WWD.com/globe-news/designer-luxury/barneys-up-for-grabs-store-hires-adviser-for-possible-sale-711889/
government-trade
government-trade

Barneys Up for Grabs: Store Hires Adviser for Possible Sale

Barneys New York said it has retained investment banking firms Morgan Stanley and Peter J. Solomon to explore strategic alternatives.

Barneys New York flagship on Madison Avenue.

NEW YORK — Barneys New York Inc., at the top of its game, is now up for sale.

This story first appeared in the July 1, 2004 issue of WWD.  Subscribe Today.

The high-end firm with flagships on Madison Avenue and in Beverly Hills and Chicago said it hired Peter J. Solomon Co. and Morgan Stanley as its financial advisers to explore “strategic alternatives,” including the sale of the company. Shares jumped 27.45 percent in trading Wednesday following the news.

There’s been an assumption in the market that a sale of the luxury goods retailer was the next logical step, particularly since it has been under majority ownership of two turnaround investors, Whippoorwill Associates Inc. and Bay Harbour Management, since 1999. Barneys filed its shocking Chapter 11 bankruptcy petition in 1996 in Manhattan, and the two financial firms bailed out Barneys from bankruptcy. A sale represents an exit strategy for the financial firms.

Industry sources are already speculating that Federated Department Stores, with nearly $1 billion in cash in its war chest, might be a contender. Other names that are surfacing are Saks Inc. and Neiman Marcus Group. Of those three, Federated is actively in the hunt for an acquisition, while a play for Barneys would represent a strategic shift for Saks or Neiman’s.

Dickson Concepts Ltd., which made a run at Barneys in the late Nineties, was also mentioned as a contender this round.

Based on deals over the past year, Barneys could fetch one to 1.5 times its annual sales, which works out to be between $430 million and $645 million.

Howard Socol, Barneys’ chairman, president and chief executive officer, said in a statement, “We have been extremely pleased with the company’s results for the past two years and believe that the company is well poised for future growth. While the company continues to engage in the expansion of its Co-Op concept and a number of other expansion projects, we believe there is even greater potential for the opening of Barneys New York flagships in selected markets.”

David Strumwasser, managing director of Whippoorwill, and Douglas Teitelbaum, managing principal of Bay Harbour, said in the same statement, “With the growth opportunities facing Barneys we want to ensure that the business is best positioned to realize its potential either through a new investor or owner who is interested in building the brand and taking the business to the next level.”

The company cautioned that there can be no assurances that either an investment by a third party or sale will take place.

Marc Cooper, the investment banker from Peter J. Solomon who is working on the deal, said, “We’re very pleased to be involved with Barneys. It is one of the great success stories.”

Cooper declined to elaborate further, such as on valuation or potential buyers. Strumwasser also declined further comment. Teitelbaum could not be reached for additional comment, and Socol is in Europe.

Wall Street reacted by sending shares of Barneys up $3.50, to close at $16.25, in trading Wednesday. The volume of shares exchanged was 212,350 against an average daily volume of just 11,772. The 52-week low was $5 and the high, until Wednesday, was $12.84.

Richard Kestenbaum, chairman of Kestenbaum Associates, an investment banking advisory firm, said he thinks if Barneys were to be sold, “it could be a prize.”

“Department stores, in particular, are looking to expand in the luxury market and would be good candidates as possible acquirers,” Kestenbaum said. “With the right partner who has financial resources, the Barneys franchise could be expanded in a number of different ways, whether more locations for similar stores or specialty stores smaller than its Madison Avenue footprint.”

Barneys already has a presence in Japan under the nameplate Barneys Japan, through an arrangement with Isetan Co. Ltd, its former landlord with whom it bickered throughout its contentious three-year bankruptcy court tour of duty. Kestenbaum isn’t so sure whether it could take the Barneys name to other countries across the pond and across other oceans.

“There is often an overestimation of the value of American brands and marks, including retailers, in foreign markets,” he noted.

However, one name that was once connected closely with the Barneys bankruptcy that could be making news again is Hong Kong-based Dickson. Barneys at one point received Manhattan bankruptcy court approval to pay the luxury goods distributor up to $1 million in advance to snoop at Barneys’ operations pending a possible investment in the retailer. Dickson was the firm that created a ruckus when it sought permission to keep its identity secret when it first expressed an interest in taking a look at Barneys’ books.

