Soft Surroundings has completed a dividend recapitalization that will allow it to increase its debt capacity and accelerate its national store rollout, said Brentwood Associates, the private equity firm that owns a majority stake in the brand.
The multichannel retailer sells through catalogues and digital and operates 28 stores. Fifteen new stores are on tap for 2016, and Brentwood believes the chain can ultimately operate more than 250 locations.
“The stores are exceeding expectations,” said Eric Reiter, a partner in Brentwood, whose portfolio includes J. McLaughlin, Sundance and Z Gallerie, among other brands. “Comp-store sales are growing. In three years, we’ll be getting to 100-plus stores. As we look at the opportunity, we don’t see any reason why we can’t exceed 250 stores.”
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Dividend recapitalization is a strategy Brentwood has used before; Sundance last year completed a dividend recapitalization. Soft Surroundings’ dividend was financed through an expansion of the existing credit facility. Reiter noted that Soft Surroundings and Sundance have some lenders in common.
Soft Surroundings’ strong earnings growth allowed Brentwood “to take a significant return on our investment without any dilution of our ownership,” Reiter said. “We used very flexible senior debt. It was the right balance of borrowing.”
Soft Surroundings targets women aged 45 and older with gentle interpretations of trends. “The brand appeals to a demographic that has the capacity to spend,” Reiter said.
All of the brand’s styles are designed to be comfortable. The company gives every item it sells a softness rating, with one for “so soft,” two for “heavenly soft” and three indicating “ultimate softness.”
The retailer operates stores primarily in the northeast and south. Last year, Soft Surroundings opened its first stores in Arizona, Ohio and Washington. Reiter cited opportunities in “Nevada, Texas, Florida and even places like Idaho.”
Soft Surroundings stores range in size from 4,000 square feet to 4,700 square feet and are located in regional malls, lifestyle centers and downtown shopping districts. Reiter said the store concept has been successful in all three settings. “The store format works across the country,” he added.
Reiter declined to divulge the retailer’s annual sales volume. “We continue to expect double-digit sales growth rates over the next several years,” he said. Soft Surroundings did $250 million in sales in 2014, the last year that sales figures were available.