Tumi Debuts Strong, but Is There Any Hidden Baggage?
Coming off a year where global IPO performance declined across the board, shares of Tumi Holdingstraveled in high style during their debut on the Big Board.
Tumi shares opened at $26 a share and soared more than 44 percent above the stock’s offering price. The stock , which trades on the New York Stock Exchange under the ticker TUMI, was priced at $18 a share, above the estimated range of $15 to $17, valuing the company at $1.22 billion.
But it’s been a tough market for new stocks. According to Renaissance Capital, U.S. IPOs underperformed the S&P 500 significantly in 2011. Some notable disappointments include FriendFinder, which closed down 21 percent on its first day, and has been down 88 percent since its debut last year.
But there have been some bright spots in the IPO market as well. Investors have shown an appetite for luxury stocks, and Tumi operates in that high-end world.
The success of Tumi’s debut will be closely watched after the tremendous run Michael Kors shares had since their debut on Dec. 15, 2011. Shares of Kors have more than doubled since going public, up 114 percent as of Wednesday’s close. Currently, all nine analysts represented on Thomson Financial have buy ratings on Kors.
But will Tumi travel in the same circle as Kors?
“The IPO luxury market has been very strong,” says Linda Killian of Renaissance Capital. ”The companies that have gone public have been very exciting growth stories.”
That’s a contrast to last year when the IPO market was quiet and many of the private-equity backed companies had no growth. This year, Killian says, there has been a whole host of growth PE-deal names in the U.S.
The luxury market had a fabulous year in 2011, with its fastest sales growth rate in the last 15 years at around 20 percent, according to Thomas Chauvet, a Citigroup analyst, who does not cover either Tumi or Kors shares. Chauvet, who covers mostly European luxury goods companies, expects the upward trend to continue in 2012.
As for Tumi, the London-based private equity firm, Doughty Hanson, will begin exiting its control of the iconic luggage company, which it acquired eight years ago for $276 million.
Doughty has had to wait eight years to recoup its investment, which is longer than is usually the case for PE firms. That fact may raise a red flag with some investors, who might wonder whether the stock has some hidden baggage.
“I think that Tumi is getting a bit of Kors’ afterglow,” says Killian. “It’s not a Kors, it’s not a fast-growth story and it’s not apparel. It’s focused on business and travels, but they have improved their product line incredibly.”
Last month, Tumi teamed up with Dror Benshetrit, a collection that has been seeing high demand. If the new launch proves successful, it may lessen the company's dependence on its signature line, which tallies as much as 86 percent of the company's total sales.
But some say Tumi's strength is the customer loyalty the brand has established. Founded in 1975, Tumi takes its name from a Peruvian god, and harkens back to the founders’ Peace Corps days in South America. Thirty-seven years later, Tumi has more than 50 stores worldwide, including ones in New York, London, Paris and Tokyo. Its revenues grew 31 percent to $330 million in 2011 from $252 million the year before, according to the company's S-1 filing with the Securities and Exchange Commission.