Five months after buying 26.4% of the Hoodies group of fashion brands, Castro Model Ltd. (TASE: CAST) is on the way to a partnership in the Urbanica chain. Sources inform "Globes" that Castro is in advanced negotiations for a partnership in the low-cost chain, which has an ownership structure similar to that of Hoodies, other than a Canadian partner. The chain's owners, however, have stated that this partners is not registered as a shareholder with the Registrar of Companies.
Yossi Gabison, an important partner in both Hoodies and Urbanica, said, "Urbanica has a partner, Michael Gold, who holds no shares. He came up with the idea, and is the main supplier."
Lengthy meetings took place in recent days with Castro CEO and controlling shareholder Gabriel Rotter. The negotiations between the parties is at a value of NIS 120 million for Urbanica, which is relatively high, considering that the chain's first branch was only founded 18 months ago.
At a Castro press conference held to announce the Hoodies deal, Rotter did not conceal his wish to become a partner in Urbanica also. "Considering our company's financial resources, we'll first move to exercise our option. For Urbanica, the decision is not ours, but we do want to cooperate in all the group's chains," he said.
The Urbanica chain inaugurated its first branch in May 2015 in Cinema City in Rishon Lezion. The branch covers 2,500 sq.m. on two floors. The chain has since opened four more branches: at Big Fashion Ashdod, Hanegev Mall in Beer Sheva, the Azrieli Mall in Tel Aviv, and Mall Hayam in Eilat. As far as is known, the chain has contracts for opening five additional branches.
Like the Hoodies group, Urbanica also has many partners, including Hoodies group head Gabison (31%) and Eli Gabi (21%). Other partners include Oren Bar-Gil, Nitzan Israeli, and Mariano Karp. Model Bar Refaeli and her mother, Tzipi, hold 2% and 1%, respectively, of both Urbanica and Hoodies.
Marketing of the Urbanica chain is based on the Bar Refaeli brand, with all that implies. Refaeli is a presenter for Urbanica, in addition to being a presenter for Hoodies group chains Hoodies and Carolina Lemke.
The inspiration for the Urbanica chain is the successful Freemark chain in Europe, although there is not much resemblance between the two chains. Urbanica offers family-oriented fashions, including for nursing mothers and older people. Items in the stores include basic fashion, eveningwear, sports clothes, lingerie, shoes, jewelry, bags, and accessories.
Gabison previously said that Urbanica's sales amounted to NIS 180-200 million annually, and its gross profit margin was 40%.
When the chain was launched, Gabison admitted, "The inspiration is Freemarket. There are other such companies in the sports segment selling high quality at a low price. I have been shopping at Freemarket for many years, and I know it well, but there's no imitation here. My concept is to sell good quality cheaply. The prices are very close to Freemarket's UK market - prices at Urbanica are half those at H&M. Urbanica will influence them all, including the bazaars and the fashion companies. We'll definitely open more than 10 stores." Gabison predicted at the time that the chain's annual sales turnover would reach NIS 600 million.
Senior shopping mall sources commented, "Urbanic a is filling a need. They aren't reinventing the wheel, but they are fulfilling a need. In quality, it depends what you compare them to. If you compared them to Castro, then the quality is obviously lower, but if you compared them with unbranded discount chains, the quality is better, and Urbanica provides a shopping experience. Urbanica started out with a big success, but it was followed by a decline. Now they're trying to improve it."
Hoodies deal at NIS 356.4 million value
Castro paid NIS 75 million for its 26.4% stake in the Hoodies group, reflecting a NIS 356.4 million company value, before money.
The Hoodies group includes the Basic Hoodies fashion chain (77 branches), the Top Ten fashion accessories chain (75 branches), the Carolina Lemke eyeglasses chain (73 branches), and a franchise for the Accessories international chain (17 branches).
Castro paid the sellers NIS 53.75 million in cash, injected NIS 21.25 million more into the Hoodies group, and allocated the sellers 4.99% of the shares.
In exercising its option, Castro will pay NIS 100 million more, including NIS 78.75 million directly to the shareholders and a NIS 21.25 million injection into the group. As part of the deal, the Hoodies group undertook to distribute 50% of its profits as a dividend.
Controlled by the Rotter family, the Castro fashion chain has a NIS 585 million market cap. The company last week reported good third quarter results, with revenue rising 8.4% to NIS 253 million, operating profit up 36.4% to NIS 9 million, and a 57% increase in net profit to NIS 7 million. The increase in sales was accompanied by 3.7% growth in same store sales.
Castro's revenue rose 10% to NIS 734.4 million in the first nine months of the year, its operating profit grew 26.7% to NIS 35.1 million, and its net profit jumped 36.8% to NIS 26 million.
Castro said, "It is no secret that Castro wanted Urbanica, and still wants it, but the matter depends on Urbanica's Canadian partner, as we have said before. No negotiations are currently taking place in the matter."
Published by Globes [online], Israel business news - www.globes-online.com - on November 27, 2016
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