Claire's Pursues $100 Million U.S. IPO

Oct. 26, 2021 12:28 PM ETClaire’s Inc. (CLRS)

Summary

  • Claire's has filed to raise $100 million in an IPO, although the final figure may differ.
  • The company sells girls' fashion clothing, accessories and jewelry products.
  • CLRS has rebounded strongly after a sharp drop in revenue during the 2020 pandemic period.
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Excited girl in pretty dress playing with Christmas lights

Dobrila Vignjevic/E+ via Getty Images

A Quick Take On Claire's

Claire's (NYSE:CLRS) has filed to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.

The firm sells girls' fashion, accessories and jewelry products.

CLRS has bounced back strongly from the pandemic and is producing high growth figures and significant operating profits and free cash flow.

When we learn more about the IPO’s pricing and valuation assumptions, I’ll provide an update.

Company

Hoffman Estates, Illinois-based Claire's was founded to develop a multi-channel approach to selling girl's fashion clothing, accessories and jewelry.

The company sells through its corporate-owned stores, via e-commerce channels and through a 'broad base of concession partners.'

Management is headed by Chief Executive Officer Ryan Vero, who has been with the firm since July 2019 and was previously president, Retail at Party City Holdings.

Below is a brief overview video of Claire's styles:

(Source)

The company’s primary offerings include:

  • Claire's - flagship brand

  • Icing - Gen Z focused brand

Claire's has received at least $1.15 billion in equity investment from investors including Elliott, Monarch, Goldman Sachs and JPMorgan Chase affiliates.

Claire's - Customer Acquisition

The firm markets its products through its standalone stores in a variety of retail formats, through major retail concession partners and online via various e-commerce channels.

As of July 31, 2021, the firm operated 1,390 Claire's stores in North America, hundreds of franchised stores in the Middle East and South Africa and 191 Icing stores in North America.

Selling, G&A expenses as a percentage of total revenue have varied as revenues have fluctuated due to the global pandemic, as the figures below indicate:

Selling, G&A

Expenses vs. Revenue

Period

Percentage

Six Mos. Ended July 31, 2021

40.1%

FYE January 30, 2021

42.6%

FYE February 1, 2020

38.1%

(Source)

The selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of selling, G&A spend, swung back into positive territory as revenue rebounded in the most recent reporting period, as shown in the table below:

Selling, G&A

Efficiency Rate

Period

Multiple

Six Mos. Ended July 31, 2021

1.2

FYE January 30, 2021

-1.0

(Source)

Below is a two-year graphic showing the firm’s website traffic trends by deduplicated audience size, with a noticeable drop at the beginning of the 2020 global pandemic, strong growth around the 2020 year-end holidays but a net flat result from Q1 to Q3 2021:

Claire

(Source: Similarweb)

According to a 2021 market research report by Research and Markets, the global market for women's and girls' clothing was an estimated $646 billion in 2020 and is forecast to reach $781 billion by 2027.

This represents a forecast CAGR of 2.8% from 2020 to 2027.

The dresses & skirts segment is expected to grow at a slightly faster rate, at 2.9%.

Also, China will likely reach a market size of $158 billion, with a CAGR of 5.2% from 2020 to 2027.

The company faces competition from a variety of mass retailers, both online as well as online e-commerce sites.

Claire's Financial Performance

The company’s recent financial results can be summarized as follows:

  • Rebounding topline revenue after a 2020 contraction

  • Variable gross profit and gross margin

  • A swing back to operating profit in 1H 2021

  • Variable cash flow from operations, with strong growth in 1H 2021

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Six Mos. Ended July 31, 2021

$ 629,091,000

93.1%

FYE January 30, 2021

$ 910,341,000

-29.1%

FYE February 1, 2020

$ 1,284,541,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Six Mos. Ended July 31, 2021

$ 362,569,000

207.3%

FYE January 30, 2021

$ 438,381,000

-36.4%

FYE February 1, 2020

$ 689,169,000

Gross Margin

Period

Gross Margin

Six Mos. Ended July 31, 2021

57.63%

FYE January 30, 2021

48.16%

FYE February 1, 2020

53.65%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Six Mos. Ended July 31, 2021

$ 80,839,000

12.9%

FYE January 30, 2021

$ (9,398,000)

-1.0%

FYE February 1, 2020

$ 148,373,000

11.6%

Net Income (Loss)

Period

Net Income (Loss)

Six Mos. Ended July 31, 2021

$ (107,664,000)

FYE January 30, 2021

$ (66,980,000)

FYE February 1, 2020

$ (198,217,000)

Cash Flow From Operations

Period

Cash Flow From Operations

Six Mos. Ended July 31, 2021

$ 97,967,000

FYE January 30, 2021

$ 93,933,000

FYE February 1, 2020

$ 159,714,000

(Glossary Of Terms)

(Source)

As of July 31, 2021, Claire's had $175.2 million in cash and $1.27 billion in total liabilities.

Free cash flow during the twelve months ended July 31, 2021, was $167.4 million.

Claire's IPO Details

Claire's intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final figure may differ.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds from this offering together with [an as-yet undetermined amount] of cash on hand to pay, in part, the Series A Preferred Unit make whole premium to the holders of Series A Preferred Units.

(Source)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, the firm did not disclose any claims or proceedings that appear to be of a material nature.

Listed bookrunners of the IPO are Goldman Sachs, Citigroup, Morgan Stanley and other investment banks.

Commentary About the Claire's IPO

Claire's is seeking public investment to pay existing investors and also likely for general corporate purposes if there are any remaining proceeds.

The firm’s financials show a strong rebound in topline revenue after a sharp 2020 contraction likely due to the pandemic, fluctuating gross profit and gross margin, a swing back to operating profit in 1H 2021 but continuing net losses and variable cash flow from operations, with strong growth in 1H 2021

Free cash flow for the twelve months ended July 31, 2021, was an impressive $167.4 million.

Selling, G&A expenses as a percentage of total revenue have fluctuated as revenue has varied; its selling, G&A efficiency rate swung back into positive territory in the most recent six-month reporting period.

The market opportunity for selling girls' fashion and related accessory products is very large but expected to grow at a relatively low rate of growth over the coming years.

Goldman Sachs is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 34.5% since their IPO. This is a mid-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is the lingering pandemic’s effect on its retail store operations, potentially negatively affecting consumer traffic into this important channel.

However, it appears CLRS has bounced back strongly from the pandemic and is producing high growth figures and significant operating profits and free cash flow.

When we learn more about the IPO’s pricing and valuation assumptions, I’ll provide an update.

Expected IPO Pricing Date: To be announced.

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This article was written by

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