FINANCE

Eddie Bauer and Pacific Sunwear combined under new umbrella

BY Marianne Wilson

Golden Gate Capital has established a new operating company for two of its portfolio companies that it acquired out of bankruptcy.

The new PSEB Group is composed of Eddie Bauer and Pacific Sunwear of California, both of which will maintain their distinct brand opportunities. It will have a retail footprint of more than 700 stores and is on track for approximately $1.5 billion in combined total sales in 2018, including $400 million in ecommerce sales. Although earlier reports suggested that Golden Gate might merge the companies in an effort to consolidate stores, there was no talk of store closings in the announcement.

“By creating PSEB and investing additional equity, we will accelerate the growth trajectories for both businesses, while preserving the autonomy and discrete cultures of each brand,” said Josh Olshansky, managing director at Golden Gate Capital. “Both brands have made great progress in the past 24 months and have generated strong performance. Bringing these two brands onto a shared platform will allow us to fuel this momentum and unlock their next stages of growth.”

Both brands are performing well, according to Golden Gate. Eddie Bauer and PacSun grew same-store sales by 6.5% and 5%, respectively, in 2017. Year-to-date, same-store sales are up 6% at Eddie Bauer and 8% at PacSun.

The two retailers will continue to operate independent front ends, with unique brand identities, design, merchandising, marketing, e-commerce and retail operations, while benefitting from shared services and enhanced scale, Golden Gate said. Eddie Bauer and PacSun stores will continue to operate as usual.

The CEO and president of Eddie Bauer, Mike Egeck, will serve as chief executive of PSEB, with oversight of both the Eddie Bauer and PacSun brands. He noted that while customers of Eddie Bauer and PacSun won’t see any change in their store or online experience as a result of the creation of PSEB, they will benefit as the brands are powered by a larger and stronger platform.

“We look forward to the competitive advantages that a unified shared services platform will provide us, while we continue to invest in the two brands’ consumer connections and distinct identities,” Egeck said.

Golden Gate bought PacSun out of bankruptcy in fall 2016. (In March 2017, CEO Gary Schoenfeld departed the chain, and James Gulmi, CFO of Genesco Inc. from 1996 to 2015, was named interim CEO.) Eddie Bauer was acquired by Golden Gate in 2009 at a bankruptcy auction.

The transaction is expected to close in the third quarter of 2018 and is subject to certain closing conditions.

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Conn’s in Q1 comeback

BY Marianne Wilson

Specialty retailer Conn’s swung to a profit in its first quarter and posted its first monthly same-store sales increase in two years.

Conn’s, which sells furniture and mattresses, home appliances, consumer electronics and home office products, reported a profit of $12.7 million, or 39 cents a share, from a loss of $2.6 million, or 8 cents a share, in the year-ago period. Adjusted per-share earnings came to 40 cents, easily topping analysts’ estimates of 27 cents.

Sales rose to $358.4 million from $355.8 million, also ahead of street estimates.

“Fiscal year 2019 is off to an excellent start,” stated CEO Norm Miller. “First quarter retail results were driven by an improving same store sales trend. This included positive same store sales for the month of April, which is the first positive month of same-store sales in over two years.”

In addition, Miller said Conn’s credit performance strengthened during the quarter, and its credit segment had its first quarter of operating income in four years.

“With our credit platform on a clear path towards improved financial results, we continue to focus on driving sustainable growth in our highly profitable retail segment,” he said.

The company opened two Conn’s HomePlus stores in Texas during the quarter, bringing its total store count to 118 in 14 states. During 2019, the retailer plans to open a total of five to nine new stores in existing states to leverage current infrastructure.

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Five Below beats Street, provides strong Q2 guidance

BY Deena M. Amato-McCoy

Five Below was strong out of the gate in the first quarter, due in part to successful sales across new stores.

For the quarter ended May 5, Five Below’s net income was $21.8 million, or 39 cents per share, compared with $8.4 million, or 15 cents per share, in the year-earlier period. Revenue jumped to $296.3 million, up from $232.9 million in the year-ago period.

This beat analysts’ expectations of 32 cents a share on revenue of $290.9 million.

Net sales increased by 27.2% to $296.3 million from $232.9 million in the first quarter of fiscal 2017. Comparable sales increased by 3.2%.

The company opened 33 new stores, and ended the quarter with 658 stores in 32 states. This represents an increase in stores of 19.0% from the end of the first quarter of fiscal 2017.

“We are very pleased with the strong start to fiscal 2018, as we delivered both sales and earnings above our guidance ranges for the first quarter,” said Joel Anderson, Five Below’s president and CEO. “Continued outperformance from our new stores and healthy comparable sales were accompanied by strong gross margin performance, SG&A leverage and tax rate favorability, resulting in EPS that more than doubled versus last year.”

Looking ahead to the second quarter, net sales are expected to be in the range of $332 million to $335 million, based on opening approximately 33 new stores, and assuming approximate flat comparable sales. Net income is expected to be between $20.0 million and $21.2 million, with a diluted income per common share range of 36 cents to 38 cents.

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