NM DUMPS CONTEMPO FOR $1 MILLION IN STOCK

Byline: Valerie Seckler

NEW YORK--Neiman Marcus became the latest player in the breakup game Monday, agreeing to sell its struggling, 239-unit Contempo Casuals chain to Wet Seal Inc., a 133-store junior chain, for the fire-sale price of $1 million in Wet Seal stock.
The sale of the junior chain will allow Neiman's to focus funds on its high-end specialty businesses, which include 27 Neiman Marcus stores and a Bergdorf Goodman men's and women's store, and enable Wet Seal to leverage overhead and expand rapidly.
The agreement confirms a report in on Feb. 16, page 2, that Contempo was on the block. The deal is expected to close by the end of May.
Neiman's plans to take a pre-tax charge of $13 million in the third quarter ending April 29. The charge represents the difference between Contempo's $14 million book value and the $1 million in Wet Seal stock.
In addition to giving Neiman's the class-A common stock, Wet Seal, based in Irvine, Calif., will assume all of Contempo's leases.
In a difficult junior market, Contempo has been struggling to reverse skidding comparable-store sales. Contempo's same-store sales are "running down in double digits" for the third quarter ending April 29, a Neiman's spokesman said. Due to gains in gross margins, the chain almost broke even in the first half and is "on track to break even for the year," he added.
"We'll probably free up as much as $10 million in working capital, which we can apply to our high-end businesses," the Neiman's spokesman said. "There will be no effect on staff other than at Contempo's."
Neiman's plans to report its third-quarter results in the third week of May.
Kathy Bronstein, chief executive officer of Wet Seal, said the opportunity to consolidate costs drove the deal, as did quick entry into new markets, since only 70 Contempo locations overlap with Wet Seals units. No closings are planned.
While Bronstein said it's too early to discuss merchandising plans, Walter Loeb, president of Loeb Associates, who is on Wet Seal's board of directors, said a change in Contempo's merchandising point of view is important.
With the purchase of Contempo, which had an operating loss of $3 million on sales of $158 million for the eight months ended April 1, Wet Seal will nearly triple in size to annual sales of $370 million in 372 stores. For the year ended Jan. 28, Wet Seal's 133 stores had an operating loss of $1.5 million on sales of $133 million.
--Fairchild News Service

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