What Does Levi’s IPO Mean for VF?

● The lat­ter is spin­ning off its jeans busi­ness into a sep­a­rate com­pany.

WWD Digital Daily - - Front Page - BY KATHRYN HOP­KINS

Now that Levi Strauss & Co.’s block­buster re­turn to the stock mar­ket is done and dusted, eyes are turn­ing to Lee and Wran­gler, which are set to be rein­tro­duced to the mar­ket them­selves.

VF Corp. has been work­ing to spin off its jeans brands, as well as its out­let busi­nesses, into a sep­a­rate pub­licly traded com­pany called Kon­toor Brands since the sum­mer.

The idea be­hind the move is to sep­a­rate the rel­a­tively staid jeans brands from VF’s best-per­form­ing names, Vans and North Face. The move will give the Kon­toor brands their own ded­i­cated man­age­ment team that can fo­cus on cap­tur­ing a big­ger slice of the resur­gent denim mar­ket, which is bounc­ing back af­ter some tough ath-leisure com­pe­ti­tion.

Ac­cord­ing to The NPD Group’s con­sumer track­ing ser­vice data, women’s jeans sales grew 6 per­cent to $8.8 bil­lion last year, while the over­all jeans mar­ket in­creased 3 per­cent to $16.3 bil­lion, fol­low­ing 2 per­cent sales gains in 2017.

VF is con­fi­dent it can make these “iconic” brands king again and has said Kon­toor “will be a global leader in the denim cat­e­gory” with “a best-in- class sup­ply chain, chan­nel and cat­e­gory man­age­ment ex­per­tise, re­in­forced by deep and long-stand­ing re­la­tion­ships with lead­ing global re­tail­ers.”

An IPO will also give Kon­toor a cash boost to spend on key ar­eas like re­search and de­vel­op­ment and mar­ket­ing to help man­age­ment achieve its mis­sion.

But can Kon­toor match Levi’s in­tro­duc­tion to the mar­ket?

Levi’s stock jumped 32 per­cent right af­ter its IPO on Thurs­day, and the stock kept al­most all of those gains on Fri­day, clos­ing down 1.3 per­cent to $22.12 for a mar­ket cap­i­tal­iza­tion of $7.96 bil­lion.

Chip Bergh, chief ex­ec­u­tive of­fi­cer of Levi’s, told WWD the IPO’s suc­cess was driven by a com­bi­na­tion of its strong brand, solid re­sults and its con­fi­dence in the fu­ture.

Pat Healy, who runs IPO ad­vi­sory ser­vice Is­suer Net­work, thinks Kon­toor can only ben­e­fit from the boom­ing IPO mar­ket. Com­pa­nies such as Lyft and Uber are ex­pected to go pub­lic soon, while Pin­ter­est just filed its reg­is­tra­tion state­ment on Fri­day.

“It’s a good mar­ket for IPOs. Pe­riod. There’s plenty of money sit­ting on the side­lines wait­ing for these IPOs and they know they’re com­ing. What hap­pened [with Levi’s] bodes well for all stocks that want to raise money,” he said.

“There’s an aw­ful lot of money that’s be­ing raised. I don’t want to say it’s go­ing to be a record year, but it’s go­ing to be a year that’s go­ing to ex­ceed many of the re­cent past years.”

Kath­leen Smith, a prin­ci­pal at Re­nais­sance Cap­i­tal, a provider of in­sti­tu­tional re­search and IPO-themed ETFs, added that the Levi’s IPO will be a “very help­ful val­u­a­tion marker for the VF spinoff.”

She cau­tioned, how­ever, that it will be im­por­tant that Kon­toor shows growth in its brands and in its di­rect-to- con­sumer dis­tri­bu­tion.

“That was key to gen­er­at­ing in­vestor in­ter­est in Levi’s and will be im­por­tant to the suc­cess of other ap­parel fash­ion IPOs,” she said.

Any re­tailer plan­ning an IPO will want to make sure it has a pos­i­tive story af­ter a mixed bag of hol­i­day re­sults spooked in­vestors, caus­ing some re­tail stocks to tum­ble.

For its part, VF had a strong third quar­ter, with net in­come of $463.5 mil­lion com­pared with a loss of $90.3 mil­lion a year ear­lier. Net rev­enue came in at $3.94 bil­lion, up 8 per­cent and top­ping Wall Street ex­pec­ta­tions. Within that, Vans was its strong­est as­set, with rev­enue grow­ing 25 per­cent.

How­ever, the firm’s jeans busi­ness saw rev­enues fall 5 per­cent, which means it will have to work hard to get its mes­sage across for Lee and Wran­gler.

The Levi’s story also begs the ques­tion of whether or not there is more ap­petite for tra­di­tional ap­parel IPOs. Be­fore Levi’s, the last ma­jor of­fer­ing came from Michael Kors, now called Capri Hold­ings Inc., back in 2011.

In their place have been tech fash­ion com­pa­nies, with Shopify’s IPO in 2015 and Stitch Fix go­ing pub­lic in 2017.

More re­cently, British fash­ion site Far­fetch whet­ted in­vestors’ ap­petite for stocks at the in­ter­sec­tion of fash­ion and tech, gar­ner­ing an $8 bil­lion val­u­a­tion out of the gate in Septem­ber, al­though the stock has come off the boil since then.

Else­where, e-com­merce site Re­volve qui­etly re­vealed its reg­is­tra­tion state­ment for an ini­tial pub­lic of­fer­ing in Septem­ber and may still go pub­lic later this year.

This back­drop doesn’t ap­pear likely to change any­time soon as while the Kon­toor spinoff is on its way and Gap Inc. is also split­ting it­self into two pub­licly traded com­pa­nies, most other tra­di­tional re­tail­ers re­main quiet on this front.

“When we talk about re­tail­ers, we’ve got the brick-and-mor­tar type re­tail­ers, which you’re not hear­ing about and the mar­ket is not that much into. The mar­ket is in­ter­ested in growth and that’s why al­most ev­ery­thing that comes up is a tech IPO,” said Is­suer Net­work’s Healy.

“The stocks that are go­ing to do well have to be growth stocks,” he said. “Brickand-mor­tar re­tail­ers al­ready have enough head­winds. Levi’s story is a good story and that’s not just your av­er­age brand.”

A Lee Jeans ad.

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