Dickson ultimately bid $247 million in a cash-and-debt deal with Barneys’ creditors in September 1997 that was later rejected in May 1998. The rejection cleared the way for Whippoorwill and Bay Harbour to file their own reorganization plan for the then troubled retailer, one valued at between $275 million and $290 million. Calls to Dickson’s offices in New York for comment were not returned.

In the intervening years, Barneys can be classified as a successful turnaround, even though there were a few of the rough patches encountered by all retailers, such as the slowdown in sales following the 9/11 terrorist attacks when spending and tourism slowed.

Barneys’ flagships are back on track, while the retailer has been expanding its Co-Op concept in key markets that include Chicago, Beverly Hills and Boston, among other cities.

For the year ended Jan. 31, income fell 15.7 percent to $7.1 million, or 50 cents, due to refinancing, from $8.5 million, or 61 cents, last year. Sales gained 6.8 percent to $409.5 million from $383.4 million.

In the first quarter of the current fiscal year, the three months ended May 1, Barneys posted earnings of $3.5 million, or 25 cents a diluted share, against a loss of $1.2 million, or 9 cents a share, in the same year-ago period. Sales jumped 23.5 percent to $112.8 million from $91.4 million. Comparable-store sales — stores opened for at least a year — gained 22 percent, marking the company’s fourth consecutive quarter of positive comps.

As previously reported, the Chapter 11 bombshell in January 1996 was, according to Barneys management at the time, a stand to restructure its seven-year-old joint partnership agreement with Isetan.

The bankruptcy filing was effected under the management of Barneys’ founding family, the Pressmans. The death of Fred Pressman, at 73, who took over the reins from his father, Barney, occurred the same year. Retail lore has it that Barney pawned the engagement ring he had given to his wife, Bertha, to purchase a tiny store at the corner of 17th Street and Seventh Avenue in 1923. The store began selling men’s wear at discount prices.

Fred was regarded as a gifted merchant and was widely credited with transforming Barneys into the first American store to offer European men’s wear in 1968. He was also credited with introducing the world in 1976 to Giorgio Armani, then a little-known Italian designer, and helped to make him an international star. His sons Gene and Robert later joined the family firm, and were part of the management team in place when Barneys filed for Chapter 11. Gene has been given much credit for moving Barneys upscale, and introducing women’s wear to the retailer.

Barneys New York
By the Numbers
Number of Stores: 21

(trailing 12 months vs. previous period)

Sales: $430.9 million vs. $382.3 million
change: +12.7%
Gross Margin: 45.9 % vs. 46.5%
change: -60 basis points
Profit: $11.9 million vs. $6.8 million
change: +75.6%
Operating Cash Flow: $36.1 million vs. $10 million
change: +262.7%
 
Share Performance

Wednesday: Closed up 27.5% to finish at $16.25

(Shattered the previous 52-week high of $12.84 set Monday.)

Year-to-date: Up 61.4%, or $6.18

Market Cap: $229.5 million

Barneys Through the Decades
1923: Barney Pressman hangs his shingle.
1950: Barneys 150 tailors are making about 80,000 suits a year, selling more suits than any other
store in the world.
1970: Barneys opens its International House.
1975: Barney Pressman retires, leaving control to his
son, Fred, who begins taking the company in new directions.
1975: Fred Pressman begins introducing European designers such as Armani.
1976: Barneys begins introducing upscale women’s clothing at its stores.
1986: The first store devoted exclusively to women’s
clothing opens but never takes off.
1991: Founder Barney Pressman dies at age 96 on Aug. 26.
1996: Barneys files for Chapter 11 bankruptcy protection.
1996: Fred Pressman dies on Jan. 14.
1999: Company exits bankruptcy in January under new ownership by investment firms Bay Harbour Management and Whippoorwill Associates.
2004: On June 30, Barneys retains Peter J. Solomon & Co. and Morgan Stanley to seek strategic alternatives, including a possible sale.
Source: Company reports and “The Rise and Fall of the House of Barneys,” Joshua Levine, 1990