Jos. A. Bank Clothiers Inc.’s Lucky day might be coming soon.
The men’s wear retailer has emerged as a surprise bidder in the auction for Fifth & Pacific Cos. Inc.’s Lucky Brand division, which is also being pursued by a financial player, according to sources.
Fifth & Pacific is keen to focus on the quickly growing Kate Spade unit and is said to want to raise $700 million by selling off both Lucky and Juicy Couture. The asking price for Lucky is said be around $400 million, while Juicy’s is roughly $300 million.
It’s unclear if Fifth & Pacific, which is led by chief executive officer William L. McComb, is willing to sell just one of the brands if either Lucky or Juicy doesn’t ultimately draw a high enough offer. Fifth & Pacific declined to comment Monday.
The second rounds have been completed in both auctions and the race for Juicy is down to IDG Capital Partners, a China-focused investment firm, and one other player, whose identity could not be learned, said a source. Iconix Brand Group Inc. was also looking at Juicy, but is said to have dropped out.
Bank’s interest in Lucky was a head-scratcher for many financial sources, who struggled to see how the brand would fit into the men’s tailored business, known for its aggressive promotional style. But Bank has money to spend, no long-term debt and an itch to expand. Ascena Retail Group Inc. and Chico’s FAS Inc. have also seen some success lately building portfolios of specialty chains.
Reached at his Hampstead, Md., office Monday, Neal Black, ceo of Bank, said: “We never comment on anything we may or may not be working on.”
According to one source, however, Bank is searching “for a growth vehicle. Their numbers are slowing down, they’re sitting on cash and they’re going to be asked to issue a dividend, buy back shares or grow in some way.”
The company ended fiscal 2012 with $377.1 million in cash, cash equivalents and short-term investments and has had no debt outstanding since the end of fiscal year 2007.
There are some similarities between Bank and Lucky that could be built on. Lucky has 171 full-price stores and 50 outlets. Like Bank, it has an internal design and merchandising team and operates an e-commerce Web site. “So it’s not really all that far out,” said one source. “It’s what the management [at Bank] understands.”
Still, complexity increases significantly as a company branches out into a portfolio of brands.
“Lucky’s a creative company,” said one financial source. “It’s still heavily reliant on the creative function, more so than, say, Chico’s. So being able to manage that creative function effectively is important and something worth thinking about. And the house isn’t completely in order if you look at the performance of Jos. A Bank.”
In mid-May, Bank warned Wall Street that earnings were expected to be between 27 and 30 cents a diluted share — down from 53 cents a year ago. The company updates investors on first-quarter earnings Wednesday.
The fact that Bank has been on the prowl for an acquisition is no secret. Robert Wildrick, former ceo and current chairman, is paid a retainer to search for strategic opportunities for the company. “He’s still on retainer and he’s still looking,” said a source.
Even so, the reported purchase price for Lucky is high and could be a lot for the company to absorb.
Lucky logged sales of $461.7 million last year and adjusted earnings before interest, taxes, depreciation and amortization of $34.7 million. The company projected EBITDA of $50 million to $55 million this year, but one source said those figures now appear too bullish.
Bank is more than 106 years old and operates more than 550 full-line stores and 35 outlets selling men’s tailored and casual apparel, footwear and accessories, the vast majority of which sport the Jos. A. Bank label. Over the past five years, the company has opened 189 stores and the plan is to open 40 to 45 additional units this year, including seven factory stores. Management has said it believes the chain can grow to approximately 800 stores in the U.S.: 700 full-line stores and 100 factory outlets.
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