Merry-Go-Round Enterprises Inc. captured the Chess King men's clothing chain yesterday in a gambit that will expand its empire by almost 50 percent.
The Joppa-based retailer announced that it had reached a definitive agreement with Chess King's parent, Melville Corp., to acquire the 476-store division for an undisclosed amount. The companies said the deal was expected to be closed by the end of May.
Merry-Go-Round, which operates 990 men's and women's clothing stores in 38 states, said it would integrate Chess King into its Merry-Go-Round and Menz divisions. The deal would vault the company, which rang up sales of $877.5 million in the most recent fiscal year, comfortably over the billion-dollar mark.
The stock market greeted the deal as a coup for Merry-Go-Round. The company's share price jumped $2.25, to $17, on volume that was more than nine times the stock's daily average volume.
Chess King, which caters to teen-agers and young men with moderately priced sportswear, has been up for sale since it was designated for "reconfiguration" as part of a drastic realignment at Rye, N.Y.-based Melville. Sales have suffered for the past two years, with declining comparable-store sales.
Some Chess King division stores trade under the name Garage.
Steve Ashley, an analyst with Cleary Gull Relland McDevitt & Collopy in Milwaukee, hailed the move as "both near-term positive and long-term positive" for Merry-Go-Round.
Mr. Ashley said the deal fit neatly with Merry-Go-Round's pattern of acquisitions and turnarounds.
"They have a history of opportunistic and successful acquisitions," he said, adding that the Chess King chain came with an abundance of low-priced leases and only modest overlap with existing Merry-Go-Round menswear concepts.
Chess King's recent problems stemmed from a marketing strategy that emphasized lower-priced private-label knockoffs of hot brand-name items, Mr. Ashley said. The problem, he said, was that teens aremore image-conscious than price-conscious.
"You can't go to school when everyone's wearing Z. Cavaricci and be wearing Bob's Jeans," Mr. Ashley said.
In recent months, Chess King moved more into brand names and gained sales, he said.
Thus, the acquisition pre-empts a competitor that was on the verge of becoming a more formidable rival, Mr. Ashley said.
The deal could increase the number of stores operated by Merry-Go-Round by nearly 50 percent and leave it close to the 1,500 mark by year-end.
Melville, one of the nation's largest specialty retailers, announced in December that it would restructure or sell off Chess King and make severe cutbacks in its Thom McAn shoe chain and Kay-Bee toy stores.