Gottschalks Inc., the Fresno, Calif.-based regional department store chain that is considering putting itself up for sale, might fetch as much as $240 million, given recent pretax/pre-interest multiples in the mergers and acquisitions market.
The retailer’s board said on Friday that it “formed a special strategic committee comprised of certain directors to identify and evaluate various strategic alternatives to maximize shareholder value, including a revised business plan, operating partnerships, joint ventures, strategic alliances, share repurchases, a recapitalization and the sale or merger of the company.”
Wall Street applauded the news, sending shares of the retailer up 6.5 percent in intraday trading. The stock later closed up 4.8 percent to $10.24 in New York Stock Exchange trading.
Gottschalks operates 66 stores, mostly in the western U.S. It has a market capitalization of about $136 million and an enterprise value of $235 million. CL King analyst Mark Montagna estimated the real estate value of the retailer was $95 million.
One private equity analyst said at current multiples, Gottschalks could have a price tag in the range of $12 to $18 a share, or about $150 million to $240 million.
In a research note Friday, Montagna said given current multiples, Gottschalks could go for $12.80 to $24.46 a share. He also feels a deal could happen by the end of the year.
“We believe the special committee considering strategic alternatives will announce a final resolution by the end of the year,” Montagna said in his research note. “We believe the company will announce it is being acquired by a private equity shop. We anticipate the deal will have one private equity shop interested in the retail operation and another interested in the real estate holdings. This is similar to the Toys ‘R’ Us and Lord & Taylor deals.”
Gottschalks reported Thursday that same-store sales in October rose 1.4 percent compared with the year-ago period. Total sales for the period ended Oct. 28 dropped 0.5 percent to $44.2 million from $44 million the previous year. The chain had three fewer stores.
Fashion merchandise generated the best results, said Jim Famalette, president and chief executive officer, but the company’s home division lagged in performance compared with last year.
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Comps rose 0.5 percent for the fiscal third quarter, and total sales fell 1.6 percent to $148.8 million from $151.3 million a year ago. Sales in stores open at least a year were flat compared with 2006. Total sales year-to-date slipped 0.3 percent to $445.7 million from $447.1 million last year.
“The board is confident in the core business of the company and, as fiduciaries to the company’s shareholders, wants to ensure that the value of the company is adequately reflected in the public markets,” Joe Levy, chairman of the 102-year-old firm, said in a statement.
For the trailing 12 months, ended July 31, Gottschalks’ total revenue was $677 million, which is up slightly from the prior 12-month’s $671 million. Net income in the same period was about $3.5 million versus $5.3 million, and its operating income was $13.8 million compared with $15.5 million.
For its fiscal year ended Jan. 28, 2006, the retailer’s gross margin rate was 35.36 percent, which is flat on a year-over-year basis. Regarding its debt load, the company’s debt-to-equity ratio is 83 percent. Generally, creditors prefer to retailers with ratios between 50 and 80 percent.
There were murmurs in the market for the past few months that the retailer was looking for a buyer, but the company did not issue any statements, and nothing came to fruition.
In March 2005, the chain was said to be the target of a takeover by one of its major shareholders, El Corte Ingles SA, a Madrid-based retailer. At the time, Gottschalks’ market capitalization was about the same as it is now. A retail analyst then said the retailer could see an acquisition price of $18 a share.