Fifth & Pacific to Sell Lucky Brand - Analyst Blog

Fifth & Pacific Companies Inc. (FNP), as a part of its previously conducted brand evaluation, has agreed to sell its second non-core brand, Lucky Brand Jeans. The brand sale follows the company’s announcement to dispose its Juicy Couture brand in early October. These divestitures will make Fifth & Pacific a single-brand company focused on getting the best out of its core Kate Spade brand.

Under the sale agreement, Fifth & Pacific has decided to sell its Lucky Brand Jeans to a partner of Leonard Green & Partners L.P.  The company will receive $225 million from the sale, comprising $140 million in cash and the remaining $85 million as a three-year seller note.

Additionally, the deal allows Lucky Brand to assume a proportionate share of Fifth & Pacific’s sourcing contract with Li & Fung along with other obligations. Moreover, to enable smooth transition of the sold brand, Fifth & Pacific has agreed to sign a Transition Services Agreement (TSA) for a nearly 24-month span.

The sale, conditioned upon the completion of certain general conditions, is expected to close in the first quarter of 2014.

In October, Fifth & Pacific had agreed to divest its Juicy Couture brand to privately held Authentic Brands Group LLC for about $195 million in cash. Together, the sale of these two brands is expected to generate $370–$380 million liquidity for the company, including the face value of the seller note issued for Lucky Brand.

The process for the sale of the two brands began last year, when the company initiated a study to estimate its capital and resource needs, as well as risks and opportunities related to the operation of its three brands – Kate Spade, Lucky Brand and Juicy Couture, while also focusing on maximizing shareholder value.

Following the sale of the two non-core brands, the company will focus wholly on expanding its Kate Spade brand. Today, Kate Spade offers rapid growth prospects, given its worldwide demand, strong margins and better merchandise assortments, compared to its peers. The company expects to provide guidance for fiscal 2014 in early January, revealing a clearer picture about its future plans.

Fifth & Pacific currently has a Zacks Rank #3 (Hold). Better-ranked stocks among apparel retailers include Citi Trends Inc. (CTRN), Fossil Group Inc. (FOSL) and Michael Kors Holdings Limited (KORS). All these stocks carry a Zacks Rank #2 (Buy).

CITI TRENDS INC (CTRN): Free Stock Analysis Report

FIFTH PACIFIC (FNP): Free Stock Analysis Report

FOSSIL GRP INC (FOSL): Free Stock Analysis Report

MICHAEL KORS (KORS): Free Stock Analysis Report

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