Karan boosts stock price before IPO Confidence returns after failed offering


NEW YORK -- With its shares expected to go on the market today, Donna Karan International Inc. has boosted the price range on its initial public offering by 8.7 percent because of investor demand.

Buyers aren't fazed by recent weakness in the IPO market or the company's failed stock offer in 1993, analysts said.

Karan raised its price to $25 a share from $23, in line with competitors Nautica Enterprises Inc. and Tommy Hilfiger Corp., based on 1996 earnings estimates.

"It's a very attractive offering and they will get it done," said Susan Hager, a retail analyst at Pioneering Management Corp. in Boston. "This stock comes at a good price."

Donna Karan plans to sell a 50 percent stake to raise as much as $268.7 million, with about half going to original investors, including Karan and her family. The 10.75 million shares value the company at about $535 million.

At $25, the Donna Karan sale would be priced at 25.5 times lead underwriter Morgan Stanley & Co.'s estimated 1996 earnings of 98 cents a share. Hilfiger and Nautica trade at an average of about 26 times 1996 estimates.

The company's 1995 net income rose to $53.6 million on revenue of $510.1 million, from $16.3 million, on revenue of $420.1 million in 1994. In the first quarter, net income rose to $6.21 million, or 31 cents a share, from $4.08 million or 19 cents a year ago.

Still, the offer isn't without risk. The company licenses the right to use the Donna Karan brands, which include DKNY and DK, from Gabrielle Studio. The studio is owned by Karan, her husband, Stephan Weiss, and family trusts. If Karan leaves the company, the rights do, too.

The name helps sales of Karan's expensive top-of-the-line clothing rise by more than 20 percent annually. Women's jackets in her "Collection" line start at $1,200. Men's "black label" suits start at $1,100.

In 1993, Karan scrapped plans to sell 11 million shares at $15 to $17 each amid a weak market for IPOs from upscale clothiers.

This time around, to keep the offer in front of investors, Karan traveled around the world. She landed a cover story in New York magazine, leading some analysts to question whether she broke Securities and Exchange Commission rules on stock promotion. Partly because of that, lead underwriter Morgan Stanley & Co. ordered employees not to discuss the offer with the media.

Donna Karan and the Securities and Exchange Commission declined to comment.

Pub Date: 6/28/96

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