Israeli fashion chain Castro exits Germany

Castro Model will write off a NIS 25.5 million investment in the venture.

Fashion chain Castro Model Ltd. (TASE: CAST) is leaving Germany, after co-CEO Gabi Roter announced that the board of directors had accepted management's recommendation to sell its holding in the German subsidiary, Castro Deutschland GmbH & Co. KG. Germany's Gerry Weber AG (XETRA: GWI1) will buy the venture for NIS 5.5 million and also assume the subsidiary's debts to employees and lessors of its stores.

The move is part of Castro's apparent withdrawal from overseas markets, after eight years and tens of millions of shekels in losses. Sources inform "Globes" that the company does not intend to renew the contract with its licensee in Thailand which ends in August, and that the company is looking for ways to wind down its operations in Kazakhstan.

Roter said, "For over a year, the German business has suffered from falling same store sales, which the company attributes to several main macroeconomic factors: the economic crisis in Europe, the erosion of the euro exchange rate, and the switch in Germany to discount stores and increased online shopping. In view of these factors, we realized that in order to make the German business profitable, we would need several more years of building the brand. We therefore decided to sell the company."

Roter said that while the sale would involve the writing off of a NIS 25.5 million investment, the company would see NIS 10 million in cash flow. He said that the sale would enable Castro to focus on strengthening its activity, and that the company also plans to sell its Swiss subsidiary.

Castro began operating in Germany in 2004. It operates 14 stores under the Castro label (six combined stores, and women's fashion and men's fashion stores).

Castro's share price rose 6.8% by mid-afternoon to NIS 64.50, giving a market cap of NIS 331 million.

Published by Globes [online], Israel business news - www.globes-online.com - on February 28, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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