On Sept. 30, Backwoods Equipment Company and publicly traded Nitches Inc. (Nasdaq: NICH) agreed to undo the acquisition deal the two consummated on Feb. 1 (click here to read SNEWS story) by returning all shares of stock to each other's respective company.
In an SEC filing by Nitches, the company stated, "As reported on our Current Report on Form 8-K filed with the SEC on February 7, 2008, on February 1, 2008, we acquired all of the issued and outstanding shares of Backwoods from Ms. Mull in exchange for 360,000 shares of our common stock. The Exchange effectively unwinds that acquisition. We've operated Backwoods since February 1, 2008, with the intention of expanding the retail business. However, the recent uncertainty in the credit markets has rendered it more difficult and costly to finance the working capital requirements of the business and secure desired expansion capital. In connection with the Exchange, all liabilities associated with Backwoods are being transferred with the business. In addition Ms. Mull has agreed to indemnify us for any liabilities arising out of the operation of that business."
While the public statement gave the uncertainty in the credit market as the reason for the acquisition being undone, Backwoods CEO Jennifer Mull told SNEWS® that there was more to the parting than simply that. In fact, Mull revealed the two companies had been discussing the details of a separation for over two months, dating back to late July.
One only has to look at the third-quarter earnings report for Nitches released in July to see that things for the company were not very rosy. While the company realized a net sales increase, it acknowledged much of that was due to the inclusion of Backwoods' results for the quarter. The company also acknowledged that mergers, store closings and bankruptcies were affecting its wholesale customer base.
In addition, Nitches CEO Steve Wyandt stated in the third-quarter summary report, "…the persistent poor gross margin performance of our wholesale business reflects the pressures we are facing from high costs of supply with no commensurate increase in wholesale prices, as well as our exposure to credit losses and markdown claims from retailers."
Mull told us that when she agreed to sell Backwoods to Nitches, she felt that it was the best decision given that Nitches would be able to provide a secure source of consistent working capital to fuel her plans for expansion and the launch of a new e-commerce website. It wasn't too long, however, before it became clear to both Mull and Nitches executives that the economic climate was not going to allow things to go according to plan. Nitches simply could not afford to provide the capital that Mull needed to continue operating.
"When the piece of the agreement to provide us working capital for growth fell through, both of us felt like it made sense to unwind the deal," Mull told SNEWS. "We are still going to work together on licensing projects as we did before."
For Backwoods, Mull said that the company was very healthy and she was back working with the same bank credit facility her company had used prior to the acquisition.
"We are working with a bank that we have had a long working relationship with both professionally and personally, so that is good," said Mull. "They saw us through a very tough time five or six years ago when we were reinventing ourselves and are familiar with our business. We anticipate reaching $12 million in overall sales this year with same-store growth continuing to rise at double digits, which also helps to convince a bank to support you."
In late July, Backwoods opened a two-story, freestanding store in the West 7th development project in Fort Worth, Texas, that features retail, office, hotel and residential space. At 14,000 square feet, the store footprint almost triples the size of Backwoods' previous location and makes that store the largest in the eight-store chain.
Mull told us that the company is also on track for a late October 2008 opening of a 10,000-square-foot Backwoods store in the Corbin Park development in Kansas City, Kan. -- a lifestyle mall featuring upscale national retailers, local boutiques and premier restaurants.
When completed, the mall will feature over 1.1 million square feet of retail space serving nearly 200,000 people in the surrounding community, where average household income exceeds $160,000 annually. It is likely too that the 2.3 million residents of the greater Kansas City area will also shop or at least visit the mall once opened.
Sometime in mid-November, Mull expects the new Backwoods.com website to go live as well, to capitalize on the Internet's influence for driving holiday sales. "We will have a completely separate inventory for our online store, and it will be fulfilled by the Nitches warehouse in Reno, Nevada," she said.
And, despite the gloom and doom of recent economic news, Mull is moving forward with the development of a new Backwoods store in The Meadows at Lake St. Louis in St. Louis, Mo. The open-air lifestyle mall will feature approximately 260,000 square feet of specialty stores, smaller-scale anchor stores and restaurants. Mull anticipates opening the store on schedule in March 2009.
Another program Mull's team continues to develop is a full-line, private-label Backwoods Collection program with clothing and equipment. Mull declined to divulge details regarding products as several companies were still not under contract, but she did reveal that the Backwoods Collection would soon include a line of leather luggage manufactured by Mulholland Brothers, a maker of luggage and briefcases located in San Francisco.
Mull is high on the luggage line she told us because the adventure travel market generates a significant amount of business for Backwoods. Backwoods Adventures, the retailer's own travel program, continues to show growth and trips were filled to 90 percent for 2008. While the program itself influences the bottom line for the retail store only slightly, Mull asserted that as a whole, adventure travel drives significant revenue.