Behind Celebrate Express’s Decision to “Review Strategic Alternatives”

Aug 24, 2006 2:38 AM  By

Bottom-line erosion at Kirkland, WA-based multititle mailer Celebrate Express, the discontinuation of its Storybook Heirlooms catalog and Website, and the hiring of a new CEO are some of the key factors behind the company’s recent decision to retain New York-based investment bank Cowen and Co. to “review strategic alternatives to maximize shareholder value, including a potential sale of the company.”

In other words, Celebrate Express is for sale. “When you retain Cowen and Co., that’s just a euphemism for selling the business,” says Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander. “That’s clearly what they’re going to do.”

For the fiscal 2006, ended May 31, Celebrate Express posted sales of $87.0 million, a year-over-year increase of 26%. But that’s where the good news ends. The company, which specializes in party supplies and costumes for children, reported net income of just $405,000, compared with $2.5 million for the previous fiscal year and $9.5 million for fiscal 2004. In June, citing poor sales and years of losses, Celebrate Express announced it would begin an “orderly discontinuation” of Storybook Heirlooms, its catalog of special-occasion apparel for girls. According to a statement, the brand accounted for about 10% of the company’s fiscal 2006 revenue. Celebrate Express also operates party goods merchant Birthday Express, the Costume Express Website, and newer titles First Wishes and Party Destinations.

CEO Kevin Green, who was hired in May, commented on the phasing out of the Storybook Heirlooms in the release in June. “After years of losses and a strategic evaluation of the marketplace for girls’ special occasion clothing, we have reached a decision to quickly wind down the operations of Storybook Heirlooms,” he said. “Our evaluation indicated that the company and its shareholders would be better served by reallocating internal resources previously directed to Storybook to focus on Birthday Express and the larger growth opportunity present in Costume Express. We expect this decision will have a favorable impact on fiscal 2007 earnings.” Green previously served as executive vice president/chief marketing officer for White Plains, NY-based personalized gifts and housewares cataloger Lillian Vernon Corp.

After looking at the 2006 financial figures for Celebrate Express, Battle says he understands why the company retained Cowen and Co. “I don’t really know much about its history, but I know the business these guys are in,” he says. “I don’t think it’s going to be an easy sell. This is one of the toughest segments in the catalog industry. We were involved in every kids’ company at one time. They’ve all struggled and never really gone anywhere.”

Not all industry watchers view the potential deal as a tough sell, though. Claire Gruppo, president of New York-based investment bank Gruppo, Levey & Co., says that Celebrate Express’s moves are emblematic of a company that has tapped out its organic growth, adding that the stock is under some pressure by shareholders. “The founder [Mike Jewell] has always had a vision for the direct to consumer space,” she says. “Over the last few years he bought a few businesses, such as Storybook Heirlooms, to sustain and grow, and it may be they have grown as much as they can on their own and it may be time to sell,” adding that individual parts of the business may be more valuable than the entire business.

But, she says, the timing is right for Celebrate Express to sell. “The fall is going to be strong, and although the values for sellers are not as high as they were a year ago, it’s still a seller’s market,” she says.