The next phase for Belk Inc. is drawing near.
Several sources said that private equity firms Sycamore Partners and Bain & Co. are weighing an investment in the 297-door department store chain. Earlier, KKR also took a look at the chain. And one retailer is said to be at least weighing a strategic play for Belk.
Belk and the would-be investors either declined to comment or could not be reached heading into the Fourth of July holiday weekend.
In April, the Charlotte, N.C.-based company said it hired Goldman, Sachs & Co. as part of an open-ended, five-year strategic planning process that could involve a sale of the company. The firm was being shopped earlier this year and sources said retailers — including Hudson’s Bay Co., Dillard’s and Macy’s — were not interested.
The Dillard’s family, which controls the department store chain, is generally not seen as acquisitive. And Macy’s seems geared more toward its omnichannel initiatives, tweaking its store base and integrating Bluemercury, the specialty beauty business it bought in March.
Last month, the voracious Hudson’s Bay inked a $2.7 billion deal to buy the 135-door Kaufhof in Germany. With that deal now well underway, one source said it was possible Hudson’s Bay could one day take another look at Belk, if it is still available.
But, for now, the big-money financial types appear to have a leg up.
Sources say there’s a strong possibility that Belk will sell a minority stake to a private equity firm and use the money to pay off shareholders seeking to cash out. Belk has about 850 shareholders, with the majority of the shares controlled by Belk family members.
Most observers believe that the family members serving in the C suite want to continue to run the business and started the process to help other shareholders cash out.
“It’s totally private equity that’s interested now,” said one source. “The last I heard, Sycamore, Bain and KKR were interested, but now it’s down to two.”
Belk is considered a well-run company with disciplined management that has generated excellent profits and lots of cash, despite major investments in infrastructure, e-commerce and both the building and renovation of flagships.
The typical private equity play would be to buy Belk, drive efficiencies at the company and then flip it in an initial public offering in a few years. Bain has investments across several sectors and has put money into Guitar Center, Michaels, Toms, Toys ‘R’ Us, Domino’s Pizza Japan, Rent the Runway and more.
Sycamore is building more of a fashion-heavy portfolio that includes Aéropostale, Hot Topic, Coldwater Creek, Kurt Geiger, Nine West and MFG Sourcing.
Belk’s sales rose 1.8 percent to $4.11 billion last year, as investments in stores, e-commerce and infrastructure reduced net income by 7.8 percent to $146.1 million. Belk owns about a quarter of its fleet of 297 stores stretched across 16 Southeastern states, owns buildings under ground leases for another quarter and leases slightly more than half of its doors.
In the first quarter, Belk’s earnings rose 13 percent to $21.8 million. Excluding the $2.9 million spent on the strategic review and other items, profits gained 26.8 percent as sales advanced 3.1 percent to $985 million.
“First-quarter sales remained strong, continuing the trend we saw in the fourth quarter,” said Tim Belk, chairman and chief executive officer. “E-commerce continues to be our fastest-growing business. Although the expenses related to our investments continue to impact earnings, we are beginning to see the benefits in top-line growth and higher margins.”
Belk dates back to 1888 when William Henry Belk opened his first store in Monroe, N.C., using $750 in savings, a $500 loan, and $3,000 worth of goods taken on consignment. He called his store the New York Racket Store. Tim Belk, grandson of the founder, took the reins in 2004.