California Apparel News

Nautica Enterprises Inc. announced this week that an agreement has been met to acquire Los Angeles-based Earl Jean Inc., a privately held, rapidly growing designer, manufacturer, wholesaler and retailer of women’s contemporary sportswear and jeanswear.

“We’re not sure how the added security and [financial] changes will affect our lives,” said Earl Jean co-owner and head designer Suzanne Costas Freiwald. “I’m excited and it feels kind of surreal.”

The deal—reportedly a cash and stock transaction estimated at $45 million in cash and 1,122,271 shares in stock, according to a Nautica Enterprises press release—is the latest attempt by Nautica to expand its presence in upscale specialty retail.

According to Nautica’s company statement, the acquisition, which is expected to close at the end of the month or in early May, also includes a rollout provision with a potential to earn up to $21 million over 10 years.

Freiwald said Earl Jean, whose net revenue reached $28.9 million last year, up from $13.8 million in 1999, will have no problem hitting that mark.

“Both Earl Jean and Nautica have the same goals and the rollout just reflects those feelings on those goals,” she explained. “We don’t have plans to enlarge our distribution. We’ve worked really hard on it and we’re happy with it. Right now we’re meeting our customers’ needs.”

Freiwald said some of the new product categories Earl Jean will add in the near future will be lingerie and footwear.

“For the most part we’re going to hold where we are,” she said. “We’re not going to roll out 50 or 60 new stores—just a couple.”

Freiwald said Nautica’s plans for Earl Jean includes two new retail stores, one in New York, the other in London.

Some industry sources believe it’s a perfect match. Nautica has already demonstrated its ability to support better brands in the specialty channel of distribution with its John Varvatos brand, which launched in Fall 2000. The line has already exceeded the company’s initial expectations in retail, Wayne Marino, chief financial officer of Nautica Enterprises Inc. told California Apparel News. “It’s a small business,” he said, “but [the line] is currently being sold in 42 specialty stores and it’s been well received by retailers everywhere.”

Marino said the steady growth of the John Varvatos brand was a contributing factor in the acquisition between Nautica and Earl Jean. According to Marino, the Freiwalds had been keeping a close eye on Nautica’s business, confirming that the Nautica-Earl Jeans deal has been in the works for several months now.

Marino said co-owner Ben Freiwald told [Nautica’s executive officers] that the couple were “looking for an entrepreneurial, spirited company that boasted simplicity, quality and integrity.” Marino said the company’s reply was, “That’s us.”

Suzanne Freiwald said Earl Jean will operate as a subsidiary unit of Nautica Enterprises Inc. after the acquisition is completed. The couple signed a long-term employment contract and will continue to oversee the day-to-day operations as well as contribute to the company’s direction.

Earl Jean was founded in 1996, when Suzanne Freiwald designed her first pair of low-rise, bootleg jeans. Freiwald said being a family-run business was a good experience, but as the company grew larger at a fast pace the couple began to feel vulnerable without financial backing and “wanted to eliminate the financial risks.” Freiwald said sourcing was also a serious issue.

“Because we were one of the smaller denim companies, we weren’t a priority [with denim suppliers],” she said. “Now we’re able to move a lot faster. We’re bigger and we’re protected.”

Suzanne Freiwald said the couple’s decision to go with Nautica came after Earl Jean received several offers from strategic buyers who owned other brands, as well as other financial buyers.

Earl Jean’s sportswear line, which focuses on teens and young professionals, includes knits, blazers, wovens, jackets and underwear. Earl Jean’s slim-fitting, Western-style denim line is retail priced between $110 and $130; sportswear sells for $100 to $200.

Almost 50 percent of Earl Jean products are sold overseas, primarily in Canada, Europe and Japan. In addition to the company’s Los Angeles store, Earl Jean is sold at department stores including Neiman Marcus, Saks Fifth Avenue and Nordstrom as well as specialty retailers.

Suzanne Feiwald said the company will keep its staff of 60 and continue to be based in Los Angeles.