Gottschalks Considers Sale

FRESNO, CA-The management of West Coast department-store chain Gottschalks is considering a sale of the company, among other strategic alternatives. In efforts to increase shareholder value, the retailer is also considering "a revised business plan, operating partnerships, joint ventures, strategic alliances, share repurchases and a recapitalization," according to a company statement.

The chain, with 61 stores in six West Coast states, has formed a strategic alliance of board members to consider the next action it will take. Management says it will not reveal progress on the transition until an agreement has been finalized.

In its most recently reported quarter, which ended on July 29, the company posted a year-to-date loss of $3.5 million. Same-store sales for the quarter were up 1.1% year over year. Since then, same-store sales dropped 0.1% in August and September and were up 1.4% in October.

Gottschalks opened a 124,000-sf store in Eugene, OR during the current quarter, which replaced a former Macy's. This quarter the chain also closed two stores, a 42,000-sf unit in Danville, CA and its last store in the Seattle Metro area, at Simon Property Group's Northgate Mall.

Mark Montagna, vice president of specialty retail at New York City-based research firm CL King & Associates, tells GSR that a potential buyer for Gottschalks could be a group of private-equity firms, similar to the deals in which retailers like Lord & Taylor and Toys "R" Us have been recently acquired. A possible deal could involve a joint venture in which one firm is interested in the retail business and the other is focused on real estate.

A report issued by Montagna values Gottschalks between $12.80 and $24.46 per share. "Considering the growth characteristics we believe exist, we believe the company should be taken over toward the higher end of the range," the report says. The company's stock, which closed at $9.77 yesterday, is trading close to $11 per share.