DEAL FOR FREDERICK’S SEEN ON TAP
NEW YORK — The sale of a hefty stake of Frederick’s of Hollywood could be announced within the next month, according to sources.
Back in June, the intimate apparel retailer and the trusts set up by its founder, the late Frederick Mellinger, said they had hired the investment firm Janney Montgomery Scott Inc. as a financial adviser to explore ways to enhance shareholder value. One of the options is the sale of the 50.2 percent of Frederick’s outstanding shares owned by the trusts. The company has about 8.7 million shares outstanding.
Other options include the sale of all assets, a merger or consolidation, stock buyback, recapitalization or joint venture.
“Cash is king: The estate needs the money,” one source close to the negotiations said last week. Prospective buyers “are going through due diligence, and it’s been narrowed down to six domestic and international firms.”
The potential suitors are said to be chasing the Frederick’s brand name, which could be marketed internationally.
Officials at the Frederick’s headquarters in Los Angeles could not be reached for comment.
The Mellinger estate, sources said, needs the cash to pay an estimated $11 million to $12 million in federal taxes. Mellinger died in 1990, and his wife, Harriet, died in 1993. The estate has been paying annual interest of $700,000 against the liability owed.
In its latest fourth quarter, which ended Aug. 31, Frederick’s reported a loss of $1.1 million against a loss of $1 million a year earlier.
Sales for the three months eased 1.7 percent to $31.6 million from $32.1 million. For the year, Frederick’s lost $438,000 against year-ago earnings of $2.7 million, or 31 cents a share.
Although overall sales for the year rose 3.6 percent to $148 million from $142.9 million, the increase was not enough to offset higher promotional expenses for retail and mail order.
Frederick’s retail stores reported a loss of $1.8 million for fiscal 1996, compared with earnings of $866,000 for 1995. Sales increased 2.2 percent to $77.8 million from $76.1 million. Same-store sales for the year rose 1.3 percent.
George W. Townson, chief executive officer, said in a statement that profits were beaten down by markdowns on slow-moving and promotional merchandise.
Mail-order earnings for the year fell 75 percent to $922,000 from $3.7 million, although sales pushed ahead 5.2 percent to $70.3 million from $66.8 million. Mail-order performance was depressed by high paper and postage costs in 1996, Townson said. Response to Frederick’s summer apparel and new swimwear catalogs was lower than expected. However, customers responded favorably to the first catalog distributed in Canada.
Townson, in his statement, said the company plans to open eight stores and remodel 22 in fiscal 1997 based on a new prototype. The new store format, started in fiscal 1996, is double the size of the average Frederick’s store. Declining paper costs are expected to help the mail-order business.
Frederick’s has 206 stores in 29 states in addition to its mail-order subsidiary.