JONES KEEPS GROWING: ADDS GLORIA VANDERBILT IN $138M ACQUISITION
Byline: Vicki M. Young / Kristin Larson
NEW YORK — The behemoth that is Jones Apparel Group wants a bigger piece of the moderate sportswear market.
Jones announced the acquisition of Gloria Vanderbilt Apparel Corp. on Tuesday in a $138 million deal that will help build its share of the important moderate jeans market. The deal is the latest sign of renewed activity in the moderate and bridge sectors, which recently have seen a slew of new lines and licenses.
“This is a company I have known for a while,” Peter Boneparth, president of Jones, told WWD. “Our moderate strategy is focused on branded companies where we can leverage core competencies, management is willing to stay and where it’s basically additive to earnings. There’s tremendous brand equity [at Gloria Vanderbilt] and they have managed the brand really well.
“They are a dominant factor in the bottoms business — where we don’t have a major presence — so it really fits in very nice with our portfolio of companies,” Boneparth said. “It’s not cannibalizing any of our existing business in terms of open-to-buy.”
The deal calls for Jones acquiring 100 percent of the equity in Gloria Vanderbilt and 100 percent of the assets of the Gloria Vanderbilt Trademark, and it’s expected to close next month. The purchase price consists of $80 million in cash payment, $20 million in Jones common stock and the assumption by Jones of $38 million of funded debt and accrued interest. Sales of Gloria Vanderbilt in 2001 were $146 million, with operating margins in the mid-teens.
Isaac Dabah, chief executive officer of Gloria Vanderbilt, and Jack Gross, president, will stay with the company as part of the Gloria Vanderbilt division and report to Boneparth, who, as reported, will become ceo of Jones in May, succeeding Sidney Kimmel, who will remain chairman. Under terms of the deal, the owners of Gloria Vanderbilt will be entitled to a future payment in cash and/or common stock if certain earnings targets are met for the year following the closing of the transaction.
While Gross declined to comment on any specifics, he said: “Basically, our team will continue to run the company as part of one of the largest apparel manufacturers today.”
Gilbert Harrison, chairman of Financo Inc., an investment banker to Gloria Vanderbilt, said: “This deal makes a tremendous amount of sense for Jones and is entirely consistent with their strategy, given the strength of Gloria Vanderbilt in the moderate market. There is also a tremendous amount of growth going forward for the core Gloria Vanderbilt brand, the junior GLO brand and its licensing businesses.”
Harrison disclosed that the parties began talks last summer, but that those discussions were put on hold due to Sept. 11. The parties resumed negotiations at the beginning of the year.
Anita Britt, senior vice president of finance and investor relations at Jones, said the move will give the company greater penetration in national chains like Kohl’s, J.C. Penney Co. and Mervyn’s — all key players in the moderate segment.
“This takes us from a 12 percent mix in national chains to a 14 percent mix in total revenues,” Britt said in a phone interview. “It’s definitely an underpenetrated portion of our business and we believe there’s a lot of opportunity there from a growth perspective. We’ve had a much bigger presence in better, so this provides further diversification and a better balance.”
Meanwhile, word in the investment community was positive.
Todd Slater, equity analyst at Lazard Freres, wrote in a research note that the acquisition will add about 3.5 percent to Jones’ annual revenue base. He also noted, however, that the deal increases Jones’ debt by $118 million and ties up cash that could have been earmarked for a larger, more important transaction.
“It is not a seminal event, but it’s complimentary to what they do,” said Slater later that day. “It expands their presence in an underpenetrated moderate market, which is good because it increases its exposure to part of the growth end of the customer base with companies like Kohl’s. On the other hand, it’s a relatively small deal and doesn’t pack a lot of near-term punch. But on balance, we think it’s positive, as it’s accretive to earnings.”
Slater also said the deal enhances Jones’ exposure in the denim category — with Gloria Vanderbilt joining Polo Jeans and private label.
Dennis Rosenberg, apparel analyst at Credit Suisse First Boston, wrote: “We estimate that the acquisition will be accretive by about 5 cents to our 2002 estimate of $2.50 and by about 10 cents to our 2003 estimate of $2.85.”
Speaking in a conference call to Wall Street analysts, Boneparth said: “We think they are the preeminent deliverer in stretch and twill jeanswear in the marketplace.” He noted that the company easily met Jones’ criteria for acquisitions, which are: growth opportunities going forward, accretive to earnings from the outset and a strong management team already in place.
According to Boneparth, the acquisition will allow leveraging among Jones’ other core competencies.
“We are not by any means trying to run away from the better business, [but] we need to balance our distribution channel over time,” he said.
Kimmel said in a statement: “With the inclusion of Gloria Vanderbilt into our sales mix, the moderate component of our business will expand from approximately 21 to 24 percent of total projected revenues.”
Gloria Vanderbilt is sold at national chains such as Kohl’s, J.C. Penney Co., Mervyn’s and Federated Department Stores, as well Costco. The brand is a stretch bottoms business that will complement Jones’ existing moderate labels Norton McNaughton, Erika, Evan-Picone and Joneswear.
Gloria Vanderbilt had its heyday in the Seventies and early Eighties, but began to fade in the late Eighties. Dabah and Gross relaunched it in 1993 and have grown it steadily since then. But even when the brand was almost invisible at retail, it still had huge consumer recognition and that continues. The latest edition of WWD’s top 100 brands by familiarity ranked Gloria Vanderbilt number 35, ahead of such larger companies as Chanel, Giorgio Armani, Lands’ End, Maidenform and Disney.
Jones expects that its expertise in junior tops under the Energie brand can be leveraged with the Gloria Vanderbilt junior GLO business, which is bottoms driven. In addition, there are opportunities to leverage the brands across Jones’ product capabilities in footwear, handbags and jewelry. Boneparth noted that handbags and accessories already have a spring 2003 production time frame.