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Private equity and strategics circle Kitson

by Richard Collings | Published May 3, 2013 at 9:09 AM

Kitson, famous for filling Hollywood celebrities' shopping bags and being at the end of paparazzi camera lenses, may find itself snatched off the shelf as it evaluates private equity and strategic interest.

The California retail chain's chief Christopher Lee, a veteran executive of Forever 21 Inc., said Thursday that the company is considering proposals from several private equity firms and strategics.

One interested party is a troubled retailer looking for a growth opportunity to revive its prospects, the CEO said, although he declined to name the company.

Lee's comments came on the heels of the Hollywood, Calif.-based retailer, incorporated under the name A-List Inc., obtaining an asset-backed loan of $15 million from Needham Heights, Mass.-based midmarket lender Salus Capital Partners LLC in a deal that was completed this week. As a result of the loan from Salus, Kitson has time to evaluate the proposals, Lee said.

The loan will also fund the company's expansion, roughly doubling its total retail square footage from its current 40,000, adding to its 15 doors domestically.

Andrew Moser, Salus' president, said that the loan was made due to Kitson's strong brand name, known domestically and internationally, as well as the retailer's ability to incubate new brands.

The investment was also made due to the firm's confidence in the retailer's management team, as Lee and CFO Ann Cadier Kim have a proven track record at Forever 21, he said.

Lee brought Kim on board after he joined Kitson in 2011.

The reason that Kitson could be of interest to a struggling retailer is because of its 15 U.S. locations -- the company operates its domestic locations, although not its foreign properties -- in high-end Los Angeles neighborhoods such as Malibu and Santa Monica.

So, if a strategic buyer wanted to convert its own stores or excess real estate to the Kitson concept, the opportunity would be available, Lee said.

Some of the apparel retailers that have encountered headwinds over the past few years include Bebe Stores Inc., Wet Seal Inc. and American Apparel Inc., not to mention Hot Topic Inc., which was acquired by New York private equity firm Sycamore Partners LLC for about $600 million on March 7.

Kitson plans to double its store count every year for the next three years, Lee said.

Speaking at The Next Great Consumer Brands Showcase conference in New York presented by investment bank Consensus Advisors and Nasdaq OMX Group Inc. on Wednesday, Lee described his background as senior vice president of Forever 21. He was a close adviser to company founder and CEO Do Won Chang and one of his main responsibilities was to manage the chain's real estate operations.

Kitson, which has been described as a higher end Urban Outfitters Inc., generated about $30 million in revenue in 2012. Total sales at retail generated by its stores both in the U.S. and overseas was about $40 million. It expects to generate Ebitda this year, conservatively, of roughly $4 million, Lee said.

Revenue, as a result of new stores and new licensing partners, is expected to grow by a minimum of 50% to about $45 million, he said.

Kitson generates $700 a square foot in sales to above $1,000 a square foot in its store at Los Angeles International Airport.

Kitson was founded by Fraser Ross, who remains the key owner in the business. Lee also became an owner when he joined the company as CEO.

One of the things Kitson has become known for is recognizing brands early on that prove a hit with consumers.

Lee described Ross as one of the great merchants in the novelty and gift space. Kitson was the first store to carry True Religion, he said. The deluxe denim brand later went on to open its own retail chain.

Today the retailer is betting that exclusive brands it carries, such as Homies, a casual apparel brand for men and women, and Wildfox Couture, a women's knitwear line inspired by American vintage, will be the next big things.

In addition to its U.S.-based stores, Kitson also has stores overseas in Japan and Korea, and sells merchandise online.

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Private equity and strategics circle Kitson

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