By  on February 18, 2005

NEW YORK — Forever 21, eyeing a future initial public offering, is banking on Gadzooks as one part of its growth story for Wall Street.

The hot Los Angeles-based retailer targeting women between ages 15 and 50 plans on keeping the Gadzooks name alive. As part of its $33 million purchase agreement to buy the bankrupt chain, which was reported in WWD Thursday, Forever 21 will operate at least 150 stores under the Gadzooks nameplate.

“We’re really excited about this, and we’re looking at making Gadzooks another growth leg at Forever 21. Gadzooks is a good brand, with great store locations. With our fashion know-how, we believe that we can drive up the comps at Gadzooks,” said Lawrence Meyer, senior vice president at Forever 21.

Gadzooks, founded in 1983, was once a Wall Street darling in the mid-Nineties. But the retailer fell on hard times after it reinvented itself as a juniors chain. Following the changeover in 2003, it found itself facing competition from other mall-based teen chains as well as a renewed focus by department stores wanting a share of the teen market.

The average store size of Gadzooks is 2,500 square feet, and the concept will continue to focus on young women between the ages of 16 and 22, according to Meyer.

Michael O’Hara, managing director at Financo Inc., Gadzooks’ financial adviser, said it’s too soon to tell how much creditors in the Gadzooks bankruptcy will get back because of various administrative liabilities still being sorted out.

Although initially disappointed to see the $25 million back-stopped rights offering that Financo arranged in October fall apart in January, O’Hara said he was thrilled to see “three very qualified parties submit acceptable bids for the company” given the short time period in which to market Gadzooks for a sale.

As for Forever 21’s winning bid, O’Hara noted: “As industry participants, it’s hard not to be awed by Forever 21’s performance and merchandising competence. I have no doubt that they will be just as successful as they extend their brand into new and different concepts.”

Forever 21 had considered purchasing The Wet Seal, a teen chain that has felt pressure from the fickle tastes of the youth market. Meyer said Gadzooks represented a better opportunity for Forever 21, given his firm’s ability to leverage its merchandising knowledge.Founded in 1984 by Don and Jin Chang, Meyer said the owners “are great visionaries, who have created an operating model that is focused on the customer, fashion and price.”

As for when the company would consider going public, Meyer said it would be in the “foreseeable future,” but added the ultimate decision would be up to the firm’s founders. The retailer has plenty to do and is concentrating its focus on “building the kind of growth dynamics that would make Wall Street happy. Our immediate goal is to integrate Gadzooks as soon as possible,” Meyer said.

A deal in which Leonard Green & Partners will make an investment in the business is “progressing,” according to Meyer, who declined to comment further.

The private equity firm is expected to purchase a minority stake from the Changs, a financial source said.

As a private firm, Forever 21 doesn’t need to disclose the financial details of its operation, but financial sources estimated that its annual revenues are in the $500 million range, if not slightly higher.

Walter Loeb, retail consultant of the firm that bears his name, observed: “This deal is well-timed because Forever 21 is on a roll and it can’t get enough locations. With its finances on track and positive growth, this is a company that will have success when it goes public. It really has an attractive story for investors.”

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