Luxury Beats Tech as Michael Kors Tops IPO Ranking
In 2003, fashion house Michael Kors Holdings Ltd. (KORS) was struggling.
“It was losing money and probably would have gone out of business had we not bought it,’’ said Chief Executive Officer John Idol in a speech at the University of Pennsylvania’s Wharton School in March. Idol, 53, a former CEO of Donna Karan International Inc., took over the company with partners that included Sportswear Holdings Ltd., a Hong Kong-based private equity firm.
It’s been pretty much champagne and roses for Michael Kors ever since, Bloomberg Markets magazine reports in its August issue. What was a $20 million-in-revenue business in 2004 is now a $1.3 billion behemoth. Net income for the 12 months ended on March 31 was $147 million. And Kors Holdings soared 144 percent in the 90 days after going public in December.
That makes it No. 1 in the Bloomberg Markets annual ranking of the best-performing initial public offerings. The ranking measures the 90-day stock performance of the 179 global IPOs that raised more than $500 million since the bankruptcy of Lehman Brothers Holdings Inc. in September 2008 through the end of 2011.
Because the IPO market froze for more than a year after Lehman’s collapse, most new listings were from 2010 and 2011.
The social-networking company, whose website has more than 900 million users, dropped as low as $25.87 per share from its offering price of $38 before rebounding to $28.09 as of yesterday’s close.
For its first week, Facebook was the worst-performing of the 30 largest IPOs since the beginning of 2011, according to data compiled by Bloomberg.
Travel site operator Kayak Software Corp., Russian social- networking company VKontakte, Formula One Holdings Ltd. and a dozen other companies shelved planned listings in the weeks after the Facebook listing. Kayak consequently revived its offering and is scheduled to price its IPO tomorrow.
Meanwhile, Kors Holdings, which went public on Dec. 14, was still trading at almost double its offering price as of yesterday.
The success of the IPO “tells you we have a great brand with great management, led in particular by Michael and his very clear positioning of the jet-set lifestyle,’’ Idol says.
The listing has given Idol and Chief Creative Officer Kors, 52, the means to live that lifestyle. The founding designer sold stock worth $117 million in the December IPO and $135.7 million in a March secondary offering, while Idol raised $68 million in the IPO and $81.3 million in the subsequent sale, according to company regulatory filings.
Kors Holdings is domiciled in Hong Kong, though Kors himself still works mostly in New York. The China connection is now key to Idol’s strategy, as the company aims to more than double its Greater China stores to 15 by the end of the year.
Asia dominated the list of best-performing IPOs, contributing seven of the top 10.
“Since 2008, if you’re looking for strong, sustainable growth, the only areas that have created that have been Asia and to some extent Russia,’’ says Komal Sri-Kumar, chief global strategist at investment firm TCW Group Inc., which oversees $128 billion. “What is happening in Asia is that people are rising from middle class to the upper-income group and from lower income to the middle class. All of that contributes to more spending on luxury goods.’’
Asia’s new affluence is due partly to the success of the dozens of industrial companies that have gone public in recent years in China, Malaysia, South Korea and other nations. On the list of best-performing IPOs are China Hainan Rubber Industry Group Co. (601118), Korea Aerospace Industries Ltd. (047810), Malaysia Marine and Heavy Engineering Holdings Bhd. and Mongolian Mining Corp. (975)
Asian companies have raised more than half of the money gleaned from IPOs since the beginning of 2010, while the U.S. portion has fallen as low as 15 percent in recent years, according to data compiled by Bloomberg.
China’s growth has been slowing, and Premier Wen Jiabao in March set a 7.5 percent growth target for this year, down from an 8 percent goal in place since 2005. Tempered expansion in that economy has had a serious impact on the stock prices of some of the companies at the top of the ranking.
For example, the share price of Malaysia Marine (MMHE), which builds offshore platforms for oil and gas producers and repairs liquefied-natural-gas vessels, more than doubled in its first eight months of trading before trimming those gains to 45 percent through yesterday.
Hainan Rubber’s shares almost tripled in the first six weeks of trading as the Standard & Poor’s GSCI Spot Index of commodities headed for a 32-month high. They’ve tumbled 60 percent from that peak, as the commodities index has fallen 17 percent from its April high.
Mongolian Mining, No. 10, jumped 50 percent in its first 90 days of trading, yet as of yesterday was down 42 percent from its listing price. Still, the coking coal exporter said in March that revenue had nearly doubled last year and will continue to grow because of demand from China. Mongolia was Asia’s fastest- growing economy in 2011 at 17 percent, according to the World Bank.
Sinking commodities prices pushed one giant trading company, Glencore International (GLEN) Plc, onto the Bloomberg Markets ranking of the 20 worst-performing IPOs. Shares of the oil, coal and metals trader, which launched the biggest offering of 2011, had dropped more than 25 percent after 90 days and remained well below the offering price as of yesterday’s close.
Baar, Switzerland-based Glencore, which sold $10 billion in its London and Hong Kong IPO, recorded profits of $4.05 billion in the 12 months through Dec. 31. The smart investors were those who sold Glencore in the IPO, says Michael Holland, chairman of Holland & Co., a New York-based investment company that oversees more than $4 billion.
“The bankers figured out there was a willing IPO market to go after,’’ Holland says. “As in the case with Facebook or any other IPO that comes with a frenzy and a huge tail wind -- as the commodities market had for Glencore -- the clear winners were those who sold the stock.”
Glencore’s debut, at least, went smoothly. Facebook’s was plagued by trading errors and questions of whether the firm and the underwriters, led by Morgan Stanley, selectively disclosed nonpublic information. Negative buzz around Facebook’s IPO was stoked by a 6.7 percent slide in U.S. stocks from the end of April through the company’s May 17 pricing date.
“There were very dark clouds on the horizon for the 10 days prior,’’ says Josef Schuster, founder of Chicago-based Ipox Schuster LLC, which oversees $2.5 billion and invests in IPOs. “The deal was just mispriced.”
Only two Internet/social-networking companies, Zynga Inc. (ZNGA) and Russia’s Mail.ru Group Ltd. (61HE), made the Bloomberg Markets list of the 20 best-performing IPOs. And Zynga, along with Pandora Media Inc. (P) and Groupon Inc. (GRPN), were all trading below their offering prices yesterday.
Schuster says the poor performance of social media companies was predictable in the uncertain markets of 2010 and 2011.
“It’s a valuation game and also a market game,’’ he says. “In the last few years, the market as a whole has been very jittery,’’ Schuster says. “You have these spurts of enthusiasm during which these companies price. Then you have these periodic increases in global risk, which really affect these companies strongly on the downside.”
Demand for luxury goods has remained strong even through the slide in China’s growth and Europe’s debt crisis. One company that has benefited is Milan-based Prada SpA (1913), which went public in June 2011 in a $2.48 billion Hong Kong IPO that gave the company a higher valuation than those of global peers such as LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s biggest maker of luxe items.
Prada stock ended the 90-day post-offering period down 2 percent, yet it has risen dramatically since then and was up 34 percent this year as of yesterday.
Prada Chief Executive Officer Patrizio Bertelli said in a May interview with Bloomberg News that he expects 40 percent of the company’s sales to come from the Asia-Pacific region in 2012 and 2013.
Social media may be all the rage among under-35s. It’s luxury goods in Asia that are earning money for investors.