J. Crew Ponders a Possible IPO

Will J. Crew become the next hot retail stock?

Mar 15, 2014 at 7:00AM

If you're a retail investor, you may soon be able to buy a piece of J. Crew Group. The company, currently owned by TPG Capital and Leonard Green & Partners LP, is talks with several banks about a potential IPO later this year. The retailer has 451 stores and about $2.4 billion in annual sales, and those close to the matter told Bloomberg that the company may be worth as much as $5 billion. The current owners paid $2.64 billion for the company when they purchased it three years ago. Company reps have not publicly commented on the matter.

When J. Crew's current owners bought out the company in November 2010 they agreed to pay $43.50 per share. There was talk among shareholders that the price paid for the company was low and investors sued over the claim that J. Crew executives didn't do enough to gain higher bids. The company ended up settling the lawsuit for $16 million plus $6.5 million in legal fees.

J. Crew is currently busy expanding its retail base in places like London and Hong Kong. The company's preliminary results for 2013 showed that revenue increased 9% to $2.43 billion for fiscal 2013, which ended Feb. 1. EBITDA is estimated to range between $369 million and $371 million, up from $360 million in 2012. The company's cash balance more than doubled during this period, while its long-term debt decreased by almost 1%.

Retailers that have gone public recently and performed well
The retail sector has performed well as of late -- the Standard & Poor's Retail Select Index surpassed the S&P 500 Index over the last 12 months as these indexes returned 27% and 24%, respectively. The increase came despite Commerce Department figures that showed lower sales at U.S. stores in January and the steepest decline since June 2012. Also, retailers that launched IPOs late last year have rewarded their investors handsomely.

Vince Holding Corp. (NYSE:VNCE), which also sells men's and women's apparel but is considered a bit higher-end than J. Crew, has gained 33% since its November 2013 debut. The Vince brand is carried in over 2,100 stores across 43 countries; the company also has 21 retail locations, six outlet stores, and an e-commerce site, Vince.com. The company closed its IPO in November 2013 with 10 million shares of common stock valued at $20 per share, and its shares currently trade near $26. Long-term targets include total net sales growth of 15% to 20% and net income growth of 20% to 25%.

Fourth quarter and fiscal 2013 sales for Vince showed double-digit growth in its wholesale and direct-to-consumer businesses. Vince attributed the wholesale growth to strong U.S. department store performance, increased presence in international markets, and higher licensing fees related to the women's shoe line. The company attributed the direct-to-consumer growth to the openings of six new stores and continued strength in e-commerce. Total net sales for the year grew almost 20% to $288 million and comparable-store sales were up 21%. Full results will be reported in late March.

Specialty retailer The Container Store Group (NYSE:TCM) went public in October 2013 for $18 per share and its shares have risen over 85% since then. For the year-to-date period which ended on November 30, 2013, net sales were up almost 9% and comp-store sales increased 3.6%. While the net loss widened through November 2013 because of a high increase in stock-based compensation costs, the diluted loss per share decreased considerably to $(8.78) from $(23.08) in 2012. Gross margin also rose 30 basis points over the 2012 period to 59%. SG&A expenses also rose by almost 9%, mostly due to IPO-related costs .

Last but not least -- one of the great retail success stories of the past two years has been Michael Kors Holdings (NYSE:KORS), which recently reported its 31st consecutive quarter of growth. The company went public in December 2011 with an initial price of $20 and its shares have traded as high as $101. During the third quarter, revenue rose 59% and comp store sales increased 27%. For the 2014 fiscal period which ends in March, the company estimates diluted EPS will range between $3.07 to $3.09. The market expects Kors to earn $3.12 per share and post revenues of $3.21 billion, which represents about 47% growth in sales.

So far, this luxury lifestyle brand shows no signs of slowing down. In a move similar to that of Vince, Michael Kors is launching a revamped website that enhances the customer's buying experience and interaction with the brand. The company is also looking to expand further in Europe and tap into the Chinese market and its middle-class aspirations.

Foolish conclusion
Besides going public, J. Crew could also be bought by an apparel store operator such as Fast Retailing, a Japanese retailer that's eager to aggressively expand into the U.S. market and beyond. Some analysts believe the $5 billion valuation is too high a price tag, while others in the market favor the company going public. If it follows the coattails of some of its competitors that went public, J. Crew's value could rise considerably given its strong brand and retail presence, which would make it an attractive investment.

What's the most attractive investment for 2014?
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Eileen Rojas has no position in any stocks mentioned. The Motley Fool recommends Michael Kors Holdings. The Motley Fool owns shares of Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers