If we had this one to do over again we’d raise the money for expansion capital instead of debt repayment, scale back the growth objectives to a simple 10-15% and add a dividend. Under those terms we’d bet this deal could get done.
We were scratching our heads during this roadshow and wondering how this retail concept would be received by investors. The short answer is that they didn’t find it attractive and the deal has been withdrawn.
DTLR or “Down Town Locker Room” as it originated caters to young black men who “dress from the shoe up” and have a high “disproportionate spend on footware.” As absurd as that sounds there is a market for it and the company has grown to 100 stores and $181M in F2012 sales. Operating income was over $13M for the same year. So the numbers actually look pretty good. In terms of valuation the $13 mid-point put the market cap at about $220M or a little over 1x plausible F2013 revenues.
Basically we’d describe this as a good little retail business but the growth strategy calls for 600 stores while continuing to drive same store sales growth, online sales and expand margins. The potential for 600 stores is hard to see with the bulk of the use of proceeds was going to pay off existing debt of $51M – not for expansion capital.
It didn’t help matters that recently another retail “brand” story, Tilly’s (TLYS), provided weak future guidance and cited a more difficult competitive environment for their “young active” customer segment.
We have archived the DTLR IPO roadshow slides.
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