan Co. in early 1994, is executive vice president and chief financial officer.
A publicly held Guess would need a strengthened high level of management, which would report to the Marcianos, and a new board of directors, according to Jassin. “The family could still be creative,” he added.
A financial analyst said, “The Marcianos would need to create a little more of a corporate culture to do a successful IPO. They would be using other people’s money, which would demand that change.
“Jones Apparel Group wasn’t always as corporate as it is now,” the analyst added. “That’s true for most smaller companies that are going public to grow; they need a more disciplined approach. Guess would want to start erring on the side of conservatism.”
Another area that may need improvement before going public are operating figures. For the nine months ended Oct. 1, the company posted a 34 percent decline in earnings to $49.5 million with a 13 percent decline in sales to $328 million. Explaining the drops, the company cited a planned cutback of wholesale distribution and the costs of opening its own retail stores. — Fairchild News Service