By Nicholas Casey
Of THE WALL STREET JOURNAL
Women's retailer Dress Barn Inc. (DBRN) said Thursday it would acquire Tween Brands Inc. (TWB) in an all-stock deal valued at roughly $157 million, in a sign the weak retail market is spurring consolidation.
Dress Barn, of Suffern, N.Y., will swap 0.47 shares for each Tween Brands share, a premium of roughly 20% to Tween Brands shareholders based on Wednesday's closing prices.
Investors applauded Dress Barn's efforts to diversify from apparel for career women into the so-called tween segment, sending shares up 2% premarket to $13.90. Tween jumped 19% to $6.29.
Discounter Dress Barn targets professional women with its 841 namesake stores and younger women with 716 Maurices stores. Tween Brands, of New Albany, Ohio, operates 908 Justice stores that target seven- to 14-year-olds with low-priced fashion items like dresses and graphic t-shirts.
The combined company would operate 2,465 stores and generate annual sales of about $2.4 billion.
David R. Jaffe, Dress Barn's chief executive, said Tween Brands complements his company's portfolio of value-priced stores for young and professional women. While "not as big a market" as its two women's brands, Mr. Jaffe said the preteen market has "only has one big player," Tween Brands, with a nationwide footprint.
The acquisition shows how the economy has turned laggards into takeover targets. In the quarter ended May 2, Tween Brands posted a loss of $1.4 million on a 23% drop in sales at stores open more than a year. The company has struggled under $165 million in debt and covenants that restricted its capital spending to $10 million a year. Tween's outstanding bank debt will be repaid under the deal.
The company was "down on luck because of their debt," said Mr. Jaffe. Now "the handcuffs are removed."
Mr. Jaffe said he plans to retain Tween Brands executives, including Chief Executive Mike Rayden, who will continue to manage Justice and report to Mr. Jaffe. Mr. Rayden said in an interview that in the next three to five years, Justice has the potential to have more than 1,000 stores, expanding into outlet centers where Dress Barn already has a presence.
Dress Barn, like its peers, has been cutting costs and inventory amid the drop in consumer spending that has hurt nearly all clothing retailers. But it got a boost from a strong reception to its spring merchandise, helping result in the recent sales gain.
Though Dress Barn has fared better during the recession, the acquisition isn't without risk. Preteens remain one of the most fickle consumer groups. Unlike Dress Barn's older patrons, younger women have traditionally shown less brand loyalty and exhibit more rapidly changing tastes.
Additionally, preteen spending is closely tied to parents' income for allowances, and such cash is often the first clawed back during a recession.
Justice also faces new competition from Aeropostale Inc. Last week, the discount teen retailer opened a new concept called "P.S. from Aeropostale" aimed at preteen boys and girls. The company said it plans to open nine additional stores during the fiscal 2009 year as well as an e-commerce site.
-By Nicholas Casey, The Wall Street Journal; nicholas.casey
(Tess Stynes contributed to this article.)