Seeking to boost sales to college students, denim purveyor American Eagle Outfitters Inc. (NYSE: AEO) is buying Tailgate Clothing Co. and Todd Snyder New York for $11 million in cash and stock.
Led by aparel designer Todd Snyder, Tailgate sells vintage-style t-shirts and other clothes and accessories featuring college sports teams and mascots, such as the University of Iowa’s Herky the Hawk. In an innovative retail move, Tailgate has opened up shops near university campuses, in addition to selling its wares online.
"Our new Tailgate store concept is an ideal outlet to integrate AE jeans and apparel," said Snyder, who is joining American Eagle as executive vice president, working under Chad Kessler, American Eagle global brand president. Snyder’s long-time partner Jimmy Olsson is also joining American Eagle as vice president and will continue to lead the day-to-day operations of Tailgate and Todd Snyder New York.
Before launching Tailgate in 1997, Snyder served in a variety of design and executive roles at Polo Ralph Lauren (NYSE: RL), the Gap Inc. (NYSE: GPS) and J.Crew. Snyder launched his namesake collection in 2011. Todd Snyder New York offers a premium menswear collection, sold in department stores, boutiques and online.
"Capital investments in the Tailgate and Todd Snyder brands will be paced, with a test-and-scale approach, based on profitability and return on investment,” said Jay Scottenstein, interim CEO of American Eagle.
American Eagle has been staging a comeback since closing 150 stores in 2014. In tandem with the acquisition announcement, the company reported that comparable sales increased 9 percent in the third quarter. (Full Q3 results are scheduled for release on Dec. 2.) “In a highly challenging retail environment, we are extremely pleased to see our AE and Aerie brand customers respond positively to product and quality enhancements. We continue to experience greater full-priced selling and less promotional activity, resulting in profit margin expansion,” said Schottenstein. “As we look ahead, we are optimistic about the upcoming holiday season and will continue executing customer-focused initiatives while delivering returns to shareholders.”
Pittsburgh-based American Eagle is known primarily for denim, and sells other apparel for men and women. The business has been working to restructure as a shifting consumer environment hurts many teen apparel brands. For more on the problems plaguing retailers, including American Eagle, see American Apparel's Bankruptcy Underscores Challenges for Retailers.
But unlike some of its peers, American Eagle's turnaround seems to be working. For the second quarter, American Eagle posted a 20 percent profit increase, year-over-year, driven by an 11 percent increase in sales. The increases looked particularly strong because of how weak numbers were before (American Eagle had a 7 percent sales decline in the second quarter of 2014). The brand has been helped by strong sales from the lingerie segment, Aerie, which had an 18 percent sales increase, year-over-year, in the second quarter.
Changing consumers shopping habits, e-commerce and the rise of fast fashion from competitors including Zara, H&M (STO: HM-B) and Forever 21, have posed problems for many retailers. Los Angeles-based American Apparel Inc. filed for bankruptcy in October, reeling from the challenges, as well as lawsuits from ousted founder Dov Charney. Surfwear brand Quicksilver also wound up in bankruptcy, filing in September with plans to sell. Mall-based retailer Wet Seal filed for Chapter 11 in January, and was eventually acquired by turnaround specialist Versa Capital Partners.
For a list of struggling companies, see Mergers & Acquisitions' Distressed Company Watch List, and for the previous edition of Turnaround Tuesday, check out Struggling Rewards Biz Viggle Operates with Another New Loan.