STAGE, C.R. ANTHONY TALK MERGER

Byline: Valerie Seckler

NEW YORK — Stage Stores Inc. and C.R. Anthony Co., two regional chains, are in merger talks, the companies said Wednesday.
No definitive agreement has been reached. In a joint statement, Houston-based Stage and C.R. Anthony, headquartered in Oklahoma City, noted a number of significant terms remain to be addressed. Officials of the two chains declined to elaborate. They also said there will be no further announcements until a definitive merger deal is struck or the talks are terminated.
“Both retailers are focused on bringing brand-name apparel to small towns, especially in the Southwest,” — one dynamic driving the possible deal — observed David M. Mann, retail analyst at Johnson Rice & Co.
C.R. Anthony’s 223 specialty stores, which average 18,000 square feet, are located principally in rural communities of 5,000 to 10,000 residents. It also has 55 sites in urban markets.
Stage operates 316 department stores, also averaging 18,000 square feet, under the banners of Stage, Bealls and Palais Royal. About three-quarters of the sites are in towns of 4,000 to 12,000 people in the central U.S.; the rest are in metropolitan areas, including 34 Palais Royal stores in Houston.
“Among C.R. Anthony’s 223 family apparel stores, there are only 35 that overlap with Stage sites,” Mann noted. “Where there are overlaps, they’re mostly in metropolitan markets where C.R. has been a weaker competitor than Stage and could benefit from Stage’s know-how.”
In the amended prospectus for its initial public offering last October, Stage said its city stores average sales of $200 per square foot compared with the $130 per square foot typically produced by its smaller rural units.
Mann expects C.R. Anthony to close some of its 55 units in metropolitan areas over five years as leases expire and rural markets promise a better return on investment.
According to Mann — who put a “buy” rating on C.R. Anthony on Dec. 11 — the specialty chain draws consumers who would otherwise have to drive 50 to 100 miles to shop at a department store for the brands Anthony merchandises. They include Calvin Klein, Jones New York, Nike and Levi’s.
Although Wal-Mart has put most independent retailers in those small markets out of business over the last 20 years, it doesn’t offer the brands Anthony carries. Sears and J.C. Penney have largely abandoned those markets.
C.R. Anthony has placed a priority on expanding its mix of women’s apparel, especially high-profile brands, an effort that would be helped by the possible merger. “Stage carries Liz Claiborne, Chaps/Ralph Lauren, Guess,” Mann said. “C.R. is only starting to tap into some of those resources and I would expect to see some of those labels in their stores if a merger were completed.”
The apparel specialty chain has had some problems buying brands since emerging from Chapter 11 bankruptcy proceedings in August 1992, but it has started building up its stable of labels by operating profitably ever since.
Another growth opportunity is C.R. Anthony’s private label credit card, which produces just 18 percent of the chain’s sales. For the 39 weeks ended Nov. 2, C.R. Anthony’s top line contracted 4 percent to $202.6 million, but it returned to profits of $1.2 million, or 13 cents a share. A year ago, the chain lost $1.4 million on sales of $211.4 million.
Although it was launched back in 1985, the credit card was not emphasized at C.R. Anthony until 1994, and it was only last year that the retailer began mining purchase data for targeted promotions.
Stage, with annual sales of about $740 million, generates 55 percent of that volume on its private label credit card. “They also use it more for marketing, and would probably try to do the same with C.R.,” Mann said.
In over-the-counter trading Wednesday, the stock of C.R. Anthony added 1 1/8 to 6 7/8, and the stock of Stage eased 3/8 to 18 1/8. Stage went public at $16.50 share.
It is likely that Stage can strike a good deal in terms of price. About 45 percent of its shares are held by three investors who bought their stakes on the cheap during the bankruptcy proceedings — and it wouldn’t take a huge premium for them to realize a nice return. Executive Life Insurance and Citicorp Venture Capital each hold about 1.5 million shares and Cargill Financial Services holds 1 million shares.
A merger with C.R. Anthony would continue Stage’s aggressive growth of the last few years. In 1995 Stage opened 23 stores and acquired 45 stores from Beall-Ladymon Inc. Last year it opened 24 stores and acquired the 34-unit Uhlman chain.

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