Kidpik Seeks $15 Million In U.S. IPO Effort
Summary
- Kidpik has filed to raise $15 million in a U.S. IPO.
- The firm sells children's clothing via a subscription business model.
- PIK has grown revenue from a low base but hasn't made progress toward operating breakeven and hasn't divulged customer retention metrics, so I'll pass on the IPO.
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IRINA KROLEVETC /iStock via Getty Images
A Quick Take On Kidpik Corp.
Kidpik Corp. (NASDAQ:PIK) has filed to raise $15 million in an IPO of its common stock, according to an S-1/A registration statement.
The firm provides a subscription-based service for clothing and related products for children.
PIK hasn’t made any headway in reaching operating breakeven and didn’t provide any subscriber retention information, despite management highlighting the importance of customer retention in its revenue model.
So, I'll watch the IPO from the sidelines.
Company & Technology
New York, New York-based Kidpik was founded to develop an e-commerce subscription clothing and accessories company aimed at the children's clothing market.
Management is headed by president, Chairman and CEO Ezra Dabah, who has been with the firm since April 2015 and is also CEO of Nina Footwear, a wholesaler of women's and kids' shoes and accessories.
Below is a brief overview video of the company:
(Source)
The firm designs all of its apparel and shoe offerings in-house after which it contracts with manufacturers for production with delivery to its distribution center in California.
Kidpik has received at least $37.7 million in equity investment from investors including Raine Silverstein, Gila Goodman, Greg Kiernan and Isaac Dabah.
Kidpik - Customer Acquisition
The firm markets its service via online advertising, word of mouth, email, public relations, influencer marketing and digital co-branded collaborations.
Management plans to expand its marketing efforts to include broadcast and connected television opportunities.
General and Administrative expenses as a percentage of total revenue have risen slightly as revenues have increased, as the figures below indicate:
General & Administrative | Expenses vs. Revenue |
Period | Percentage |
26 Weeks Ended July 2, 2021 | 37.8% |
Year Ended January 2, 2021 | 37.3% |
Year Ended December 28, 2019 | 36.6% |
(Source)
The General and Administrative efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of General and Administrative spend, has more than doubled to 1.1x in the most recent reporting period, as shown in the table below:
General & Administrative | Efficiency Rate |
Period | Multiple |
26 Weeks Ended July 2, 2021 | 1.1 |
Year Ended January 2, 2021 | 0.5 |
(Source)
The firm’s dollar-based net revenue retention rate is a critical metric for determining how much additional revenue is generated over time from each cohort of customers.
The absence of that information is a notable omission and results in a lack of visibility into the efficiency of the company’s marketing and customer retention efforts.
Below is a graphic showing the firm’s website traffic trends by deduplicated audience size, with an overall upward trend over the past two-year period, including throughout the 2020 pandemic period:
(Source: Similarweb)
Kidpik’s Market & Competition
According to a market research report by StrategyR, the global market for children's wear was an estimated $252.2 billion in 2020 and is forecast to reach $315.5 billion by 2026.
This represents a forecast CAGR of 3.7% from 2021 to 2026.
The main drivers for this expected growth are expected growth in the Chinese market of 6.7% through 2026.
Also, the Infants & Toddlers segment is forecast to grow at a 4.1% CAGR through 2026, faster than the overall 3.7% CAGR estimate.
Major competitive or other industry participants include:
Benetton Group
Carter's
Esprit Holdings
Fruit of the Loom
Gap
Global Brands Group
Hanesbrands
J.C. Penney Company
KMART
Hohls
Macy's
Mothercare Group
Oshkosh B'gosh
Sears
Target
The Children's Place
Others
Kidpik Financial Performance
The company’s recent financial results can be summarized as follows:
Growing topline revenue
Increasing gross profit but variable gross margin
Fluctuating operating losses
Variable cash used in operations
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue | ||
Period | Total Revenue | % Variance vs. Prior |
26 Weeks Ended July 2, 2021 | $ 10,988,480 | 70.6% |
Year Ended January 2, 2021 | $ 16,936,387 | 25.3% |
Year Ended December 28, 2019 | $ 13,518,706 | |
Gross Profit (Loss) | ||
Period | Gross Profit (Loss) | % Variance vs. Prior |
26 Weeks Ended July 2, 2021 | $ 6,656,803 | 76.5% |
Year Ended January 2, 2021 | $ 9,889,671 | 20.0% |
Year Ended December 28, 2019 | $ 8,242,655 | |
Gross Margin | ||
Period | Gross Margin | |
26 Weeks Ended July 2, 2021 | 60.58% | |
Year Ended January 2, 2021 | 58.39% | |
Year Ended December 28, 2019 | 60.97% | |
Operating Profit (Loss) | ||
Period | Operating Profit (Loss) | Operating Margin |
26 Weeks Ended July 2, 2021 | $ (2,531,254) | -23.0% |
Year Ended January 2, 2021 | $ (3,665,811) | -21.6% |
Year Ended December 28, 2019 | $ (4,093,997) | -30.3% |
Net Income (Loss) | ||
Period | Net Income (Loss) | Net Margin |
26 Weeks Ended July 2, 2021 | $ (2,900,702) | -26.4% |
Year Ended January 2, 2021 | $ (4,188,360) | -38.1% |
Year Ended December 28, 2019 | $ (4,603,314) | -41.9% |
Cash Flow From Operations | ||
Period | Cash Flow From Operations | |
26 Weeks Ended July 2, 2021 | $ (3,811,062) | |
Year Ended January 2, 2021 | $ (3,550,328) | |
Year Ended December 28, 2019 | $ (4,214,518) | |
(Source)
As of June 30, 2021, Kidpik had $199,291 in cash and $9 million in total liabilities.
