Investors Snap Up Shares in Luxury Chain by the Saks-Fuls
Shares in Saks Fifth Avenue’s holding company rose 39% in their first day of trading Wednesday as investors sought to cash in on the booming market for luxury goods.
Saks Holdings Inc. stock rose $9.625 to close at $34.625 in New York Stock Exchange trading of 11.6 million shares, making it the second-most active issue in U.S. markets. Saks sold 16 million shares, a 26% stake, at $25 each to raise $400 million.
“We knew it was going to go up, but not like this. High-end retail is hot,” said Andrea Thomas, a retailing analyst at the Lutheran Brotherhood Foundation, which bought 50,000 shares in the 129-year-old New York retailer.
Upscale stores such as Saks have prospered in recent months as an expanding U.S. economy spurred consumers to spend their extra cash on fancy shoes, handbags and cosmetics, analysts said. Investors have followed suit, pouring cash into shares of upscale companies.
Gucci Group shares tripled from their IPO in October to an all-time high Wednesday after the company said first-quarter sales more than doubled. The stock of cosmetics firm Estee Lauder Cos. rose more than 40% from November’s IPO on strong earnings prospects.
Saks stock is about twice as expensive as the shares of top-drawer competitors Neiman Marcus Group Inc. and Tiffany & Co., based on expected earnings. And that’s despite the fact that Saks hasn’t posted an annual profit in five years.
At $34 a share, Saks stock is valued at 77 times Goldman, Sachs & Co.’s earnings estimate of 44 cents. By comparison, Tiffany and Neiman Marcus trade at 26 times to 28 times their per-share earnings. Gucci trades at just 39 times this year’s expected earnings and Estee Lauder trades at 31.
Additionally, Saks’ loss narrowed to $64.1 million in fiscal 1995 from $255.8 million in 1993. Since 1991, sales have risen 33% to $1.68 billion.
That kind of valuation without the performance to back it up has kept some luxury retail investors on the sidelines.
“I couldn’t justify the price,” said Susan Hager, a retail analyst at Pioneering Management Corp., which bought stock in the Estee Lauder IPO.
The ritzy Saks is pinning growth expectations on its Off 5th Avenue stores, which sell end-of-season merchandise at deep discounts. Analysts have said that the strategy is questionable because other retailers, including Macy’s and Nordstrom, have failed with forays into discount stores.
Contributing to investor expectations for Saks is the track record of its biggest investor, Bahrain-based Investcorp, which is an investment bank owned by wealthy Arab families in the Persian Gulf. In July 1990, Investcorp bought the chain of 45 Saks Fifth Avenue stores and 19 Off 5th stores for $1.6 billion.
Investcorp has a great record of selling shares to the public in high-profile companies it controls. In March, it sold its remaining 51% stake in Gucci. Investcorp also pocketed $100 million in 1987 after selling shares of Tiffany, which it bought in 1984.
After the Saks IPO, Investcorp will hold a 17% stake in the retailer. It bought 2.25 million of the 16 million shares being offered to the public. Of the remainder, 11 million were sold in the United States and 2.75 million abroad.
Goldman Sachs, CS First Boston, Morgan Stanley & Co. and Salomon Bros. Inc. underwrote the sale. Shares trade under the ticker symbol SKS.
