Saks Stock Offering Should Really Soar

There is much that glitters on the counters and racks of Saks Fifth Avenue, but to Wall Street, nothing shines as bright as the retailer itself.

Investors are expected to scarf up shares in Saks when it goes public today. Saks’ initial stock offering couldn’t be timed more perfectly - it comes as upscale stores are enjoying success on the trading floor as well as the selling floor.

“That’s where the focus is,” said analyst Eileen Gormley of the Pershing division of the investment firm Donaldson Lufkin & Jenrette. “The upscale retailers such as Tiffany are reporting encouraging results.”

Last week, after Tiffany & Co. said first-quarter earnings more than doubled, Wall Street was so delighted that the company’s stock rose more than 10 percent the day of the announcement. Two days later, Tiffany announced a stock split and a 43 percent increase in its dividend.

Gucci NV’s stock was priced at $22 each when the company had its initial public offering last October. Now the stock is trading in the $70 range.

Saks owner Investcorp SA, a Bahrain-based investment bank that also owned Gucci and Tiffany, is taking Saks public.

Investcorp is selling 16 million shares in Saks, or a little more than a quarter of the retailer’s equity. Saks said in its offering prospectus it would use the proceeds to pay down debt, which it listed as nearly $976 million.

The sale by Investcorp marks the first time the public will directly hold shares in Saks. After its founding in 1867, the company was privately held and operated as a division of Gimbel Bros. Inc., which was acquired by the British conglomerate BAT Industries PLC in 1973. In 1990 BAT, which was divesting all its retail holdings, sold Saks to Investcorp for $1.6 billion.

Like most other retailers, Saks took some lumps during the 1990-91 recession, and suffered a $64.1 million loss last year. But analysts who have studied the company are upbeat.

“They have a strong franchise, very strong name, and have very smartly decided to open a chain of discount stores to sell the stuff in their stores that’s not moving,” said Linda Killian, an analyst with Renaissance Capital Corp. in Greenwich, Conn.

The retailer operates 45 Saks Fifth Avenue stores, 19 Off 5th outlet stores and the Folio catalog, all of which generated a combined $1.69 billion in sales in fiscal 1995, up from $1.42 billion in 1994.

Ms. Killian noted that department store sales, particularly clothing sales, are showing signs of improving after a long drought.

Saks is not for the average shopper’s budget. The company does have well-known labels such as Estee Lauder cosmetics and Carolee costume jewelry, the same brands found in moderately priced department stores like Macy’s.

But Saks’ specialty and biggest draw is its assemblage of top-of-the-line and designer clothes and accessories. A shopper won’t find Vanity Fair or Olga lingerie there, but she will find Walcoal bras that cost $52 apiece and a Perla camisole and panty set for just over $200.

A big reason for the success has come from the rising stock market, which has given upper-end shoppers more money to spend. But decidedly middle-class customers also swear by Saks, searching its sale racks for good buys at season’s end.

Presiding over Saks are longtime retailing industry veterans, including chairman, Philip Miller, a former executive at Marshall Field’s and Neiman Marcus, and Rose Marie Bravo, the former chairman of the now-defunct upscale retailer I. Magnin.