Cash-generative casual clothing retailer FatFace announces its much-anticipated intention to float on London's Main Market later this month. Chaired by retail titan Stuart Rose, the flourishing UK lifestyle brand is the latest retailer to test the market in a debut expected to value the business at around £400 million.
Steered by chief executive officer Anthony Thompson, a former Marks & Spencer (MKS) and ASDA high flier, FatFace plans to raise up to £110 million further pay down debt levels reduced aggressively over the past four years and provide a partial exit for existing shareholders including private equity owner Bridgepoint and Fat Face's management. The retailer has strengthened its board by appointing a trio of non-executive directors including former Carpetright (CPR) boss Darren Shapland.
Formed in the late 1980s, when Jules Leaver and Tim Slade began selling t-shirts and sweatshirts from a VW Campervan in the French Alps, the company has morphed into a proven multi-channel retailer. It boasts 208 stores in the UK and Ireland, based in market towns, holiday resorts and major shopping centres as well as airports and train stations.
Designed in-house, FatFace's wide range of casual and affordable clothing, footwear and accessories is targeted towards a family-oriented demographic attracted to active, outdoor lifestyles. Thompson insists FatFace's relatively affluent customer base is diverse, loyal and expanding, with the brand continuing 'to attract a broad church of new customers'.
Strong growth has been delivered since 2010, underpinned by investment in product quality and a focus on selling products predominantly at full price, with FatFace avoiding the heavy discounting on which many rivals appear hooked. 'Our customers have to be able to trust our prices,' he insists.
FatFace is firmly engaged with the digital revolution, with e-commerce sales surging 55% to £21.5 million over the three years to 1 June. It also has wholesale and concession deals with retailer partners including John Lewis.
Thompson plans to open between eight and 10 new UK stores per year and has an eye on overseas expansion, initially through a trial of two to three stores on the east coast of the US within the next two years. These are likely to be based in seaside resorts or holiday destinations, supported by the launch of a dedicated US website.
Strongly cash-generative, FatFace plans to pay out between 30-40% of annual post-tax profits by way of progressive dividends. Eschewing regular discounting means gross margins are north of 60% and the business is in growth mode. Sales have advanced 17% to £178.8 million and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) up 26% to a record £31.2 million over the last three years. Business has remained brisk in the current year, with like-for-like sales up 8.4% over the 35 weeks to 1 February, underpinned by another record Christmas.
The anticipated £400 million tag values FatFace at 12.8 times EBITDA, a far more sensible multiple than the eye-watering valuation metrics ascribed to web-based retailers AO World (AO.) and Boohoo.com (BOO:AIM).