Right Start Hopes Next Step Will Be on Wall Street : Mail order: The catalogue company has seen rapidly growing sales in children’s merchandise. Now it hopes its initial stock offering will finance expansion.

The excessive yuppie spending of the 1980s is supposed to be over, supplanted by a 1990s financial conservatism. Not exactly the setting one might expect for a successful mail-order marketer of upscale children’s items.

But don’t tell that to the marketer, a Westlake Village-based company called The Right Start Inc. The company not only is recording rapidly growing sales, it’s also trying to get off on the right foot on Wall Street with an initial public stock offering.

Right Start, founded in 1985 by Stanley M. Fridstein and Lenny M. Targon, has been owned since 1988 by American Recreation Centers Inc. (ARC), a Sacramento-based concern that also operates 27 bowling centers in California and Texas. Fridstein, 37, and Targon, 45, still head Right Start as president and chief executive, respectively.

In the offering, ARC hopes to sell 2 million common shares, or 33%, of Right Start to the public at a price between $5 and $7 a share, providing Right Start with gross proceeds of up to $14 million, according to its stock-registration filing with the Securities and Exchange Commission.

Proceeds from the stock sale would be used largely for Right Start’s expansion, which includes an aggressive acquisition strategy that calls for Right Start to buy three to five other catalogue operations by 1996. The company also plans to open at least one retail outlet.

The offering’s proceeds also would be used to pay a $2.7-million dividend to ARC that effectively is part of ARC’s reward for helping fund Right Start’s recent growth. And if the stock sells for, say, $7 a share in the offering, ARC’s remaining 67% stake would have a market value of $28 million.

Not a bad return on investment, considering that ARC bought Right Start only three years ago from Fridstein, Targon and others for $3.3-million worth of stock. Fridstein and Targon also continue to each hold options for 450,000 shares of Right Start that eventually could produce big profits.

Whether Right Start can continue generating sizable returns for its investors will depend in large part on how much the nation’s parents--and their parents--can afford to spend on the type of children’s items peddled by Right Start.

They’re offered all sorts of gadgets for infants and young children, with each catalogue typically carrying about 300 items ranging in price from $5 to more than $250. Right Start acquires the goods from 160 vendors.

The products range from the more basic (drinking cups, strollers, car seats, mobiles and the like) to the relatively upscale ($169 three-wheel cycles pushed by jogging parents, $120 motorized cradles) to educational items ($10 finger-painting kits, $6 safety scissors). Right Start only dabbles in three other major markets: clothing, furniture and bedding products.

The economic recession has already affected Right Start, which employs 110. The company’s revenue soared 52% in the fiscal year ended May 29, to $21.7 million from $14.3 million the previous year, largely because Right Start sent out twice as many catalogues--8.4 million, according to the SEC filing.

Notably, however, Right Start’s average sales per catalogue in fiscal 1991 dropped to $2.52 from $3.29 the previous year. The company blamed it on sending more catalogues to “new, untested” mailing lists but conceded that “recession conditions . . . may have contributed” to the drop.

(Fridstein and ARC President Robert A. Crist declined to elaborate beyond the SEC filing, citing SEC regulations that prohibit executives of companies planning stock offerings from saying anything publicly that might unduly tout the stock.)

Still, the SEC filing stated that if Right Start had been a stand-alone entity, it would have earned $1.3 million in fiscal 1991--for an estimated after-tax profit margin of 6%--compared with profit of $945,000 the previous year. ARC overall earned $2.7 million in fiscal 1991 on revenue of $57 million.

Right Start’s profit margin is a tad above par relative to those of two other major publicly held catalogue operators--Spiegel Inc. and Lillian Vernon Corp.--even though they’re not directly comparable because Spiegel and Vernon have vastly broader product lines than Right Start.

But keeping a narrow focus is a growing priority in catalogue retailing. Catalogue operators are trying to more closely match their products with the interests of customers on their mailing lists to get more bang for their publishing buck, because costs for printing and mailing catalogues keep rising sharply.

Right Start readily concedes that it’s not for everyone. The company says its business “is heavily dependent upon well-to-do young parents and grandparents,” and it targets its catalogues to people 23 to 40 years old who have annual incomes exceeding $45,000.

Customers get five Right Start catalogues per year, and the company claims to have “600,000 existing customers,” which is actually the number of people who have bought something from the company since its inception.

Right Start says its main competition comes not from other catalogues, but from specialty children’s retailers. Indeed, Right Start tries to appeal to people looking for quality but too busy to go to local stores--but then, what catalogue operator doesn’t?

The company also faces competition from such discount mass-merchandisers as Toys R Us and Wal-Mart, which have been expanding their infants’ and children’s product lines lately.

Right Start’s filing also says that the company is the target of an investigation by the Federal Trade Commission stemming from a complaint that advertising for some of its items--it didn’t say which ones--was false or misleading. The company says the issue is moot because its products have a money-back guarantee.

“The company intends to cooperate with the FTC,” the filing stated, “but will vigorously contest any proceeding based on false-advertising claims.”

Fridstein co-founded Right Start after spending five years as an advertising executive. Before that, he was involved in marketing at Purex and Alberto-Culver. Targon, meanwhile, served 10 years as chief financial officer of Republic Geothermal Inc., a geothermal energy company, before hooking up with Fridstein.

Right Start clearly sees both men as crucial to the company’s success; Right Start has taken out $1-million life insurance policies on both of them. But other important voices will be those of ARC’s Crist and ARC Chairman Robert Feuchter, who are both on Right Start’s board. After all, as the top officials of ARC, they’ll represent Right Start’s controlling stockholder.