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Quick Hits: Steve and Barry's Goes Bust


Brief scrutiny of today's headlines.

Wal-Mart (WMT). Costco (COST). Steve & Barry's. Which discount retailer is not like the others?

The answer: Steve & Barry's. Not because it's a lesser-known name, or because it's a private company, but because -- at a time when discount giants Wal-Mart and Costco are reporting sales increases -- casual apparel clothier Steve & Barry's is going bankrupt.

It's an odd concept: A retailer defined by its low prices goes bankrupt at a time when everyone's looking to save. Rising fuel and food costs, which have forced consumers to rely on bargains, along with the spending of rebate checks, allowed Wal-Mart and Costco to increase same-store sales last month. You'd think a company whose stated mission is to offer "the highest quality merchandise at astonishing low prices" would be in the same boat.

But even though their highest-priced item costs $10.98, Steve & Barry's isn't bringing in enough profit to stay afloat. Last Wednesday, the company filed for Chapter 11 bankruptcy, telling the court that it has "no available cash and no debtor-in-possession financing."

The inability to secure debtor-in-possession financing -- a bankruptcy loan -- makes it unlikely that Steve & Barry's will be able to bounce back.

The company has opted to sell its assets, or what's left after GE Capital (GE) and PrenSB -- who both loaned Steve & Barry's over $200 million in the past few months -- make their claims.

Analysts believe Steve & Barry's profits were so poor compared to other discount retailers because it only sold clothing, didn't offer online shopping and expanded too quickly.

The only hope for saving Steve & Barry's would be a buyout of either the company or particular clothing lines. Rumors of a buyout by Sears (SHLD) are swirling, though any large retailer looking to tap into the college demographic could profit.

If the end is indeed nigh for Steve & Barry's, casual clothing aficionados worldwide may be forced to shell out quite a bit more for similar products at American Apparel (APP).

Maybe a business model built on sex trumps one built on bargains.
No positions in stocks mentioned.

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