Men’s Wearhouse Inc. (MW:US), the menswear retailer that ousted its founder last month, agreed to buy the Joseph Abboud clothing brand for $97.5 million in cash as the chain seeks to offer exclusive brands.
The purchase of JA Holding Inc. from funds affiliated with J.W. Childs Associates LP is expected to close in the third quarter, Houston-based Men’s Wearhouse said today in a statement.
“This will be a fairly seamless transaction and will positively impact the company longer term,” Richard Jaffe, an analyst at Stifel Financial Corp. in New York, wrote in a note to clients today. “Men’s Wearhouse’s focus on offering better brands has attracted new customers and has improved Men’s Wearhouse as a destination for the male shopper.”
The purchase reunites Men’s Wearhouse Chief Creative Director Joseph Abboud with the brand he created and gives the retailer an exclusive label to sell through its more than 1,100 stores. The deal also marks Chief Executive Officer Doug Ewert’s first major move since the Men’s Wearhouse board removed founder George Zimmer as executive chairman over strategy disagreements on June 19.
Men’s Wearhouse plans for exclusive brands to make up 65 to 70 percent of the business long-term, Ewert said (MW:US) on an earnings conference call June 13. Exclusive brands currently make up 45 percent of the business, he said.
Offering high-fashion products at a higher price may help Men’s Wearhouse widen its profit margin, Jaffe wrote.
Joseph Abboud clothing is sold in department and specialty stores, including Nordstrom Inc. (JWN:US) and Bloomingdale’s Inc. according to the brand’s website. Most suits start at $695 on the Nordstrom website.
“We want to liberate the self-made artist in each man,” Bernardo Rojo, the brand’s creative director, says in a video on the Joseph Abboud website.
Although Joseph Abboud clothing will be sold exclusively at Men’s Wearhouse, the company will honor its short-term wholesale contracts with other retailers, Jaffe wrote in the note.
The acquisition also includes JA Holding’s U.S. tailored clothing factory that employs 450 workers.
“On the surface, I don’t think it’s a great move,” Ivan Feinseth, chief investment officer at Tigress Financial Partners LLC in New York, said in a telephone interview. “They’re just buying one of their suppliers. Men’s Wearhouse’s business plan is based on where they can source products the cheapest. This neutralizes their ability to play vendors against each other.”
Men’s Wearhouse rose (MW:US) 0.5 percent to $39.15 at the close in New York. The shares have gained 26 percent this year, compared with an 18 percent increase for the Standard & Poor’s 500 Index.
Ken Dennard, a Men’s Wearhouse spokesman who works for Dennard-Lascar Associates LLC, declined to comment beyond the press release. Zimmer declined to comment on the purchase through Lindsay Andrews, a spokeswoman with Sard Verbinnen & Co.
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