Claire's Stores: All Dressed Up and Ready to IPO

Lovers of costume jewelry rejoice: Claire's Stores is coming back to market.

It's been more than six years since private equity powerhouse Apollo Global Management (APO) paid $3.1 billion to take Claire's Stores private. But in an "S-1" IPO Prospectus filed with the SEC last week, Apollo revealed that it's planning to re-IPO the seller of tween costume jewelry and accessories and raise $100 million in the process.

Billions of Baubles Served

Claire's is a pretty huge business, operating 2,705 of its eponymous stores itself and franchising out a further 392 locations. Claire's also owns and operates 380 Icing stores targeting women shoppers age 18 to 35. Claire's does business in 41 countries, including recent expansions into Italy and China.

So what should you expect to get if you decide to buy shares in the IPO? Here's a quick summary of the company's 2012 finances:
Sales$1.6 billion
Gross profit$801 million
Operating profit$236 million
Annual interest payments on its $2.3 billion in debt$206 million
Income taxes$15 million
Net profit$6.2 million
Source: Claire's Stores S-1. All figures for 2012.

Yes, you read that right. Last year, Claire's sold $1.6 billion worth of baubles and gewgaws.

Cheap Thrills and Continuing Growth

Don't get too excited about that $1.6 billion sold. Claire's made all of $6.2 million in profit off those sales -- a net profit margin of just 0.4 percent. As in, less than half of one percent. As in nine times less profitable than Walmart (WMT), and 10 times less profitable than Target (TGT).

That's the bad news. Now here's the good.

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Claire's is growing. From 2009 to 2012, the company opened 443 new stores -- so nearly one out of every seven stores open today opened in just the last three years.

Claire's is also growing its sales, irrespective of new store growth. Over the past three years, total sales have increased a bit faster than 5 percent per year. Same-store sales -- i.e. sales growth coming from existing stores, rather than from simply opening new stores -- have been positive in 10 of the last 13 quarters, and amounted to 1.8 percent growth in 2012.

And of course, even with its huge debt load, Claire's is profitable, albeit barely.

Should You Buy It?

At this point, it's impossible to say whether Claire's stock will make for a good investment. Why? Because we have no idea what the shares will be worth -- or even what owning "a share" of Claire's means.

While Claire's prospectus gives us a good picture of annual sales and profits for the company as a whole, the prospectus is currently a work in progress and riddled with blanks that still need to be filled in. For example, the document does not say how many shares Claire's intends to sell to the public or how many shares will exist after the IPO.

IPO Math 101

Without knowing how many shares Claire's will be sliced up into, we do not know how much of the company's total profit "belongs" to any one share.

For example, if after Claire's IPO there were to be 6.2 million shares outstanding, then each share would own $1 worth of the company's 2012 profits. On the other hand, if Claire's ends up with 62 million shares outstanding after the IPO (it's got 60.8 million already), then each share will own only $0.10 of those profits.

620 million shares -- $0.01 profit. And so on, and so on.

The missing information will eventually be added to Claire's prospectus, and will certainly be in there before the IPO actually happens. All you need to do is check back periodically and look for it. You can do that here on the SEC website.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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