Frederick’s of Hollywood Looking to Exit Wholesale

Intimate apparel firm exploring 'strategic alternatives' for Movie Star division.

Frederick’s of Hollywood Group Inc. wants to get out of the wholesale business.

This story first appeared in the September 17, 2010 issue of WWD.  Subscribe Today.

The firm said on Thursday that it hired New York investment bank Avalon Group to help explore “strategic alternatives” for Movie Star, its wholesale division.

“We have chosen to seek alternatives for the Movie Star wholesale business as we concentrate on building Frederick’s of Hollywood into a global lifestyle brand,” said Thomas Lynch, chairman and chief executive officer. “By selling the wholesale division, we can focus more of our resources on strengthening our retail division and expanding into new product categories through strategic domestic and international licensing agreements for the Frederick’s of Hollywood brand.”

Movie Star designs and distributes intimate apparel to U.S. and Canadian retailers. Lynch told WWD that the Movie Star and Cinema Etoile brands, as well as the business’ open orders and customer list, were for sale. Lynch said funds raised by a sale of the division would be reinvested in the Frederick’s of Hollywood retail business, which is planning an overseas expansion.

Frederick’s has also extended into new categories, signing a license for branded sportswear in June. But Movie Star has been on the wane.

For the nine months ended April 24, the firm’s wholesale sales fell by 44.5 percent to $17.2 million, with reductions from Wal-Mart Stores Inc. accounting for more than half the decline. The company has attributed the drop-off to Wal-Mart’s own production efforts, merchandising changes at the retailer and competition from other vendors. Overall company sales slipped 14 percent to $121.9 million. Same-store sales were off 6.1 percent.

Frederick’s and Movie Star merged in January 2008 after two years of working on a deal, which ultimately included a $20 million rights offering and a reverse stock split. Frederick’s operates 126 stores in the U.S. as well as catalogue and e-commerce operations.

The company’s shares Wednesday closed at $1.03, up 3 cents, or 3 percent. The S&P Retail Index ended Thursday’s trading at 438.40, up 1.44 points or 0.3 percent, slightly better than the Dow Jones Industrial Average’s 0.2 percent expansion to 10,594.83. It was the seventh consecutive day of growth for the retail index. Since a 1.6 percent decline on the day after Labor Day, it’s risen 4.7 percent.