- The Washington Times - Monday, May 30, 2005

Washington online bookstore company Varsity Group Inc. last week bought Campus Outfitters LLC, a College Park uniform company, for $3.8 million in cash, stock and assumed liabilities.

The company said Thursday it had purchased privately held Campus Outfitters, which is the main uniform provider for more than 300 private schools across the country.

The deal comes as Varsity Group, which started its business selling textbooks online to college students, continues to focus its business as the main online bookstore for private schools.

The company, with 40 employees prior to the acquisitions, served as the online bookstore for 345 private schools by the end of 2004.

Chairman and Chief Executive Officer Eric Kuhn said the acquisition will expose Varsity Group to private schools in which the company had no previous business.

Campus Outfitters has “a strong presence in the Washington and Baltimore markets, North Carolina, Cincinnati and other areas we have looked at and had difficulty accelerating growth,” Mr. Kuhn said in a recent conference call.

The company’s stock rose 3 percent on the Nasdaq Stock Market to close at $5.92 on Friday.

Varsity Group’s shares, which have been listed on Nasdaq since September, closed at $5.80 a week earlier. The markets were closed yesterday for Memorial Day.

Despite the positive outlook, Varsity Group two weeks ago reported a greater loss for its first quarter ended March 31. The quarter’s loss widened to $502,000 (3 cents per share) from $351,000 (2 cents) a year earlier.

The company cited its seasonal business trends, with the July-to-September quarter traditionally bringing in 85 percent of annual revenue, overhead costs and expansion investments for the larger loss.

Quarterly sales rose 29 percent to $2.34 million from $1.82 million a year ago.

Analysts were optimistic about the acquisition, saying Campus Outfitters will bring more customers within Varsity Group’s main market.

“This acquisition also will allow Varsity to expand its future offerings” to include products like backpacks, said Hank Wilson, a research analyst with Los Angeles investment bank Seidler Cos. Inc.

Mr. Wilson, who rated the company as a “buy,” said school-uniform sales are a high margin product that students at private schools typically must buy.

“I also like that both of the companies are located close to each other,” which could mean smoother merger process, he said.

Mr. Wilson does not own any Varsity Group stock and Seidler does not have a banking relationship with the company.

Terese Fabian, an analyst with New York equity research company Sidoti & Co. LLC, raised her 2006 earnings per share estimate after the announcement from 31 cents to 35 cents.

“There is little school overlap between Varsity and Outfitters,” said Ms. Fabian who also advised investors to buy.

Ms. Fabian does not own any Varsity stock and Sidoti has no business with the company.

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