Dress Barn-Tween Brands Marriage Not As Weird As You Think

The recent news that Dress Barn is acquiring Tween Brands in a $157-million deal left some industry observers scratching their heads. What would a retailer that outfits working women want with a group of chains targeting girls that are teen-aged and younger?

On the surface, it makes very little sense, especially given that many retailers are shutting down off-shoot concepts in favor of concentrating on their core chains. But some closer examination shows that this acquisition isn't all that out there.

First of all, Suffern, N.Y.-based Dress Barn already made a successful non-core acquisition in 2005 when it acquired Maurices, a chain geared toward women ages 17 to 34 residing in small markets. Fast forward to Dress Barn's latest quarter, and Maurices now operates 707 units, up from 464 stores at the time of the acquisition, and posted a five percent same-store sales gain in a very tough retail environment. So though Tween is more of a stretch, Dress Barn's got a track record of making these things work.

It also doesn't hurt that Dress Barn's $6.27-per-share acquisition is considered a good deal. "This is a steal by DBRN considering they were able to buy a premium brand for about 85 percent lower than its peak valuation," Seeking Alpha contributor "Stone Fox Capital" wrote. The acquisition even got some lawyers chomping at the bit, hoping that shareholders would feel cheated by the deal.

This transaction is taking place in the midst of New Albany, Ohio-based Tween's transition of its 900 stores from the Limited Too chain to the lower-priced Justice brand. Robin Murchison, a retail analyst with SunTrust Robinson Humphrey, wrote in a recent report about the deal: "We continue to be buyers of DBRN as we believe the merger dovetails nicely with the current strategy to offer value priced merchandise to under-served markets and customers."

Finally, Mike Rayden, Tween's chief executive officer who is staying on to head up the Justice stores, explained that Tween's customers are the children of women who shop at Dress Barn and Maurices. "I'm sure there will be synergies by combining these three large databases to better communicate to the customers and take advantage of where the overlaps may come," Barron's quoted him as saying during a recent conference call (not yet transcribed online to the best of my knowledge).