Apparel IPO Should Provide Investors Who Get Goldman Allocations With A Pop

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 |  About: Vince Holding Corp. (VNCE)
by: Don Dion

Apparel Holding Corp (NYSE:VNCE), which will be renamed Vince Holding Corp and will consist exclusively of the high-end Vince clothing line after the completion of its public offering, plans to raise $180.0 million in an upcoming IPO this week. The New York, New York-based firm will offer 10 million shares at an expected price range of $17-$19 per share. If the IPO can reach the midpoint of that range at $18 per share, VNCE will command a market value of $683 million.

VNCE filed on September 24, 2013.
Lead Underwriters: Goldman Sachs & Co, Robert W Baird & Co Underwriters: Barclays Capital, BofA Merrill Lynch, J.P. Morgan Securities LLC, KeyBanc Capital Markets, Stifel Nicolas & Company Inc, Wells Fargo Securities LLC, William Blair and Co, LLC

Summary
Apparel Holding Corp is currently an apparel company that designs, manufactures, and markets various clothing lines; however, upon completion of this IPO, the firm will undertake various transactions to leave only the assets, liabilities, and operations of the Vince clothing line.

Founded in 2002, the Vince brand began with a collection of women's knits and cashmere sweaters, and has since added a men's collection, women's footwear, and expanded denim, leather and outerwear lines.

The firm opened its first retail store in 2008; as of October 5, 2013, the firm operated 21 full-price retail stores and six outlet locations, though the majority of its sales (70.6%) continued to come through wholesale as of the first half of 2013.

Valuation
Apparel Holding Corp offers the following figures in its S-1 balance sheet for the six months ending August 3, 2013:

Revenue: $363,967,000
Net Loss: ($25,643,000)
Total Assets: $467,791,000
Total Liabilities: $646,893,000
Stockholders' Equity: ($179,102,000)

The firm offers the following unaudited figures for the Vince line alone for the six months ending August 3, 2013, which should more closely reflect the figures for the company that will result from the forthcoming transactions to convert the firm into Vince Holding Corp.:

Net Sales: $114,657,000
Net Income: $2,400,000
Total Assets: $82,603,000
Total Liabilities: $148,005,000
Total invested equity: ($26,159,000)

Business
Designer clothing is an extremely competitive business, and Vince and Apparel Holding Corp must compete with similar firms that may be better established and better capitalized. Major competitors include Jones Group (NYSE:JNY), Fifth and Pacific (FNP), PVH Corp (NYSE:PVH), VF Corporation (NYSE:VFC), G-III Apparel Group, Ltd (NASDAQ:GIII) and Perry Ellis (NASDAQ:PERY).

Management
Jill Granoff has served as CEO of Vince August 2012 and CEO of Apparel Holding Corp since May 2012. Ms. Granoff previously served as CEO of Kenneth Cole Productions, Executive Vice President of Liz Claiborne, and President and CEO of Victoria Secret Beauty. She is a member of the board of directors of Demandware and the Fashion Institute of Technology Foundation.

Prospective investors in this IPO should review the generous compensation packages that the directors and the executive officers have given themselves on pages 206 to 213 of the S-1.

Conclusion
We are cautiously optimistic on this IPO in the $17 to $19 range for aggressive growth investors. We expect that Goldman will build a very strong book for this IPO and that the stock should pop out of the gate.

The Vince brand has posted consistent profits over the past several years, and we're happy to have the opportunity to purchase shares of Vince independent of the less appetizing Apparel Holding Corp brands. That said, a single brand espousing a unified look is subject to significant risks from the changing winds of fashion that a more diversified set of brands would not be.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in VNCE over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.