UPDATE 3-Teen retailer Tilly's shares surge in market debut

Fri May 4, 2012 4:31pm EDT

* Shares priced above indicated range

* Commands strong brand loyalty-analyst

* Shares up as much as 25 pct

By Tanya Agrawal and Ranjita Ganesan

May 4 (Reuters) - Tilly's Inc's shares opened 23 percent above the IPO price in their market debut, as investors seemed keen to grab a piece of the fast-growing specialty retailer in an otherwise weak IPO market.

Tilly's had priced its IPO of 8 million shares at $15.50, above its expected range of $11.50 to $13.50 per share, raising $124 million.

The stock's strong debut mirrors those of other consumer companies like luxury brand Michael Kors Holdings Ltd, whose stock has more than doubled in value since it got listed in December, and women's specialty retailer Francesca's Holdings Corp.

Irvine, California-based Tilly's is named after co-founder Tilly Levine, who opened the first store in 1982 with current chairman Hezy Shaked.

With the motto "If it's not here ... it's not happening," Tilly's aims to be the go-to destination for trendy clothing and equipment for skating, snowboarding and other action sports.

It offers products from Billabong International Ltd , Quiksilver Inc, Volcom, Hurley, FOX and Infamous and others, targeting teenagers and young adults.

Continuing growth, healthy sales and trendy assortments make the company less vulnerable to competition, setting it off as a good buy, analysts said.

"They have a strong brand following. Tilly's doesn't need to take away market share from other competitors like Aeropostale , American Eagle Outfitters and Urban Outfitters ," IPOfinancial.com President David Menlow told Reuters.

Tilly's sales increased 20 percent in 2011 to $400.6 million. Net income jumped 41 percent to $34.3 million.

Comparable store sales rose 10.7 percent in 2011, after a 6.7 percent increase in the prior year.

Zumiez, another surf and skatewear retailer, too has performed well. The company's earnings have exceeded expectations for two years and its shares have risen about 42 percent this year.

At the same time, the IPO market has been unforgiving of market debuts of companies like private equity firm Carlyle and Everbank Financial, which made quiet entries into the public markets.

"Investors see higher growth prospects for technology or consumer companies because most of these companies do not use their IPOs as an exit strategy for their investors, like financial companies seem to be doing," said Josef Schuster, founder of Chicago-based financial services firm IPOX Schuster LLC.

Tilly's sold 7.6 million shares in its IPO, while stockholders sold 400,000 shares.

Tilly's runs 140 stores in 14 states, each roughly 7,800 square feet in size, and an e-commerce website, tillys.com.

The company plans to add atleast 21 more stores in the year and also plans to grow e-commerce sales.

Brian Sozzi, chief equity analyst at NBG Productions, was skeptical about the heavy investments that would go into opening big-size stores but was in favor of opening smaller stores.

"The stores are always going to be important, because you do need to sell the experience," he said.

Sozzi also noted that e-commerce is a viable prospect for retailers. "You have to cultivate that experience and then go online," the analyst said.

Tilly's shares closed at $16.81, up more than 8 percent from their IPO price, and were among the most traded stocks on the New York Stock Exchange on Friday.