It wasn’t the most active year for retailers to take their companies public. In fact, it was a slow year all round for initial public offerings. Companies raised only $30 billion in 2015, the lowest amount since 2009. Surprisingly, the retail IPOs actually performed better than the overall market as healthcare and energy offerings tanked.
The group of retail-related deals on average priced at 7.8 percent above the midrange price, while the overall market priced at 4.4 percent below the midrange. The first day of trading pop for the group averaged up 33.8 percent, while the larger market was only up 14.3 percent. Total returns for the group were 6.29 percent versus the overall market’s total return of minus 3 percent.
“This small group of offerings did better than the overall market and were helped by a couple of things,” said Kathleen Smith, principal at Renaissance Capital, manager of IPO-focused ETFs. “In particular, once we got past Labor Day, deals like Duluth Holdings were priced lower. Investors were price sensitive and that caused the deal to trade well,” said Smith.
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She noted deals like Etsy and Xcel that came earlier in the year were priced higher and didn’t perform as well as hoped. That caused the later IPOs to be priced almost 15 percent below the planned range.
Duluth Holdings, known for its ballroom jeans and blue-collar work clothes went public in November with its shares pricing at $12 and opening at $13. The stock hit a high of $16.97 and while it has pulled back to $13.89, it’s still up almost 2 percent in under 2 months’ time. The company raised $83.7 million and the underwriters even exercised the option to purchase an additional 1 million shares. The overallotment exercise demonstrates the success of this deal.
Another top stock was the e-commerce site Shopify, which hit the public market in May at $17 a share. Shopify was part of a special group of companies called “unicorns.” So named because these startups had billion-dollar valuations before going public. It opened at $28 and hit a year’s high of $40.49. But it pulled back and was most recently trading at $25, still a 47 percent increase from the initial stock price. Smith said, “The reason Shopify worked was because it was fairly close to being profitable, while Etsy disappointed right out of the box.”
The wearable tech company Fitbit priced its shares at $20 and jumped on the first day of trading to $30.40. It has lately traded near $28 dropping roughly 3 percent from that opening day. On a positive note, it is considered the hot gift of the holiday season — if that proves true, the stock will no doubt go higher.
Ferrari may be a motor car company, but the brand’s intent is to sell apparel. Ferrari went public in October at $52 a share and then opened at $60. Its stock, though, put on the brakes and has slowed to $47.41, a drop of 13.8 percent.
Ollie’s Bargain Outlet Holdings had its IPO in July with shares priced at $16 and then popping up to $22.68. It was recently trading near $17, a 21 percent drop from its opening price. That’s less than the ladies fashion boots that look suspiciously like Uggs and are advertised on the site for $19. On a positive note, Ollie’s has increased by 5 percent in the past 3 months.
Etsy is the worst-performing retail IPO of the year. The online store for crafters priced its stock at $16 in April and almost doubled at the open when it started trading at $31. Unfortunately, that was as good as it got. The stock has tumbled for most of the year as margins fell and Amazon decided to enter the homemade market. The stock has lost 70 percent of its value and was lately only trading at $8.71. To make matters worse, an analyst at Roth Capital gave the stock a sell rating this past week and a $5 price target.
Payment processor Square, another unicorn, shook up the market when it priced its offering at $9, a 25 percent discount to the planned range of $11 to $13. Square has disappointed investors and is lately trading at $12.47, down 4 percent from its close of $13.07 on its first day of trading.
Other unicorns that didn’t make it from fantasy to reality in the stock market this year included Gilt Group and Uber. Gilt, the online flash-sale Web site had a billion-dollar valuation in 2014, but now is reportedly getting bought by Hudson’s Bay Co. for $250 million. Personal transportation company Uber is a superunicorn valued at $70 billion and is expected to go public in 2016. But it’s been mired in legal battles and controversy as it disrupts the transportation market. Airbnb is valued at $25 billion and has delayed going public. It too is bogged down in legal disputes and owners wanting a bigger share of the profits. Snapchat, a photo messaging app, may be the best-positioned unicorn for the 2016 IPO market with its $16 billion valuation and lack of controversy.
Neiman Marcus filed for an offering, but never followed up as the company’s fortunes turned against it. “We expect Neiman’s will still come public, but by offering a good value by pricing it lower,” said Smith. “It may be a luxury company, but it won’t have a luxurious valuation.”