By and  on August 17, 2011

David Dyer just made a $205 million bet that there’s lots of growth left in the misses’ category.

The president and chief executive officer of Chico’s FAS Inc. inked a deal to acquire the Internet and catalogue business Boston Proper, deepening Chico’s involvement in the sector and underscoring the company’s faith in the U.S. market.

Other specialty stores are pinning their hopes for growth on budding international operations. Abercrombie & Fitch Co., for instance is closing more than 60 U.S. stores this year while opening 40 doors abroad. And the misses’ market is one of fashion’s largest, but has been repeatedly forsaken and given up on, with brands leaning more contemporary as they vie for younger customers and more cachet — the most-recent example being The Talbot’s Inc.’s efforts to update its styling.

But misses’ customers tend to have more money to spend than their younger, contemporary counterparts.

“We love her,” Dyer said. “Everybody wants to be a little bit younger, a little bit cooler and a little bit hipper, but when you look at the disposable income and in terms of look or style, [the misses’ customer] is underserved.”

Chico’s revealed the acquisition as it reported a 42.5 percent gain in second-quarter profits, although investors pushed its stock down 2.5 percent to $12.30 on a generally down day for retail stocks. Companies often see their stock fall once a pending acquisition becomes public.

“While we appreciate the potential for Boston Proper to help Chico’s core brands acquire new customers…we remain guarded overall as we believe multiconcept portfolio strategies in specialty retail tend to distract management and lead to long-term destruction of returns,” said Randal Konik, a retail analyst at Jefferies & Co.

Chico’s second-quarter profits grew to $43.4 million, or 25 cents a diluted share, from $30.5 million, or 17 cents, a year earlier. Profits beat analyst estimates by 1 cent a share.

Net sales for the three months ended July 30 expanded 18.5 percent to $551.4 million from $465.4 million.

Comparable-store sales rose 12.8 percent for the quarter, with 11.9 percent increases at both its Chico’s and Soma Intimates divisions and a 14.9 percent advance at White House|Black Market.

The company will be better positioned to take some misses’ market share with Boston Proper in its portfolio. Boston Proper’s average customer is 45 years old and its sales grew 15 percent last year to $110 million. Fewer than 5 percent of Boston Proper’s customers are in Chico’s customer database. The business will operate as a stand-alone division within Chico’s and under its current ceo Sheryl Clark, who will serve as president and report to Dyer.

Clark described Boston Proper’s offering as sexier than Chico’s, but more casual than White House|Black Market’s. “We fill a void between the two brands,” she said.

The all-cash deal is expected to close by the end of September and is projected to boost Chico’s profits in its first full year.

Although Boston Proper is an Internet and catalogue business, Dyer said he plans to experiment with Boston Proper stores.

“This whole thing is about growth,” he said.

Dyer said the company could also add another 800 doors or more within its current portfolio of 1,221 stores. Excluding outlets, there are 150 Soma stores, 354 White House|Black Market doors and 598 Chico’s doors. Dyer said Soma had established itself, while White House|Black Market was in expansion mode and that Chico’s was still growing and was generating cash for the company.

Chico’s acquired White House|Black Market in 2003 and Soma was launched under the Chico’s umbrella in 2004.

“I always like to have brands at different stages,” Dyer said.

His competitors are increasingly thinking along the same lines.

“There were other specialty chains that were looking at this,” said Jeffrey Hornstein, managing director at Peter J. Solomon Co., who advised Chico’s on the Boston Proper deal. “These companies that have built up cash, that know their store base is mature, they have to grow. They’re either going to develop new store concepts or they’re going to buy them and we think they’re going to buy them. They almost have to.”

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