By  on August 8, 2014

Urban Outfitters Inc. is contemplating a more active future with Australia-based activewear retailer Lorna Jane.

The Philadelphia-based retailer — which has been actively looking for deals — is taking part in the Credit Suisse-run auction for the chain, according to two financial sources.

The auction is said to be in the “late second round” with the price tag near $500 million. Foot Locker Inc. is also said to be vying for the retailer, which was founded by creative director and former fitness instructor Lorna Jane Clarkson in 1990. Her husband, Bill, serves as chief executive officer.

Lorna Jane broke into the U.S. market in 2012 with a store in California. At that time, the company’s sales topped $100 million and had been growing at an annual clip of about 40 percent for four years. The brand started off this year with 23 doors in California and 160 internationally.

Urban doesn’t have a well-developed active business and has been looking at ways to broaden its reach.

Richard Hayne, Urban’s chairman, president and ceo, last year told Wall Street investors, “We have discussed our intention to continue to expand product choices and categories and to enter adjacent businesses. By doing so, we look to attract new customers and expand the share of wallet each brand captures with existing customers. We will accomplish this expansion through a combination of internal development and external relationships. These relationships may include licensing, partnerships, joint ventures and acquisitions.”

Urban’s current portfolio includes the namesake chain as well as Anthropologie, Free People, BHLDN and Terrain. The company had cash and marketable securities of nearly $342 million as of the end of April.

Hayne said he was looking for businesses “that have a similar customer profile to one of our existing brands, have a management team that will augment or complement our existing expertise and those that offer strong growth opportunities.”

Lorna Jane sold a minority stake to Australian private equity firm Champ Ventures in 2010 to help finance the U.S. expansion.

“The business didn’t actually need investment and money,” Clarkson told WWD in 2012. “The business is totally self-funded. It was more about the advice and the structure we wanted. We wanted to be answerable to more than just the two of us.”

In coming to the U.S., the brand is squaring off with homegrown names such as Lululemon, Under Armour, Gap Inc.’s Athleta and Nike, which have all been taking advantage of activewear’s move from the gym to the street. The category is hot right now, raising the blood pressure of denim companies that are used to being a bigger part of the consumer’s casual fashion diet.

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So it seems Lorna Jane arrived at the right time, both stylewise and from an M&A perspective. Would-be acquirers have been laser-focused on quickly growing brands that have a demonstrated international appeal.

One source said the X-factor was how long activewear would remain hot and also noted that it’s a category with competitors everywhere. “You can get hit in so many different ways,” the source said.

But Lorna Jane has been taking a measured, profitable approach to growth.

“We are not putting too much pressure on ourselves, that is why we are not opening massive stores in New York,” Clarkson said upon entering the U.S. “We are going in like a small business. We want every single store to be profitable.”

Executives at Urban Outfitters, Foot Locker and Lorna Jane could not be reached for comment. A Credit Suisse spokesman declined comment.

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