Print

Email story

Comment

Email editor

Belk to buy McRae's, Proffitt's

North Carolina-based Belk Inc. will acquire 47 stores in the $622-million deal, which gives the chain 23 stores in Florida.

By MARK ALBRIGHT
Published April 30, 2005

Belk Inc., a department store chain that's returned to the edges of the Tampa Bay area after a decade-long hiatus, is acquiring the 47-store Proffitt's and McRae's chains spread across the Southeast in a cash deal valued at $622-million.

Based in Charlotte, N.C., Belk has found a firm foothold selling moderate- to better-priced fashion in so-called junior department stores the size of Beall's or Kohl's in smaller cities.

The chain, which retreated from the Tampa Bay area to Crystal River Mall, has been moving back, signing leases as far south as Fort Myers. The company also opened stores in Brooksville and Land O' Lakes in recent years. The McRae's acquisition increases the 19 Florida Belk stores to 23. Among the acquisitions are two McRae's in Orlando malls and two in Panhandle malls.

Closely held by the family that founded the company in 1888, Belk has grown to 228 stores as far west as Texas under a third generation of Belks. Revenues were $2.45-billion in the fiscal year that ended Jan. 29. Sales in stores open more than a year decreased 1 percent in the same year, but net income was up and the company's cash dividend almost doubled to 48 cents a share.

The acquisition from Saks Inc. clears some of the clouds hanging over the department store conglomerate in Birmingham, Ala., which is weighing a variety of divestitures, including the sale or spinoff of its luxury chain Saks Fifth Avenue.

Saks shares closed at $17.04, down 46 cents after the McRae's and Proffitt's chains, which had combined annual revenues of $700-million, sold for less than full price.

Brad Martin, the Saks chairman and chief executive officer who began building his collection of 341 stores with Proffitt's in Tennessee more than a decade ago, said he will package for sale all 143 of the company's stores in the Midwest that operate as Bergner's, Boston Stores, Younker's, Hershberger's and Carson Pirie Scott.

While Martin hangs onto the Parisian and Saks Fifth Avenue units, some analysts say it's more likely Saks Fifth Avenue will end up sold to private equity firms or foreign investors.

"That's where all luxury retailing belongs," said Richard Hastings, a Charlotte, N.C., retail consultant. "The smaller, exclusive vendors and niche products (sold through top-tier stores) provide insufficient flows of subsidy that publicly traded retailers crave to smooth out earnings when sales blink or when margins sink."

Big mid market apparel retailers, whose inventory is heavily financed by suppliers, are in a never-ending state of renegotiation with suppliers over payments for goods that did not sell as well as expected. The high-fashion houses, however, do not have the volume to be as flexible and take much bigger fashion risks. That means retailers that stock their goods have to share a bigger part of the risk for goods that don't sell.

Saks Inc. recently delayed its earnings report and annual meeting as the SEC began investigating the way the company had been accounting for vendor allowances called "markdown money." Saks said it will probably have to restate its earnings for 1999 through 2003.

Shares in Neiman Marcus Group, the other big luxury retailer recently put on the block, hit a record $100 this week after reports circulated the 37-store chain could fetch as much as $5-billion from private equity funds or foreign investors bidding to take the company private. Bids were due Friday. Neiman Marcus shares closed at $98.32, up 12 cents.

Mark Albright can be reached at albright@sptimes.com or 727 893-8252.

[Last modified April 30, 2005, 00:50:14]