In a bid to stay above water, struggling fashion retailer Specialty Fashion Group (ASX: SFH) has sold off five of its retail brands to competitor Noni B Group (ASX: NBL) for A$31 million.
Following the completion of a structural review, Specialty Fashion Group today announced it had agreed to sell the Millers, Katies, Crossroads, Autograph and Rivers businesses, while retaining ownership of its most profitable brand, plus-size women’s clothing label City Chic.
Specialty Fashion Group’s businesses have been sinking in what the company describes as a “challenging and rapidly changing retail environment”. In the 12 months to 31 December 2017, the brands marked for divestment made a total loss of A$6.2 million in earnings before interest, taxes, depreciation and amortisation (EBITDA).
For Noni B Group, adding Specialty Fashion Group’s assets to its portfolio will transform it into one of the largest specialty women’s apparel retailers in Australia, with a network of more than 1,350 stores including its existing brands Noni B, Rockmans, W.Lane and BeMe.
Noni B Group chairman Richard Facioni said the acquisition represented a step-change in the company’s scale and was expected to “deliver another meaningful increase in shareholder value over the next 12 to 24 months”.
Noni B Group chief executive Scott Evans added that the five businesses were “well-known and established, iconic Australian brands that are both complementary and highly synergistic to [Noni B’s] existing portfolio”.
However, Specialty Fashion Group’s chairperson Anne McDonald believes a significant turnaround would be required to reset the brands.
“This would require time, capital and carry material execution risk,” she said.
City Chic, the saving grace
According to Specialty Fashion Group, City Chic has an “attractive outlook”, with strong online global sales and blue-chip wholesale and drop-shipping partnerships. It is forecast to generate between A$19-20 million in underlying EBITDA in the 2018 fiscal year.
As well as achieving near-term value from the sale, the divestment enables Specialty Fashion Group management to focus wholly on City Chic’s strategic priorities and longer-term growth agenda.
“With online representing 37% of sales and strong brand recognition in Australia, New Zealand and increasingly overseas, the growth potential for this truly customer-led brand is significant,” Specialty Fashion Group chief executive officer Daniel Bracken said.
“Under a simplified corporate structure with the right funding support, City Chic will be well-placed to accelerate the execution of its growth strategy to become a global brand,” he added.
Specialty Fashion Group also announced that Bracken would step down from his position at the company following completion of the divestment transaction, with current City Chic general manager Phil Ryan taking his place.
Bracken had only commenced the role in February, after Gary Perlstein, who had been the chief executive officer since 2003, announced his intention to retire in November 2017.
The change is expected to occur prior to the annual general meeting in November 2018, following a phased handover.
City Chic’s long-standing management team will continue to run the City Chic businesses.
Shares in Specialty Fashion Group spiked up 50% to A$0.57 on the news by midday and were sitting up 48.68% by afternoon trade, while Noni B shares remained unchanged at A$2.35.