NEW YORK — Financial experts have a bit of advice for the owners of Barneys New York, who are looking to sell the high-end retailer: the sooner, the better.
This story first appeared in the July 7, 2004 issue of WWD. Subscribe Today.
The right time to sell the company is now, they said, adding that the window of opportunity might not last.
As reported, the two funds that bailed Barneys out of bankruptcy proceedings in 1999 — Whippoorwill Associates and Bay Harbour Management — said last week they hired investment banking firms Peter J. Solomon and Morgan Stanley as their financial advisers to explore “strategic alternatives, including the sale of the company.” A few names such as Federated Department Stores and Neiman Marcus Group have popped up as possible bidders, and over the past weekend, Galeries Lafayette surfaced as a possible overseas contender.
Meanwhile, industry veterans say a deal needs to get done as soon as possible, because the window of opportunity may close within five months.
Richard Hastings, retail analyst at Bernard Sands, said, “The timing is right for them to do a deal now. I also think that it will be a very short window of opportunity. The stock market internals are starting to indicate some weakness, and there are early signs that suggest consumer spending could moderate in the second half. The big question is whether the luxury goods market would also show signs of a slowdown, or will it be something that will affect the Wal-Mart customer more.”
Hastings added that because of Barneys’ most recent quarterly results and its very impressive same-store sales gains, there “could be a pool of qualified bidders, such as Federated and Neiman, for the business.”
As reported, for the year ended Jan. 31, income fell 15.7 percent to $7.1 million, or 50 cents a diluted share, 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. For the three months ended May 1, the specialty retailer posted earnings of $3.5 million, or 25 cents a diluted share, against a loss of $1.2 million, or 9 cents, in the same year-ago quarter. Sales leaped 23.5 percent to $112.8 million from $91.4 million. Same-store sales jumped 22 percent and represented the retailer’s fourth consecutive quarter of positive comps.
Richard Kestenbaum, chairman of Kestenbaum Associates, said, “This is definitely the right window, because if you recall, after Sept. 11 luxury was dead. It was a time when people felt they should focus on their homes. Luxury seemed excessive. Now luxury is back, and the equity markets are strong again. Employment seems to be growing. The economy will remain strong through the [presidential] election. I think that the election will be the next pivot point in the economy for the consumer. After the election, however, it’ll be anyone’s guess.”
The election gives the sellers of Barneys a five-month window of opportunity. However, certain events could close that window sooner. While no one wants to think of another terrorist attack on our shores or elsewhere, certain upcoming high-profile events — the Democratic and Republican conventions, and the summer Olympics in Athens — are cause for concern. A major disruption could spook consumers and investors.
According to Kestenbaum, a terrorist attack could easily change the mind-set and cause most deals to “get pulled.”
Walter Loeb, a retail consultant with the firm that bears his name, observed, “If we were in a saner and safer environment, it would be different. There’s certainly been an upswing in luxury goods sales. But with the upcoming conventions and Olympic Games, there’s a risk that people suddenly may become concerned about other things.”
Loeb said that, in the end, “it’s about psychology and the environment. It could be that there will be some countervailing issues coming up that’ll delay or prevent the deal from getting done.”