Analysts: K-Swiss Buy Good Deal for E.Land

Analysts: K-Swiss Buy Good Deal for
K-Swiss' smooth leather low-cut sneaker with white outsole

E.Land World Ltd.’s bid last year for Collective Brands Inc. wasn’t high enough, but it bagged K-Swiss Inc. on Thursday for a song.

The South Korean apparel distributor agreed to pay $4.75 a share, or about $170 million, for the Westlake Village, Calif.-based shoemaker that has had struggling sales and profits.

The deal gives K-Swiss an enterprise value of about 0.58 times revenue. According to data compiled and reported by Bloomberg, that’s slightly under the 0.64 times average for 18 athletic shoe, footwear and related apparel deals over the past five years.

“E.Land got a pretty good deal,” said Jeff Van Sinderen, an analyst at B. Riley & Co., pointing out that any sale price less than equal to revenue is low.

Sources said they expected David Nichols to remain at the helm of the firm as global brand president, but it is unclear what role Steven Nichols, chairman and CEO of the firm, will play once the deal is finalized.

It also is not immediately clear what E.Land will do with the two brands it acquired — K-Swiss and Palladium — although Palladium is undoubtedly the stronger of the two businesses. It is currently in about 550 U.S. doors, and distribution is expanding into Journeys and Macy’s, where it was recently the top-performing new brand, according to Van Sinderen.

Meanwhile, it remains to be seen whether K-Swiss can rebuild an adequate lifestyle business. Analysts believe there is further value to the K-Swiss brand that can be unlocked. Sam Poser, analyst at Sterne Agee, said, “I’m sure E.Land sees opportunity.”

Added Van Sinderen, “The No. 1 priority is to get the product right.” He noted that before the acquisition, K-Swiss remained focused on building the classic-casual segment with derivative product, and efforts were under way to work out a licensing model for apparel, but he didn’t know where talks had progressed to at the time of acquisition.

“The key metrics to focus on are the 20 percent increase in K-Swiss lifestyle segment bookings and the 37 percent increase in the Palladium backlog,” Van Sinderen said. “These are the planned go-forward growth engines of the business.”

Before the acquisition, K-Swiss shares had plunged 97 percent from an all-time high of $35.90 in November 2006, as the sneaker company’s failure to take advantage of the growth in athletic footwear has resulted in continually sliding sales.

Net losses from 2009, 2010 and 2011 totaled more than $160 million. The company’s year-to-date loss for fiscal 2012 totaled $45.3 million.

E.Land’s business “will provide K-Swiss with the resources and scale to return to its former performance levels,” Steven Nichols said in a statement yesterday.

E.Land, the subsidiary of conglomerate E.Land Group, which also dabbles in retail, construction and real estate, owns a range of about 60 apparel and sports brands, and distributes New Balance and Ellesse in China.