Frederick's of Hollywood Has New Controlling Owner

Mar 19, 2013 10:30 AM PST

HOLLYWOOD, Calif. — Frederick's of Hollywood on Monday said it received a $10 million infusion from Five Island Asset Management, giving the investment company a controlling stake in the sexy lingerie retailer.

Five Island, a unit of New York investment firm Harbinger Group Inc., bought 40 million shares of the company at 25 cents per share in the transaction, which gives it the right to appoint at least two directors to the cash-strapped lingerie brand’s board.  

"This capital infusion will play an important role in stabilizing our business and will allow us to improve sales by maintaining appropriate inventory levels in the categories our customers are looking for," said Thomas Lynch, the company's CEO said.

Lynch also said that, effective Friday, the company had terminated its employment agreement with Don Jones, the company's president and chief operating officer. Lynch will assume Jones' duties.

"We are disappointed by the operational and financial issues that have held us back from reconnecting with our customers, which led to sales results that were counter to much of the retail sector," Lynch said. "Therefore, we have implemented a plan to refocus on our lingerie products." 

Frederick's of Hollywood, with 117 stores, reported sales of $24.3 million in its second quarter announced today, posting a loss of $10 million.  

Through the past years, Frederick's of Hollywood has had a hard time differentiating itself and now competes with hundreds of retailers that have both a brick-and-mortar and online presence.

At one point in the past century, Frederick's of Hollywood was the Victoria's Secret of its time.

Entrepreneur Frederick Mellinger opened a lingerie business in New York in 1946 and the next year moved it to Los Angeles. Renamed Frederick's of Hollywood, the company soon became famous for its mail-order catalogs featuring pinups and curvy models.

In 1990 Mellinger died and his family sold its interest in the company in 1997 to an investment bank that took the company private. The company declared Chapter 11 in 2000, emerging from bankruptcy in 2003 and later going public in 2006.

In the past decade, the company diversified its inventory by selling sex toys but long ago it dropped that segment.

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