One of the most frequently rumored acquisition targets in the premium denim business came off the market Monday as Hudson Jeans reached an agreement to be acquired by its City of Commerce, Calif., neighbor Joe’s Jeans Inc.
Joe’s, which also reported lower profits on higher sales for the second quarter Monday, said it would buy privately held Hudson Clothing Holdings Inc. for $97.6 million in convertible notes and cash in a deal expected to close by Aug. 31.
Fireman Capital Partners and Webster Capital acquired a controlling interest in Hudson in 2009 and had been reported to be shopping the brand since late 2011. Webster and Peter Kim, who founded the brand in 2002, rolled their equity into Fireman prior to the deal with Joe’s.
Kim will continue to serve as chief executive officer of Hudson and will join Joe’s board. He will report to Marc Crossman, president and ceo of Joe’s.
Crossman emphasized that he isn’t looking to restructure Hudson’s business. “Peter has done a phenomenal job of building the company to what it is today,” he told WWD. “We’re going to keep our headquarters and staffs separate and really focus on maintaining the very distinct DNA of both of the brands.”
He expects substantial savings to come from the simple virtues of scale. “We’ll essentially be doubling the size of the company on the top line and with EBITDA, and we can realize some significant savings in the costs of fabric, trim and labor,” he said.
He noted during the company’s conference call late Monday, “Peter’s got a strong vision of where he wants the brand to be. We have no intention of mixing the two [brands] in any way, shape or form. We don’t want to change the growth trajectory of either.”
However, he does see significant advantages to what he termed “cross-education,” not only by, for example, opening up Hudson to Joe’s production assets in Mexico and balancing Hudson’s stronger distribution in better specialty stores with Joe’s more department store oriented business. Hudson’s retail roster includes more than 700 specialty stores.
In international, “I know that Hudson has done a fantastic job in Europe,” Crossman remarked. “We’re doing a good job in Europe. But then you look at Asia and France, and Hudson right now doesn’t have a Japanese distributor. And we will bring them into Japan and they will absolutely kill it,” he added.
Dan Fireman, managing partner of Fireman, said, “We are proud of our partnership with Hudson and all that we have achieved together.”
In the quarter ended May 31, Joe’s net income contracted 17.3 percent to $1.2 million, or 2 cents a share, from $1.4 million, also 2 cents, in the year-ago period. Revenues expanded 7.8 percent to $30.9 million from $28.6 million, while gross margin fell to 43.7 percent of sales from 47.3 percent in the 2012 quarter. The margin erosion came as Joe’s mix shifted to its lower-priced Else brand, sold exclusively to Macy’s, and it bore the cost of producing its Vintage Reserve line in the U.S. Some of that production is being shifted to Mexico, Crossman told analysts.
Wholesale grew 6.2 percent, to $24.4 million from $22.9 million, as strength in its men’s business and growth in the Else business offset softness in women’s jeans, which continue to struggle in the wake of the peak of the colored trend that dominated a year ago. Retail sales were up 14.3 percent, to $6.5 million, despite a 6 percent decline in comparable sales in the quarter.
The two companies are not only based in the same neighborhood but reside in the same revenue territory as well, with Joe’s 2012 sales hitting $118.6 million and Hudson’s about $90 million. Joe’s has a stronger men’s business, and Hudson operates at generally higher price points and operates in the more rarefied air of the higher-end premium market.
“The acquisition by Joe’s Jeans gives Joe’s an opportunity to get better leverage on their operations as they spread their costs between the two brands,” said Richard Kestenbaum, partner at investment banking firm Triangle Capital. “Hudson is a great brand. It has real brand equity and a true following. It has a unique identity in the market.”
The transaction, he said, is further evidence that “the premium denim market is consolidating.”
The deal faces a number of hurdles, including a provision in which it would be terminated if at least $80 million in financing isn’t obtained by the end of August. The interest-bearing notes are convertible into 19.1 million shares of common stock, although stockholder approval would be required for conversions in excess of 13.5 million shares. Shareholders representing about 23 percent of Joe’s shares have agreed to vote in favor of the company issuing the maximum number of shares upon conversion of the notes.
Joe’s shares picked up 2 cents, or 1.1 percent, to close at $1.86 during the trading day Monday. However, they slipped to $1.61, off 25 cents or 13.4 percent, in the early phase of after-hours trading.
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over-the-top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty