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At Barneys New York, Black is Back in Quarter As Owners Evaluate Bids

With Barneys New York up for sale, its improved financial results for the second quarter seem to put its owners in an enviable position.

NEW YORK — Barneys New York is in what appears to be an enviable position.

The retailer’s latest results reflect the kind of figures most companies up for sale could only hope for: Profits instead of losses, along with double-digit percentage gains for same-store sales, for both the second-quarter and the six-month periods.

Barneys’ owners, Whippoorwill Associates and Bay Harbour Management, put the chain up for sale on June 30. Despite the strong results in the first half, a disposal remains up in the air since many of the companies expected to put in an offer apparently have not done so. The two owners are understood to be seeking $500 million-plus for Barneys.

For the three months ended July 31, income was $891,000, or 6 cents a share, versus a loss of $2.1 million, or 15 cents, in the same year-ago quarter. Earnings before interest, taxes, depreciation and amortization skyrocketed 94.3 percent to $9.3 million compared with just $4.8 million last year. Sales rose 14.9 percent to $102 million from $88.7 million, while same-store sales gained 13.8 percent.

“I think the first quarter was fantastic, and it continued for [us] in the second quarter. The initial read for the third is very good. We are positive for the third quarter, and are [now] taking a look at the fourth quarter,” said Howard Socol, chairman, president and chief executive officer.

The ceo noted that it is too soon to predict holiday sales. “I don’t know how to call it after the election,” he said, adding retailers in general will have to wait to gauge how it will “affect people’s psyche.”

But if current trends for the last seven months are tea leaves of any kind, 2004 could end up as a very good year for Barneys New York.

The big seller in the stores has been the concept of color everywhere the eye can see, which has helped drive more full-price sales.

“Color has been selling, from different handbags to scarves to coats and apparel. We saw an indication of this early on in the beginning of the year,” said Socol. “The acceptance by customers and their enjoyment of different colors has been great. Even men are wearing more color than before in their woven shirts and sport shirts. It is across the board in Barneys and in our Co-op stores. We’ve even seen more color in shoes than ever before. Color has been a very positive influence on all of fashion.”

The ceo added that the “color trend” isn’t going away, with spring 2005 set to highlight even more. “All this color has been great for business. It also makes the stores look more attractive and interesting. It is a trend that has been very good for the consumer,” he said.

Right now the company is putting the final touches to its plans for the holiday selling season.

“We are going to have an expanded Christmas mailer, bigger than last year. It will feature a lot of color and fun, as well as unique product for the holiday season,” the ceo said.

Socol declined, however, to discuss any details concerning the sale of the company. Investment bankers at Peter J. Solomon Co., a financial adviser to Barneys, also declined comment. Bankers at Morgan Stanley, also financial adviser to Barneys, could not be reached.

A financial source who has eyed Barneys’ books, observed, “This is a very attractive company that is doing very nicely.”

For Barneys, the latest financial results should bring kudos to the specialty retailer’s owners, Whippoorwill and Bay Harbour. The two fund investors bailed the retailer out of bankruptcy in 1999. In doing so, they also had their work cut out for them: how to manage the business so that it became profitable, and still maintain the fashion focus and edge Barneys is known for after the ouster of its founding family, the Pressmans.

Financial firms aren’t known for being arbiters of style. In the case of Whippoorwill and Bay Harbour, they even felt the sting of criticism from their own camp. Investment firms that buy companies out of bankruptcy tend to flip their stakes quickly, always searching for ways to make a quick profit. Back in 1998, when the news first emerged over what the two were planning, other fund managers raised questions over the sanity of Barneys’ two new owners and predicted the retailer would head back into bankruptcy.

The real validation of whether Barneys was a good investment will come once a decision is made on its sale. Whether Whippoorwill and Bay Harbour can get their asking price is uncertain — although they’ve said they will hold onto the chain if they don’t get the right amount. There are questions over how much the Co-op business can be grown, as well as issues concerning how many markets can support a core Barneys store. However, the two owners have indicated they are in no rush to forge ahead on a large-scale expansion of Co-op.

While the parties are keeping mum over who made the Aug. 17 deadline for bids, one thing is certain: Federated Department Stores did not make a run for Barneys. The retailer, while it peeked at the books, has really been keeping an eye out for strategic locations in case the Barneys’ properties get broken up in a piecemeal sale, said sources familiar with the bidding process. But breaking up Barneys’ assets is a move, one executive at the upscale chain emphatically said, that “is not going to happen.”

Shares of Barneys closed Tuesday at $20.35, up 30 cents, in over-the-counter trading. The day’s range for the stock was a low of $20 and a high of $20.90, not too far from its 52-week high of $22. The 52-week low was $5, in late October.

For the six months, income was $4.4 million, or 30 cents, against a loss of $3.3 million, or 23 cents, last year. EBITDA improved by 99.5 percent to $19.8 million from $9.9 million. Sales jumped 19.3 percent to $214.8 million from $180.1 million, while comps were up 18 percent.

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