Fashionable clothing company faces tough IPO market; pipeline of apparel retail IPOs picking up

US clothier Express may have a hard time selling investors on its initial public offering despite a recovering retail industry. The No 6 US speciality retail apparel brand will have to overcome investors' fears about competition, global expansion and a still-lukewarm market for women's clothing in the United States, which lapsed during the financial crisis though it has been steadily improving.
Michael Dart, head of the private equity practice at retail consulting firm Kurt Salmon Associates, estimates overall women's apparel sales will rise 3.8 percent in 2010 and 4.5 percent during 2011, compared with the historical average of 5.4 percent growth.
But liabilities-laden Express may get a tepid response for its IPO despite the improving environment, some analysts say. Investors have pushed back against private equity firms looking to unload debt-laden portfolio companies, and many IPOs have been cut, postponed and cancelled.
Express is backed by private equity firm Golden Gate Capital. Golden Gate, which manages $9 billion, bought 75 percent of Express in 2007 when its parent company Limited Brands sought to exit the volatile apparel industry. Neither Express nor Golden Gate returned calls for comment.
Express is the No 6 speciality retail apparel brand in the United States, according to a prospectus filed with the US Securities and Exchange Commission. As of January 30, the brand had 573 stores selling clothing aimed primarily at 20- to 30-year-old women.
Known for its tailored "editor" pants, Express' balance sheet has nearly as much in liabilities as assets, and sales have fallen. The Columbus, Ohio-based company had $763 million in total liabilities and $860 million in total assets as of January 31.
Express saw same-store sales, at outlets open at least a year, slip 10 percent in the 39 weeks ended October 31. To attract investors, Express must prove it can stand up to competition from the likes of Bebe, Forever21, Gap, Guess and Macy's, which also sell clothing to recent college graduates. So far, it's not looking good.
Besides its recent weak sales, Express' online division is still young. It began selling clothes online in July 2008 but only netted about 5 percent of its sales from its website in the 39 weeks ended October 31. Its peers netted some 10 to 15 percent, it said in its prospectus.
Moreover, plans for international expansion might also be overly ambitious, analysts said. Opening a flagship store in a major city like Tokyo or London can help prop up a stock, but it only works with certain hot brands. Express partnered with Alshaya Trading Co to open four stores in the Middle East and said it sees additional opportunities in the overseas markets in the next five years.
Only one clothing company went public in the last two years - youth apparel retailer rue21. Shares of that company rose 28 percent above their IPO price in their November debut and are now up more than 44 percent, creating a glimmer of hope for the prospects of the still-weak sector. There are 22 IPOs in the pipeline. Four, including Express, are apparel retailers, according to Thomson Reuters data.
If the IPO market improves in the few months time it takes Express to wend through the IPO process and the company prices at a low enough valuation, the deal could be OK, analysts said. Chen cited noticeable merchandise improvements at Express in the two years since Golden Gate has run the company, in contrast to earlier days when it "tried to be too many things to too many people." Express' net income grew to $29.3 million in the 39 weeks ended October 31 from a loss of $1.9 million in the year-earlier period.