Acquisition of Upscale Sportswear
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Homi B. Patel, chairman and chief executive officer of Hartmarx, commented, This acquisition is consistent with our stated strategy of reducing our dependence on men's tailored clothing products marketed through the mainstream department store channel and redeploying these assets in luxury and bridge lines sold to upscale specialty stores. While both our men's and women's luxury and bridge lines are performing very well, men's tailored clothing with the mainstream channel continues to encounter intense margin pressures, which is adversely impacting our third quarter. Operating results and strategy changes recently reported by several other men's and women's apparel suppliers continue to validate our asset redeployment strategy.
Mr. Patel continued, Monarchy currently markets nationwide to Nordstrom and Bloomingdales as well as to more than 800 upscale specialty store accounts. Monarchy's brands have developed a strong following among its target customer, the 25 40 year-old fashion forward affluent consumer with high disposable income. Product categories include embellished denim using innovative washes, quality t-shirts with signature artwork, woven shirts and selected outerwear. We are very pleased that the founders of the business, Eric Kim and Henry Kim, have agreed to continue in their current responsibilities under seven-year employment agreements. Monarchy's current annualized sales are approximately $20 million. For fiscal 2008, this acquisition is anticipated to contribute revenues in the $25 million - $30 million range and be accretive to diluted earnings per share by $.03 - $.05. This Los Angeles-based enterprise will operate as an autonomous business operating unit.
We continue to look at other acquisition opportunities which complement our upscale emphasis and to repurchase additional Hartmarx shares opportunistically, pursuant to the previously announced authorization to acquire up to 2 million common shares. To-date, Hartmarx has repurchased slightly in excess of 1.6 million shares at an average cost of $6.71, Mr. Patel concluded.
The Monarchy management team will continue to report to Eric Kim and Henry Kim. Eric Kim commented, Our business has excellent growth potential and we were seeking a partner who shares our values of product quality and controlled retail distribution. With our new affiliation with Hartmarx, we envision additional opportunities for product line extensions, new brand development, increased international distribution and licensing. We are very excited to become a member of the Hartmarx family of companies.
The terms of the transaction include a cash payment at closing of $12 million plus the assumption of certain liabilities. Additional contingent amounts would be payable annually over a seven-year period commencing with fiscal 2008 if specified earnings levels are achieved. This all cash transaction has been financed from internally generated cash flow and utilizing availability under the Hartmarx Senior Credit Facility.
In connection with this transaction, Strategic Initiatives Group, LLC acted as Monarchy's exclusive financial advisor.
Hartmarx produces and markets business, casual and golf apparel under
its own brands, including Hart Schaffner Marx, Hickey-freeman, Palm
Beach, Coppley, Cambridge, Keithmoor, Society Brand, Racquet Club,
Naturalife, Pusser's of the West Indies, Royal, Brannoch, Sansabelt,
Exclusively Misook, Barrie Pace, Eye, Christopher Blue, Pine IV, W
You can learn a bit about Hartmarx at the Hartmarx Profile on Apparel Search.
Learn even more about Hartmarx from their website.
Tailored to Upscale in 2007