Taking Stock: Phoenix Sale Buzz… To the Victors

PHOENIX SALE BUZZ: Cathy Taylor could be making a play for Phoenix Footwear Group. After stepping down from her post as CEO of the company last week (along with CFO Doug Ford), Phoenix disclosed that the firm is involved in discussions with various parties, including Taylor, to divest “certain operations.” The Carlsbad, Calif.-based firm has been mulling its strategic options with BB&T Capital Markets for the past few months. The company gave no details or timetable for when such a deal would be reached. While talks are ongoing, Russell Hall has been named president and CEO, and Dennis Nelson is now the company’s CFO. “It sounds like Cathy Taylor might be looking to make some kind of bid for the company,” said Jeff Mintz, an analyst with Wedbush Morgan Securities. “Obviously, they have been looking at strategic options for a couple of months now. I suspect they weren’t able to find another partner.” Mintz added that it would make sense for the company to go private given its size. “If you buy the company and take it private, you can cut your expenses immediately.” Phoenix — which manufactures Trotters, SoftWalk, H.S. Trask, Chambers and Tommy Bahama footwear — also announced cost-cutting measures, including the elimination of 17 staff positions, amounting to $2.5 million.


TO THE VICTORS: It’s indicative of the state of retailing that Wal-Mart Stores Inc. could see its fourth-quarter profits recede — 7.4 percent, in this year’s case — and still look good in the process. “Our performance relative to competitors was exceptionally strong in the fourth quarter and throughout the year,” observed freshman CEO Mike Duke without hyperbole. “We expect this momentum to continue.” Even with year-end sales soaring above the $400 billion mark, not all the numbers out of the company were solid. The rebounding dollar pushed the operating income of its international operations down 14.3 percent, the corporate operating margin fell to 5.9 percent from 6.5 percent a year ago, and its projections for first-quarter earnings called for a fairly flat comparison with those of the comparable year-ago period. But Wall Street certainly liked what it saw, pushing shares up 3.7 percent last Tuesday as the S&P Retail Index dropped 3.8 percent, and much of that has to do with the strategic repositioning of the world’s largest retailer. The previously announced shift of its fashion operations to New York and the ongoing addition of designer and entertainment names — Russell Simmons and Taylor Swift among them — to its portfolio have impressed analysts and, presuming a degree of strength in execution, should please consumers, too. “Clearly, the apparel and home and other discretionary categories are being structured correctly,” said Bill Dreher, retail analyst at Deutsche Bank, pointing out that merchants “will be able to transition the consumer to move across the aisle” when the economy starts to pick up.


DON’T CALL US: Adrenalina Inc.’s ongoing pursuit and needling of the far larger Pacific Sunwear of California (932 units versus three) is providing some sorely needed comic relief during a period of unprecedented difficulty at retail. With two offers to buy PacSun (for about $300 million and then about $329 million) rebuffed, Adrenalina, which owns about 3.2 percent of its target, had threatened a proxy fight to install four directors, including a professional poker player and gaming expert, on PacSun’s board. In a letter to Ilia Lekach, Adrenalina’s CEO, made public last week, Peter Starrett, lead director at PacSun, stood behind CEO Sally Frame Kasaks and her turnaround strategy and noted that the spurned suitor’s firm “has reported substantial operating losses” and that its independent auditors “have raised questions about its ability to continue as a ‘going concern.’” Starrett said the board members “also strongly dispute your public contentions that your unspecified ‘plan’ [for PacSun] has the support of either our largest shareholders or ‘pillars’ of the surf or skate apparel industry” in which both firms operate. Shareholders, he stated, would not be served by a proxy fight “in furtherance of your stated desire to combine PacSun and Adrenalina and install yourself as CEO. But make no mistake — if that is the course you wish to pursue, we will do all that is necessary to protect shareholders.”

— A.J.K.

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