A youth clothing retailer is reportedly preparing for an initial public offering despite the difficult trading conditions plaguing the sector. According to reporting in The Australian, Universal Store is planning to list as early as next month and could be worth up to $300 million.
The Universal Store is a youth fashion chain with 60 stores. Stocking brands including Calvin Klein, Converse, Birkenstock, Patagonia, Lee, and Wrangler, Universal Store sells clothing and accessories through its store network and online.
Its target market is fashion forward 15–34 year olds, which is a part of the market relatively immune to stress from the housing market and interest rate cycles. Stock is delivered to stores in 4–6 weeks, emulating fast fashion retailers. Short-run buying cycles are used to encourage customers to buy quickly or potentially miss out, yet in-store customer service is a key differentiator and is reportedly more akin to that offered in upscale boutiques.
According to The Australian, the retailer generated $25 million in earnings before interest tax depreciation and amortisation for the 2019 fiscal year from sales of $145 million.
This is a decent increase on the $14.3 million pre-tax the Universal Store earned in the 12 months to June 2018 on sales of $112.4 million, according to reporting by the Australian Financial Review (AFR).
The retail environment
The offering comes at a difficult time for Australian retail. A parade of retailers hit the wall in 2019 in the face of increased online competition and decreased consumer spending. Jeanswest was the latest retailer to collapse, filing for voluntary administration this week. Bardot entered voluntary administration in November and Harris Scarfe entered receivership in December. Retailers are no longer simply competing against their neighbours in the high street, but with stores and brands all over the world.
Past and future
Universal Store was bought out by private equity investors BB Capital, CDCM, and Five V Capital in 2018. BB Capital previously built successful retail retail chains Adairs Ltd (ASX: ADH) and Lovisa Holdings Ltd (ASX: LOV).
Shares in Lovisa are up 76% over the past year, while shares in Adairs are up 23%. Brett Blundy, the retail billionaire behind BB Capital, has also backed City Chic Collective Limited (ASX: CCX). Shares in City Chic are up over 179% over the past year. Given Blundy’s impressive retail record, investors may well be tempted by this latest offering. According to the AFR piece, funds raised from the IPO are earmarked to fund Universal Store’s growth plans, which include store rollouts and improving its online offering.
It may seem counterintuitive to float a retail business in the midst of seemingly endless doom and gloom for the sector. But given the track record of Universal Store’s backers, support for the float may well be mustered.
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.