By  on May 7, 2007

Wal-Mart Stores Inc. may have found a way finally to enter the Northern California market: buy the Gottschalks chain of department stores.

Wall Street analysts familiar with the sale process for Gottschalks Inc. said the book, or prospectus, was sent out by UBS Investment Bank about six weeks ago. Several of those sources also confirmed that Wal-Mart was given a copy of the book. In addition, one credit analyst said Wal-Mart "does not typically receive such books."

A sale of Gottschalks to Wal-Mart would mean yet another department store name would disappear from the American retail landscape, observers said.

Why Gottschalks? There is speculation that an acquisition of Gottschalks would give Wal-Mart immediate entry into the northern California market. Gottschalks has 38 stores in California, half of them in northern California, slightly over a quarter in Southern California and a handful are in central California. The retailer has 60 stores, with annual revenue of $687 million. Gottschalks' market capitalization is $183 million, and it carries an enterprise value of $298 million.

Among the northern California sites are stores in Antioch, Capitola, Clovis, Davis, Eureka, Fresno, Modesto, Oakhurst, Redding, Sacramento, Santa Rosa, Stockton, Woodland and Yuba City. In central California, Gottschalks operates in Bakersfield, Hanford, Palmdale and San Luis Obispo. The balance of the California stores are in the southern part of the state, in Palm Springs, Riverside, the San Bernadino area and in other Los Angeles suburbs.

In terms of company-owned real estate, "Gottschalks owns six stores, and they are in California, in Antioch, Eureka, Hanford, Palmdale, San Luis Obispo and Yuba City," said Mark Montagna, analyst at C.L. King & Associates.

Gottschalks operates eight stores in Washington, six in Alaska, four in Oregon and two each in Idaho and Nevada. According to Montagna's estimates, the average store size is 90,000 square feet, although the boxes range from as small as 40,000 square feet to as large as 160,000 square feet.

To be sure, the California sites wouldn't be large enough to support Wal-Mart's supercenters, but would still give the chain a sizable presence for its other store formats. Wal-Mart could have some competition. British grocery retailer Tesco is gearing up for an expansion into the U.S. And the Dubai investment firm Istithmar is also looking at Gottschalks, as first reported in WWD.

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