Dive Brief:

• Stage Stores, Inc. on Wednesday announced it will acquire select assets of Gordmans Stores, Inc. through a bankruptcy auction, for an undisclosed amount, funding the deal from existing cash and availability under its credit facility. The transaction is expected to close during Stage’s first quarter of fiscal 2017, subject to the approval of the bankruptcy court and customary closing conditions, according to a company press release. 

• Under the terms of the transaction, Houston-based Stage’s subsidiary will acquire a minimum of 50 Gordmans store leases, with rights to assume leases for an additional seven stores and a distribution center; all of Gordmans’ inventory, furniture, fixtures, equipment and other assets at the 57 locations; and the trademarks and other intellectual property of Gordmans. 

• Remaining assets at Gordmans’ other 48 stores and other facilities are expected to be liquidated by Tiger Capital Group, LLC and Great American Group, LLC pursuant to their joint bid with Stage. Midwestern apparel and home décor retailer Gordmans filed for Chapter 11 bankruptcy protection earlier this month. The Stage bid topped one from ex-Gordmans CEO (and the founder’s great-grandson) Jeff Gordman. 

Dive Insight:

Texas-based Stage Stores could be a good fit for Gordmans. The regional department store runs a suite of retail companies much like Gordmans, though it has faced the same challenges that plague many retailers these days. In its most recent quarterly filing, the company reported net sales fell 9.8% to $34.4 million as same-store sales fell 8.2% and gross profit decreased by 25.6% to $19.5 million.

“We believe the Gordmans business model offers great potential and, without the burden of a high level of debt, unprofitable locations and an oversized infrastructure, we expect the Gordmans business will be accretive to our earnings,” Stage CEO Michael Glazer said in a statement.

Stage Store's winning bid will keep about half of Gordmans’ locations open, which made it attractive to the court overseeing the bankruptcy proceeding. “If we can get a going-concern bid, from the perspective of the employees, the community perspective, it is going to be the best thing for the community,” U.S. Bankruptcy Judge Thomas Saladino said at a hearing earlier this month in Omaha.

Not unusual for a private equity-owned company, Gordmans, which runs 106 stores in 62 markets and 22 states, is loaded with debt: Average borrowings during the thirty-nine week periods ended Oct. 29, 2016 were $31.7 million, compared to $19.5 million as of Oct. 31, 2015, according to a Securities and Exchange Commission filing.

Stage intends to run the stores under the Gordmans name, Glazer said. “Gordmans’ stores are a natural complement to Stage, bringing beneficial diversification and scale to our business, while creating synergies through the use of our current infrastructure,” he said. “By acquiring Gordmans, we believe that we have an opportunity to benefit from its off-price competencies, deep connection with a youthful customer, and strong home and gifts businesses. We are pleased to enhance our store portfolio with the most desirable Gordmans locations, giving Stage a strong Midwestern presence in markets generally larger than those we serve today.”