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Badgley Mischka Parent Seeking Sale

Escada AG has put eveningwear label Badgley Mischka into play as part of the continuing review of the German company's troubled operations.

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NEW YORK — Add Badgley Mischka to the list of designer brands looking for new owners or investment.

Its parent, Escada AG, has put the star eveningwear label into play as part of the continuing review of the German company’s troubled operations. While smoke signals have been coming from Escada for months, as the house made cryptic statements that its ongoing focus would be limited to its core brand, Lawrence C. DeParis, president and chief operating officer of Escada USA, confirmed Friday that it is “entertaining interest in the Badgley Mischka brand with select partners.”

Escada, based in Aschheim, Germany, is also likely considering the sale of its holdings in European labels including Louis Féraud and Apriori, in addition to its announcement a year ago that the Laurèl business was on the market. Escada bought a 45 percent stake in Féraud in 2001, when Escada and Secon Groups formed a joint venture to control the French rtw brand. Féraud has sales of roughly $45 million.

Escada’s troubles date back to an expensive attempt to modernize the company’s image three years ago with a new designer and the overhaul of its stores, the results of which appeared in the marketplace just at the outset of a series of global catastrophes that have badly impacted most luxury businesses. After sales in fiscal 2002 dropped 8.7 percent to $892.7 million from $977.4 million the previous year, and continuing quarterly losses since then, the company said two weeks ago it will thin its worldwide workforce by 20 percent, or 850 employees, and close about 20 of the 183 Escada shops worldwide, as well as 15 Primera and Laurèl stores.

Escada has been strapped for cash and is carrying close to $350 million in debt. To ensure its long-term funding, its shareholders authorized the largest private investment in a publicly listed company in Germany’s history this summer, enabling HMD Partners — led by three veterans of Texas Pacific Group — to acquire up to 29 percent of Escada’s shares by investing about $50 million.

The company has since initiated a worldwide review of its operations, looking to cut costs and restore acceptable levels of profitability. At its U.S. operations, that included eliminating the position of one of its co-presidents, Caryn Lerner, who left last month, and consolidating the task of rebuilding the brand under the purview of DeParis, who was named a co-president in 1998.

“We are taking a fresh look at everything from stores to staffing as we are strategizing our plans to move forward,” DeParis said. “Escada is interested in totally focusing on its core brand and we are considering divestiture of anything that is non-Escada.”

DeParis was unable to give a timetable for the sale of Badgley Mischka, but said it would be a case of “sooner, rather than later.” He has met with companies he described as appropriate buyers, “people that understand the luxury business.” He would not disclose the identity of these parties, but the brand, which has retail sales of around $40 million and a high profile thanks to the celebrity following of its personable designers Mark Badgley and James Mischka, is likely to draw interest from the same companies that have been exploring deals all along Seventh Avenue.

“It’s a brand with great potential,” DeParis said. “We are only interested in dealing with companies that will recognize what a jewel Badgley Mischka is. We’re very confident that we will find a partner.”

Although the 15-year-old label has not turned a profit in recent years, sources said, its potential is widely recognized as the company opened its first store on Rodeo Drive in Los Angeles in 2000 and recently tapped into the licensing business, with a new fur collection with BC International and possible deals in the works for footwear, eyewear and fragrance.

The designers, who met at Parsons School of Design, formed the company in 1988, initially financing the collection with money from their families. They sold a majority interest to Escada USA in 1992, and have since consistently developed the business into a leading ready-to-wear and bridal vendor.

In recent seasons, they have continued to expand with a separates group launched for Saks Fifth Avenue last year and a special-order business for mother-of-the-bride and special occasion dresses called Atelier, which operates alongside the company’s five-year-old bridal collection. The duo also opened a 2,500-square-foot bridal salon on the lower floor of Escada’s Fifth Avenue flagship this year, as well as a smaller salon in the San Francisco Escada door at Union Square. The designers could not be reached on Friday.

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