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Owners of Judy's Consider Selling Clothing Chain for $31 Million

June 27, 1989|JOHN MEDEARIS | Times Staff Writer

Judy's, the Van Nuys-based clothing store chain, is holding discussions about selling the company to an unidentified, out-of-state clothing concern in a $31-million deal.

As part of the agreement announced Monday, the Israel family, which controls 78% of Judy's stock, will not sell its shares to another company for 110 days. The unidentified party has tentatively agreed to pay at least $6.71 per share of Judy's stock, according to Marcia Israel, Judy's founder and chief executive.

Judy's stock closed Monday at $5 per share, which was down 25 cents.

According to the agreement, if the would-be buyer doesn't go ahead with the deal or offers less than $6.71 a share, it will have to pay Judy's up to $150,000. If the Israels refuse a bid of at least $6.71 per share, they would have to pay the proposed buyer's transaction costs up to $600,000.

Israel said negotiations with the unidentified company began early in June. Israel, 68, said she was willing to sell the company because she didn't believe that she had sufficiently skilled managers in place who would be able to succeed her. And having to groom new managers would take some time. "It would be a long haul, and none of us is immortal," Israel said. Her husband, Lawrence Israel, Judy's chairman of the board, is 72.

The Israels own their 78% of Judy's stock along with their two daughters. It would be worth about $24 million at the $6.71 a share buyout price.

If the takeover goes through, Marcia Israel will step down as Judy's chief executive officer and will be paid $1 million over five years as part of a one-year consulting and non-compete agreement.

Terms of the tentative agreement call for the buyer to acquire all of Judy's outstanding stock but to continue to operate the chain under its current name.

The timing of the possible takeover comes as Judy's has been struggling to boost its profits after several poor years. Judy's was founded 40 years ago by Israel, who at the time was a model. She said she was inspired to open her own store because she couldn't find anything she liked to wear. For many years, she seemed to have a gift for knowing what young women wanted to wear.

As recently as the fiscal year that ended in January, 1986, Judy's turned a $1.2-million profit on sales of $56.7 million. But since then, Israel seems to have lost her touch. Judy's profits slid to $426,000 in 1987 and to a mere $7,000 in 1988. For its latest fiscal year, which ended in January, the company would have lost $248,000 were it not for a tax adjustment. Meanwhile, sales essentially have been flat for four years. In the quarter that ended in April, Judy's lost $195,000.

"It was a terrible, terrible letdown to go 40 years with terrific profits and then have these two years," Israel said.

For whoever winds up with control of Judy's, the major problem will be how to cope with the company's chief market, a notoriously fickle group of consumers called "juniors." Today, the Judy's chain consists of 70 women's clothing stores and 34 men's clothing stores in five Western states, chiefly California. Both the men's and women's stores sell sportswear and accessories.

Judy's is best known for selling moderately priced but trendy clothes that attract not only teen-agers but women in their 30s and even 40s who can fit into the slim-cut, stylish clothes.

Plenty of Competition

Joel Knapp, president of Judy Knapp, a Los Angeles clothing manufacturer, said Judy's has plenty of competition, including other retailers such as Contempo, Cherokee and the billion-dollar chain The Limited.

Another local fashion industry observer said: "Judy's is getting squeezed by the titans who really have their act together. And they're getting squeezed by the up-and-comers who are doing innovative marketing. A store like Judy's that has been around awhile is going to lose some market."

Marcia Israel blames the company's recent slide on her decision to delegate clothes-buying authority a few years ago. She said she took that step because of repeated criticism of her management style. "The industry said it was a one-man show," Israel said. "The retailers, manufacturers kept saying I didn't know how to delegate.

"It turns out that I was right; they were wrong," she said.

Buying Problems

Israel said delegating too much authority meant that Judy's suffered through several years of chronic overbuying and underbuying, leading to markdowns and low sales.

Israel also believes that her stores lost the sharp definition it takes to appeal to her customers. "When the customer becomes confused about what she's going to find at a particular store, you lose ground," she said. "The customer walks away."

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