Restyled J. Crew set to go public
The purveyor of prep has a new look that's worth a second glance.
NEW YORK (CNNMoney.com) -- A restyled J. Crew is set to take its stock public, and now may be the time for everyday investors to pick up shares of the house of prep.
The retailer has plenty of potential, according to analysts. It has consistently grown its top line, has a strong management team in place and a top-notch brand name.
But the company's short history of profitability raises some eyebrows, they caution.
J. Crew is hoping to raise as much as $320 million when it sells shares to underwriters. It expects to start trading on the Big Board as early as this week under the symbol "JCG".
The money raised from the offering will be used to pay back debt issued by private equity firm Texas Pacific Group, which will still own about 40 percent of the company after it goes public.
The makeover man
The purveyor of the classic American look has overhauled its business in recent years, largely due to the leadership of CEO Millard Drexler, who joined the company in 2003.
"There will be interest primarily because of the management team which has really turned this company around. That is the key driver for this deal," said Melanie Hase, an analyst at Greenwich, Conn.-based Renaissance Capital, which manages the IPO Plus Aftermarket Fund (Charts).
Drexler, who previously held the top spot at Gap, has helped reposition J. Crew as a competitive player in the specialty retailer space by introducing higher quality items and more fashion-forward styles to its collection.
The company has also expanded its product line - adding wedding attire, beachwear and a children's clothing line - in an attempt to broaden its customer appeal.
The transformation appears to be working. Since Drexler and his team came on board, J. Crew says it has posted eight straight quarters of growth in same-store sales - a measure of sales at stores that have been open for at least a year that is closely watched as an indicator of performance in the retail industry.
Revenue rose to $240.7 million in the 13 weeks ended April 29, up 14 percent from the same period last year. Net income rose to $7.8 million, up 58 percent from the year-earlier period.
In addition to operating retail stores, J. Crew has a strong catalog and online business. "They have an edge because they can leverage across all three of these channels," Hase said.
Time to buy?
Although the company's sales growth is encouraging, its earnings haven't been as strong. J. Crew posted a profit last fiscal year, but it reported a loss for each of the four years before that.
"They haven't really demonstrated a long-term ability to generate positive earnings, and from an investor perspective, that represents a larger risk," said Brian Hamilton, CEO and co-founder of Sageworks, a financial analysis firm that focuses on private companies.
But at a time when the IPO market is hurting, retail investors could get in on the stock at a low price.
J. Crew said it plans to sell 18.8 million, or about a third of its total shares. It expects shares to price between $15 to $17 a share, which would value the total company at about $968 million. By comparison, rival Gap (Charts) has a market capitalization of about $14.6 billion.
The hit the stock market has taken over the past six weeks could keep big institutional investors on the sidelines for this offering.
"I think investors in the IPO market want a good price right now. J. Crew isn't something they'll necessarily climb over each other for," said Tom Taulli, author of "Investing in IPOs."
Several IPOs have priced below expectations recently, and while that isn't ideal for those companies raising money, it can be a good opportunity for retail investors, analysts said.
"Over time, if management continues to execute well, there's room for upside," Hase from Greenwich Capital said about J. Crew's stock.
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