NAUTICA TO ACQUIRE HOT EARL JEAN BRAND, ENTERING DENIM GENTRY

Byline: David Moin

NEW YORK — Nautica Enterprises Inc. is purchasing Earl Jean Inc., the privately held, rapidly growing luxury jeans label, in a cash and stock deal that could be announced today, WWD has learned.
According to sources, Nautica will pay around $45 million, plus stock and significant additional payments over time based on achieving certain growth levels at Earl Jean, which is often referred to as Earl Jeans.
Principals of both firms could not be reached for comment Monday. Nautica, which is scheduled to release fourth-quarter earnings today and hold a conference call with analysts, has been on the prowl for an acquisition for months and enjoying strong sell-throughs. Last Friday, WWD broke the news that Earl Jeans, among the hotter labels on the contemporary scene, could be sold and that a deal could happen this week.
“This is a savvy strategic move,” said one source, who did not want to be identified.
The purchase of Earl Jeans brings Nautica, a $700 million sportswear giant, into a younger sector and expands its presence in the upscale specialty channel.
With its narrow product line, Earl Jeans has been tightly focused on urban women, from teenagers in affluent families to professionals in their mid-30s. Though the cut is slimmer and the look can be slightly western, its margins are said to be fatter, compared to other denim-based businesses.
Benjamin Freiwald and his wife, Suzanne Costas Freiwald, founded Earl Jeans. They are expected to continue to operate the business and guide its growth under Nautica’s ownership.
Earl Jeans is a small company, reportedly at about $30 million in annual volume, but growing fast — at double-digit increments. With the backing and sourcing capabilities of Nautica, the pace of growth, domestically as well as internationally, will be accelerated, though the Freiwalds and Nautica are intent at keeping “a controlled” pace, said the source.
There’s speculation that the parties are considering several possible avenues of expansion, including rolling out Earl Jeans shops and introducing additional product categories. Only one store currently operates — in Los Angeles, Earl Jeans’ hometown. “Key cities will be considered,” said the source.
Another possibility is through advertising the brand, which, since the company was founded in 1996, has been very limited. Stepping up the marketing of the brand is likely, but only slightly, since Nautica and the Freiwalds prefer to maintain the underground aura of the label. About 50 percent of the product line is sold internationally, primarily in Japan, Europe and Canada.
Last year, Suzanne Freiwald described the line as “Helmut Lang meets Wrangler. We’re design oriented, but also a denim-driven brand. The line has caught on with upscale specialty retailers, including Fred Segal, Barneys New York, Neiman Marcus and Saks.”
Nautica also has seen strong growth recently, and has been guiding Wall Street to look for 8 to 10 percent topline growth for fiscal 2002. However, with the acquisition of Earl Jeans along with its recent acquisition of its boys’ wear license from Hampton Industries, the company has upped its expectations and should be issuing guidance in the 15 to 17 percent range for fiscal 2002.
For the nine months ended Dec. 2, 2000, Nautica’s net sales increased 11.3 percent, to $469.1 million from $421.4 million in the same period last year, although net earnings fell to $33 million from $36.1 million in the prior-year period.
In the earnings release, Harvey Sanders, Nautica’s president and chief executive officer, said the company experienced “strong retail sell-throughs during the holiday season” despite the tough retail climate overall. “The Nautica brand name continues to command widespread recognition among consumers resulting in double-digit growth in our jeanswear and sleepwear divisions, as well as heavy customer traffic in our stores. Additionally, sales trends among some of our newer growth vehicles, most notably John Varvatos and Nautica Europe, have outperformed our initial expectations.”
To support growth, Nautica is building a 500,000-square-foot distribution center in Martinsville, Va., doubling shipping capacity and eventually lowering costs. The company’s divisions include Nautica, Nautica Competition, Nautica Sport Tech, Nautica Jeans Company, John Varvatos, E. Magrath and Byron Nelson. A Nautica flagship in Rockefeller Center here is scheduled to open next month.

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