JP Outfitters Begins $17 Million U.S. IPO Effort

A Quick Take On JP Outfitters, Inc.

JP Outfitters, Inc. (JPO) has filed to raise $17.25 million in an IPO of its common stock, according to an S-1 registration statement.

The firm designs and sells branded apparel products directly to consumers primarily in the United States.

JPO is producing declining topline revenue and increasing operating losses.

I’ll provide a final opinion when we learn more IPO information from management.

JP Outfitters Overview

Cincinnati, Ohio-based JP Outfitters, Inc. was founded to develop a direct-to-consumer business model for selling various lifestyle branded products such as apparel, footwear and accessories to consumers.

Management is headed by president and CEO Arnold Cohen, who has been with the firm since 2022 and was previously the president of The J. Peterman Company from 1995 to 1998 and has held a variety of leadership roles at well-known apparel brand companies such as Gucci, J. Crew, London Fog and American Eagle Outfitters.

The company’s primary brands are as follows:

• The J. Peterman Company

• The Territory Ahead

As of December 31, 2022, JP Outfitters has booked fair market value investment of $20.9 million in equity and debt from investors including Santai Global Asset Management, AA Assets Limited and others.

JP Outfitters - Customer Acquisition

The company pursues customers directly [DTC] through its website, direct mail catalog marketing efforts, online social media outreach and email communication.

The firm has no retail locations, only warehouses, so has a lower fixed-cost structure than retail-oriented brands.

Operating, Selling, G&A expenses as a percentage of total revenue have risen as revenues have decreased, as the figures below indicate:

(Source - SEC)

The Operating, Selling, G&A efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Operating, Selling, G&A expense, was (0.1x) in the most recent reporting period. (Source - SEC)

JP Outfitters’ Market & Competition

According to a 2022 market research report by Grand View Research, online apparel sales was an estimated $553.1 billion in 2021 and is forecast to reach $1.16 trillion by 2030.

This growth, if achieved, would represent a CAGR of 8.6% from 2022 to 2030.

Industry growth is predicated on an increasing number of working women, changing fashion trends and continued product innovation by manufacturers and designers.

Additional factors driving market growth are rising globalization, growing internet and smartphone penetration, and a projected rise in disposable income.

The chart below shows the historical and projected future growth rate of the U.S. E-commerce apparel market from 2020 to 2030:

Major competitive or other industry participants include the following:

• Anthropologie

• Faherty Brand

• Carbon2Cobalt

• Others

JP Outfitters, Inc. Financial Performance

The company’s recent financial results can be summarized as follows:

• Contracting topline revenue

• Reduced gross profit but increased gross margin

• Increased operating losses

• A swing to substantial cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

(Source - SEC)

As of December 31, 2022, JP Outfitters had $52,730 in cash and $21.1 million in total liabilities.

Free cash flow during the twelve months ending December 31, 2022, was negative ($5.4 million).

JP Outfitters, Inc. IPO Details

JP Outfitters intends to raise $17.25 million in gross proceeds from an IPO of its common stock, although the final figure may differ.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

(30% of the net proceeds) to pay off outstanding accounts payable and potentially the $750,000, $500,000 and $500,000 loans made by Santai to us on December 30, 2022, January 30, 2023, and March 15, 2023, respectively, (and any other such bridge loans as Santai may provide to us before our listing on the Nasdaq Stock Market), which loans are non-interest bearing and are repayable on the earlier of June 30, 2024 or thirty (30) days after our listing on the Nasdaq Stock Market.

(20% of the net proceeds) as collateral to help secure traditional bank facilities at a lower cost than the credit facilities the Company currently relies on.

(25% of the net proceeds) to support strategic acquisitions (which may be structured on an earn-out basis as a percentage of sales and/or with issuance of shares instead of cash outlay);

(25% of the net proceeds) for general working capital.

(Source - SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management did not characterize the firm's exposure to legal proceedings, if any.

The sole listed bookrunner of the IPO is Aegis Capital Corp.

Commentary About JP Outfitters’s IPO

JPO is seeking U.S. public capital market investment to pay down debt, make acquisitions and for its working capital requirements.

The company’s financials have produced reduced topline revenue, lowered gross profit but increased gross margin, higher operating losses and a swing to substantial cash used in operations.

Free cash flow for the twelve months ending December 31, 2022, was negative ($5.4 million).

Operating, Selling, G&A expenses as a percentage of total revenue rose despite dropping revenue; its Operating, Selling, G&A efficiency multiple was negative (0.1x) in the most recent reporting period.

The firm currently plans to pay no dividends in the near future and to retain any earnings for reinvestment back into the company's growth and working capital requirements.

The company’s capital expenditures have continued despite negative operating cash flow.

The market opportunity for online apparel sales is large and expected to grow substantially over the coming years, so the firm has favorable industry growth dynamics.

However, the online/direct-to-consumer business model has proven difficult to perform profitably, especially as online marketing costs have risen and the complexity involved has been increasing with recent changes in advertising tracking by major mobile platforms.

Aegis Capital Corp. is the sole underwriter, and the only IPO led by the firm over the last 12-month period has generated a return of negative (56.7%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

Risks to the company’s outlook as a public company include its thin capitalization, ongoing supply chain challenges amplified by its small size, cyclicality, and changing consumer tastes specific to the apparel market, among other risks.

One bright spot is that the firm has a highly experienced CEO in Arnold Cohen who is quite familiar with the company's brands.

When we learn more details about the IPO from management, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

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