Free cash flow during the twelve months ended June 30, 2021, was negative ($6 million).
Kidpik IPO Details
Kidpik intends to raise $15 million in gross proceeds from an IPO of its common stock, offering 1.67 million shares at a proposed midpoint price of $9.00 per share.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $59.8 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 23.26%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.
Management says it will use the net proceeds from the IPO as follows:
We intend to use the net proceeds from this offering to repay debt, increase our capitalization and financial flexibility, and create a public market for our Common Stock, and facilitate our future access to the capital markets.
(Source)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management says 'the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued financial position, results of operations or cash flows.'
The sole listed bookrunner of the IPO is EF Hutton.
Valuation Metrics For Kidpik
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Market Capitalization at IPO | $64,501,686 |
Enterprise Value | $59,836,686 |
Price / Sales | 3.00 |
EV / Revenue | 2.79 |
EV / EBITDA | -13.37 |
Earnings Per Share | -$0.70 |
Operating Margin | -20.83% |
Net Margin | -24.08% |
Float To Outstanding Shares Ratio | 23.26% |
Proposed IPO Midpoint Price per Share | $9.00 |
Net Free Cash Flow | -$6,045,751 |
Free Cash Flow Yield Per Share | -9.37% |
Revenue Growth Rate | 70.59% |
(Source)
As a reference, a potential partial public comparable to Kidpik would be Stitch Fix (SFIX); below is a comparison of their primary valuation metrics:
Metric | Stitch Fix | Kidpik | Variance |
Price / Sales | 1.75 | 3.00 | 71.6% |
EV / Revenue | 1.75 | 2.79 | 59.2% |
EV / EBITDA | -110.02 | -13.37 | -87.8% |
Earnings Per Share | -$0.08 | -$0.70 | 771.7% |
Revenue Growth Rate | 22.8% | 70.59% | 210.15% |
(S-1/A and Seeking Alpha)
Commentary About Kidpik’s IPO
PIK is seeking U.S. public capital market funding to repay some debt and for its future growth plans.
The firm’s financials show growing topline revenue but continuing operating losses and operating cash flow burn.
Free cash flow for the twelve months ended June 30, 2021, was negative ($6 million).
General and Administrative expenses as a percentage of total revenue have risen slightly as revenue has increased; its General and Administrative efficiency rate rose sharply in the most recent reporting period.
The market opportunity for selling children’s clothing is large and expected to grow at a moderate rate of growth through 2026.
EF Hutton is the sole underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (10.4%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.
The primary risk to the company’s outlook is the high degree of market fragmentation for children’s clothing and the presence of major competitors.
As for valuation, compared to adult clothing subscription company Stitch Fix, Kidpik is seeking a significant premium on major revenue multiples, likely a result of its higher revenue growth rate, although from a much lower base.
PIK hasn’t made any headway in reaching operating breakeven and didn’t provide any subscriber retention information, despite management highlighting the importance of customer retention in its revenue model.
So, I'll watch the IPO from the sidelines.
Expected IPO Pricing Date: Week of November 1, 2021
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This article was written by
Donovan Jones is a research specialist with 15 years of experience identifying opportunities for IPOs and software companies.
He also leads the investing group
which offers: actionable information on growth stocks through first look S-1 filings, previews on upcoming IPOs, an IPO calendar for tracking what’s on the horizon, a database of U.S. IPOs, and a guide to IPO investing to walk you through the entire IPO lifecycle - from filing to listing to quiet period and lockup expiration dates.
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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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.
Investing in IPOs can be a volatile and opaque endeavor. My research is focused on identifying quality IPO companies at a reasonable price, but I’m wrong sometimes. I analyze fundamental company performance and my conclusions may not be relevant for first-day or early IPO trading activity, which can be highly volatile and unrelated to company fundamentals. This report is intended for educational purposes only and is not financial, legal or investment advice.
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