After a six-month process, Fifth & Pacific Cos. Inc. has sold the intellectual property assets of the Juicy Couture brand to Authentic Brands Group for $195 million.
The deal, an all-cash transaction signed Monday morning, is expected to close in November. As part of the deal, Fifth & Pacific has entered into a short-term licensing agreement with ABG while it effects an orderly transition of the business. The agreement runs through the end of 2014 and guarantees ABG a minimum royalty payment of $10 million. The agreement means that Fifth & Pacific will continue to operate the Juicy retail stores through June 2014 since it has spring and summer goods on order that it wants to turn to cash as close to full margin as possible. Fifth & Pacific then will undertake a sell-off of the inventory in the second half as part of the final transition to ABG’s licensees.
Brand-management firm ABG will have to find operating partners or licensees for Juicy. Authentic Brands buys the intellectual property assets of brands and last month acquired Spyder Active Sports for an undisclosed amount. Spyder, and now Juicy, are part of a portfolio that includes Hart Schaffner Marx, Hickey Freeman, Judith Leiber, Prince Sport, Tapout and Marilyn Monroe.
Jamie Salter, chairman and chief executive officer of ABG, said, “Juicy Couture is a leading lifestyle brand that is recognized worldwide. We are honored and excited to build upon Juicy Couture’s unique heritage and to realize the brand’s significant global potential.”
William L. McComb, ceo of Fifth & Pacific, said during a conference call to Wall Street analysts, “[We]believe that Authentic Brands has a terrific vision for this brand and that Juicy Couture will have a very bright future ahead of it.”
He explained that the company concluded that the best way to “increase shareholder return would be by monetizing the value of Juicy Couture’s powerful trademarks today to further de-risk our company and its ability to execute over time. Ultimately, this is all about enabling us to focus more and more on Kate Spade and bring it to its full potential.”
McComb said the company will work with ABG’s partners to ensure a smooth and orderly transition on the takeover of Juicy’s operational parts, including its employees, retail stores, wholesale, international operations and some components of the e-commerce site. He also added that initiatives such as the launch of Juicy Sport for spring 2014 will continue as planned.
Nick Woodhouse, ABG’s president and chief marketing officer, said, “Discussions [with licensees] are in place, and the response from key strategic partners has been overwhelming. We hope to announce strategic partners shortly.” Woodhouse added that ABG plans on “keeping the existing domestic and international distribution as they have been great partners.”
Juicy Couture was founded in 1995 by Gela Nash-Taylor and Pamela Skaist-Levy and its signature fashionable tracksuit fueled rapid growth and expansion. The then-Liz Claiborne Inc. bought the brand in 2003 and rolled out more freestanding stores. The tracksuit faded in popularity, several retailers dropped the line and Nash-Taylor and Skaist-Levy exited in 2010. For the year ended Dec. 29, 2012, Fifth & Pacific said Juicy’s sales totaled $498.6 million, a 6 percent decrease compared with 2011. Fifth & Pacific said in its annual report, a Form 10-K filed with the Securities and Exchange Commission on Feb. 21, that the sales productivity at its stores was $685 per average square foot compared with $674 for 2011.
During the conference call to Wall Street, one of the questions asked was whether some of the Juicy store sites could be converted to a Kate Spade or Lucky Brand location. McComb said Fifth & Pacific has that “flexibility,” but cautioned about jumping to any “conclusions yet of what is the best outcome for both brands.”
Following the sale of Juicy, Fifth & Pacific will have two brands, Kate Spade and Lucky Brand, and the Adelington Design Group, formerly the “Partnered Brands,” which is focused on the business with J.C. Penney Co. Inc. that centers mainly around the former namesake Liz Claiborne label.
McComb declined comment on the sale process for Lucky Brand.
Sterne Agee analyst Ike Boruchow said that Fifth & Pacific “should have an easier time selling Lucky Brand [given that it’s a] positive-comping business with improving margins. We continue to believe that Lucky could fetch $300 [million to] $350 million.”
Fifth & Pacific has been trying to sell both Juicy and Lucky since early spring.
In August, IDG Capital Partners and Authentic Brands were said to be in the lead to acquire Juicy. Last month IDG’s bid was rejected and sources said brand management firms Sequential Brands Group Inc. and Iconix Brand Group Inc. both then jumped unsuccessfully into the bidding process.
As for Lucky, Fifth & Pacific was in exclusive talks with private equity firm Advent International since August, but those talks fell apart last month. It is believed that there are other potential buyers in the wings.
Shares of Fifth & Pacific rose 4.8 percent to close at $25.71 in Big Board trading Monday.
Eric Beder, analyst at Brean Capital, said, “While we can speculate on the financial impact (we believe the sale will end up being slightly accretive), the more important issue is that Fifth & Pacific rid itself of a slow-turnaround play that we believe would have continued to take up material amounts of management time, while we believe the focus should be almost fully on the high-margin, high-growth Kate Spade concept. As such, we applaud management for getting the company one step closer to creating a one-brand, high-growth-and-return story which we believe will be more than deserving of a premium multiple. As such, we remain buyers of [Fifth & Pacific].”
Beder has a “buy” rating on the stock and a $30 price target.
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