By  on April 26, 2006

NEW YORK — Peter Boneparth, chief executive officer and president of Jones Apparel Group, said the move to put the company up for sale was done to bolster shareholder value.

Now it's looking like this strategy may signal a trend in the M&A market. Last week, Charlotte Russe Holding Inc. said it was "evaluating strategic alternatives" for its troubled Rampage chain as the specialty retailer posted a wider second-quarter loss on a sales gain of 34.7 percent. Management did not reveal what those alternatives for Rampage would be, but financial sources said it could include a sale of all or part of the 66-store Rampage chain.

Although these are different types of businesses, they have one thing in common: They are public companies whose stocks have been caught in a $10 spread rut. Shares of Charlotte Russe have bounced between $10 and $20 since June of 2003, while Jones Apparel Group's stock has traded between $25 and $35 for the past 18 months. A company considering options to sell its assets is likely driven by a need to jolt its stock valuation.

"Companies are reviewing options out of frustration," said William S. Susman, president and chief operating officer of Financo Inc. "It's frustration that the market isn't properly valuing them. Frustration they can't reinvent the business in the public scrutiny. Frustration that their performance isn't better, and that they need to deliver immediate shareholder value."

Susman said reviewing alternatives such as a sale "can be a healthy exercise in self-exploration."

"When a multibillion-dollar company with hundreds of stores opens a new concept, it can take years of tweaking, yet represent a fraction of total sales," Susman explained. "The smaller the task, the more management attention it takes. Companies are better served seeking to take on larger, but manageable, change [acquisitions or divestitures] to improve value."

Right now may be a good time to take on that change. Sources estimate that there is well over $130 billion of private equity and hedge fund money looking to be invested in the U.S. alone. With Jones, the expectation in the market is that the entire company would be taken private.Although Susman would not speculate on who might be mulling similar options to Jones Apparel, he said, "I believe every retailer is asking themselves: 'Should I be considering taking similar action?' The ones with high valuations ask it for self-examination and act to improve themselves. That's why they have high multiples."

An analysis of the stock performances of retailers and vendors tracked by WWD found several companies that are in a similar boat to Jones Apparel and Charlotte Russe. The companies include:

  • Gottschalks Inc.: This stock has traded between $5 and $12 since January 2004. Although there's been speculation of a sale in the past, nothing has materialized. With a market capitalization of about $124 million, the company would be a digestible acquisition for a private or strategic player.

  • Pacific Sunwear: This stock has traded between $20 and $30 since June 2003. Its market capitalization is about $1.62 billion. Annual sales at the specialty chain are $1.4 billion.

  • Cutter & Buck: This stock has been stuck between $10 and $15 since January 2004, and its market capitalization is about $130 million.

  • Kellwood Co. Inc.: This vendor is in the process of repositioning itself. Its stock has traded between $20 and $30 for 18 months. Market capitalization is about $800 million.

  • Caché Inc.: This stock has traded between $12 and $20 since June 2004. Its market capitalization is about $307 million. The retailer operates about 300 stores.

  • Elizabeth Arden: Shares have been trading in the range of $20 to $25 since January 2004. The beauty supplier's market capitalization is about $650 million. Annual sales are roughly $960 million.

  • Warnaco Group Inc.: This stock has traded between $20 and $30 since March 2004. The supplier's market capitalization is just more than $1 billion, and its sales are about $1.5 billion.

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