Started as one home decor store in Jackson, Tenn., Kirkland’s Inc. is now on its way to an initial public offering valued at $143.75 million. Considering the rocky road to Wall Street these days, a slew of venture capitalist that invested in Kirkland years ago are keeping their fingers crossed that this IPO is more successful as other retail IPOs have been in the recent past.
Since the company’s founding 36 years ago in 1966, the retailer has grown to have 236 stores operating in 28 states throughout the Southeast, Mid-Atlantic and Midwest – most of which are located in shopping malls – and is poised for more growth.
Kirkland’s, which intends to trade on the Nasdaq under the ticker symbol KIRK, filed an S-1 with the Securities and Exchange Commission in mid-April. The company sells a myriad of home decorating products to its mainly female customers at competitive prices – most of the stores’ products retail at less than $50.00 each. According to the company’s S-1, sales at Kirkland’s have grown at a compounded annual growth rate of 19% since the beginning of 1997.
Kirkland’s, which has yet to receive an offering date, is lead managed by Merrill Lynch & Co., and co-managed by CIBC World Markets, SunTrust Robinson Humphrey and U.S. Bancorp Piper Jaffray Inc. Proceeds from the offering are intended to repay indebtedness, including all the company’s outstanding subordinated debt and mandatory redeemable Class C Preferred Stock, and a portion of its new revolving credit facility.
Kirkland’s plans to grow its business by opening approximately 15 new stores in fiscal year 2002 and 35 new stores in fiscal 2003. Additionally, the company intends to increase store productivity by leveraging its new information systems.
Not The First Try For Kirkland
In late 1999, around the time Kirkland’s withdrew its first filing, the company invested $6.5 million in information systems projects that were aimed at developing a more efficient sales machine that would increase sales, improve operational efficiency and better control inventory. That change was followed up with the hiring of six senior managers, consolidating the central distribution operations and implementing a plan to improve sales, increase cash flow and return stores to higher profitability.
These adjustments resulted in a net sales increase of 13.3% for the 53-week period ending Feb. 3, 2001, and an adjusted Ebitda margin increase to 11.6% from 7.5% in fiscal 2000.
Retail Not So Hot
Since the beginning of 2000, only six other retail companies have hit the public market, and of those IPOs, four were Internet e-tailers.
However, it seems that the retailing strength lies in that all-important “R” these days. Each of those four e-tailers – B2bstores.com, Buy.com, Pets.com, and Homegrocer.com – has either gone under or was bought out.
The remaining two retailers are of a different breed. Coach Inc., the designer leather goods store that priced at $16.00 a share in October 2000, and Gaylan’s Trading Co., an outdoor and athletic equipment retailer that priced at $19.00 a share in June 2000, are showing investors’ mixed emotions toward retailers. At press time, Coach (NYSE:COH) was trading well above its offering price at $567.10, and Gaylan’s (NNM:GLYN) was trading just slightly below its original offering price at $19.16.
It is notable, however, that none of the above mentioned companies specialized in the home decorating sector of the retail industry. And with memories of home guru Martha Stewart’s stock rocketing into the public market still fresh on investors’ minds, Kirkland’s could be in for a comfortable ride.
Martha Stewart Living Omnimedia, which combines the success of Stewart’s home decorating ideas with the popularity of her television show, magazine, mail-order house and Web site, priced at $18.00 a share in October 1999 and opened way up at $37.25 the following day. At press time, Martha Stewart living was at $18.00 a share.
VCs Get Their Pay Day?
Like Martha Stewart Living, backed by venture fund Kleiner Perkins Caufield & Byers, Kirkland’s heads into its offering with backing from private equity investors. Since 1996, Kirkland’s has received buyout, mezzanine and expansion funding from private equity firms Advent International Corp., Allied Capital Corp., Capital Resource Partners, Marlborough Capital Advisors and an undisclosed non-venture firm, according to VentureXpert.
While Martha Stewart may have set the standard for how to succeed with a home decor company, the fact is, comparing its multimedia triumph to a bricks-and-mortar business like Kirkland’s may be setting investors up for disappointment. But, have no fear. Kirkland’s main competitors, which include the top two home goods chains – Bed, Bath & Beyond Inc. and Linens n Things Inc., respectively – have been receiving positive attention from the market for some time now.
Bed, Bath & Beyond, which received funding from European private equity firm 3i Capital Corp., debuted on the Nasdaq with an $85 million IPO on June 4, 1992, priced at $17.00. At press time, Bed, Bath & Beyond (NNM:BBBY) was trading at $36.87.
Linens n Things (NYSE:LIN), which opened on the big board on Nov. 26, 1996, priced at the low end of its $15.00 to $17.00 range. At press time, the stock was trading at $34.85.
Contact Christa Fanelli at: Christa.Fanelli@tfn.com