Investors have struggled through a tough September, but it appeared that Wall Street might be aiming to end the month on a positive note. Major market benchmarks rebounded at midday on Thursday, with the Nasdaq Composite leading the way with a gain of nearly 1% just before noon ET.
Among winning stocks, Peloton Interactive (PTON 4.29%) got a lot of positive attention as the ailing interactive fitness equipment pioneer entered into what could be a lucrative partnership with a top athletic retailer. Elsewhere in retail, Chico's FAS (CHS) was the big winner, as value investors in the private equity world appear to believe that prices have gotten so low that there are smart deals to be made. Here are all the details.
Peloton pairs up with Lululemon Athletica
Shares of Peloton Interactive were up 5% at midday after having been higher by double-digit percentages earlier in the trading session. The maker of bike and treadmill equipment announced a strategic deal with Lululemon Athletica (LULU 1.31%) late Wednesday that inspired hope that the long-ailing Peloton could finally get its footing again.
Peloton and Lululemon agreed to a five-year strategic global partnership. Under the terms of the deal, Lululemon agreed to allow Peloton to be its exclusive provider of digital fitness content, while Peloton agreed to make Lululemon its primary athletic apparel partner. The intent of the deal is to bring together the two companies' communities of customers, which span the U.S., Canada, the U.K., Germany, and Australia. Lululemon expects to recruit some ambassadors from the ranks of Peloton's fitness instructors.
Lululemon has worked on providing digital content to its own customers, and the strategic move should open up a huge library of available training options. Meanwhile, cobranded Lululemon products appearing at Peloton retail stores could help drive more traffic to those locations, which could benefit both companies.
Interestingly, the move comes as Lululemon has pivoted away from its own Mirror interactive fitness platform. Having suffered large impairment losses following the Mirror acquisition, Lululemon has found a creative way to deliver interactive content to customers without letting that content distract from its core retail mission.
Chico's gets a buyer
Shares of Chico's FAS, however, saw much larger gains. The apparel stock was up more than 60% as shareholders celebrated an acquisition bid.
Chico's entered into a definitive acquisition agreement with private equity company Sycamore Partners. Sycamore will pay roughly $1 billion to take Chico's private, with the deal terms paying shareholders $7.60 in cash for every Chico's share they own. That's 65% above the closing price from Wednesday afternoon.
For Chico's, the value of having access to capital is huge. As CEO Molly Langenstein explained, the Chico's, White House Black Market, and Soma brands all stand to benefit from Sycamore's expertise. For Sycamore, meanwhile, the ability to unlock value in working with Chico's and its extensive store network appears to be a lucrative opportunity.
Even at the offer price, Chico's is ready to sell itself at roughly 10 times forward earnings. That shows just how much uncertainty there is about the consumer economy right now, and while traders might be pleased to get a quick payout, long-term investors might end up seeing the acquisition as bittersweet if Chico's ends up thriving as a privately held retailer.
