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Specialty Fashion rescues Rivers

Retailer Specialty Fashion Group (ASX: SFH) has announced that it has acquired iconic Australian apparel brand Rivers.

Specialty Fashion is the largest specialty retailer of women’s fashion in Australasia with brands including Katies, Millers, Crossroads and City Chic. The company operates around 900 stores in Australia and New Zealand.

Rivers is a well-known Australian brand, which started off as a shoe manufacturing business. Today it has around 160 stores across Australia. Specialty Fashion says that Rivers is the favourite footwear brand of its Millers’ customers, and with 50% of men’s clothing purchases made by women, the group has a unique opportunity to leverage its seven million strong customer database.

Specialty Fashion also says that it gives the company an opportunity to enter into value footwear, men’s and children’s clothing. Specialty Fashion is paying $5 million for the purchase of Rivers, which will be funded through cash, and came at a discount to the book value of Rivers’ assets. The company says Rivers will add an additional $180 million of revenue and expects to generate around $10 million in cost savings by 2015.

Given the purchase price comes at a discount to its assets, it appears that Rivers was struggling to make a profit in recent years. Specialty Fashion will also invest around $4 million in resources on an annualised basis by 2015, to deliver improvements in Rivers performance through better inventory management and overhead savings.

Investors certainly like the acquisition, with Specialty Fashion shares rising more than 10% in mid-morning trade to 87 cents. Before the move, shares in the company were trading on a P/E ratio of around 11.3 times, and the company was paying a fully franked dividend yield of over 6%.

Foolish takeaway

Specialty Fashion will be hoping it can turn around Rivers in the face of intense competition from the likes of Big W – owned by Woolworths (ASX: WOW), K-mart and Target – both owned by Wesfarmers (ASX: WES), as well as department store Myer Holdings (ASX: MYR) and a host of smaller clothing and footwear retailers. With an immense customer database, Specialty Fashion may well be able to reinvigorate the Rivers brand.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

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