Additionally, social media company Pinterest has confidentially filed for an IPO and is said to be seeking a valuation in excess of $12 bln. The significance of this news, as it relates to the IPO market, really can't be understated. That's because after a prolonged dry spell it typically takes a successful, prominent deal to kick start things again. So, with two big names ready to launch deals, it lends confidence to other companies that may be considering going public.
That is what we are seeing this morning with Levi Strauss & Co (LEVI) filing for its IPO. There have been rumors swirling that the iconic jeans company was looking to go public, and now sensing that the door has re-opened, it is looking to capitalize on the opportunity.
LEVI IPO Overview
The IPO, led by Goldman Sachs and JP Morgan, will consist of 36.7 mln shares, but most of the shares will be offered by selling shareholders, as LEVI itself is only selling 9.47 mln. This won't be the company's first foray as a public company in its long history.
LEVI went public in 1971, but the Levi Strauss family retained a large stake. The company didn't have great success as a public company during its first stint as declining profitability sank the stock. Consequently, the family took it private again in a $1.7 bln leveraged buy-out in 1984.
Twelve years later, the family bought more stock from employees and outside investors. Between the LBO and this buy-out, the company piled up a substantial amount of debt.
That would give LEVI a P/S of about 1x FY18 revenue (ending Nov. 25) and P/E of 20x on a GAAP basis. For a couple points of comparison, competitors PVH Corp (PVH), which owns the Calvin Klein and Tommy Hilfiger brands, is trading with a trailing P/S and P/E of 0.9x and 12x; while GES is at 0.7x trailing sales.
Like any other retailer, LEVI's business has faced challenges as consumers have shifted their buying habits towards online and digital channels. Large department stores like Nordstrom (JWN) and Bloomingdales, two significant customers for LEVI, have faced the brunt of this e-commerce trend. With about 57% of LEVI's revenue generated from the wholesale channel, this has been and continues to be a major hurdle.
The good news, though, is that it is diversified in terms of customers, with no single customer accounting for 10% of revenue. In fact, its top ten wholesale customers only accounted for 27% of total revenue.
LEVI also owns and operates its own brick-and-mortar stores (26% of revenue) across 32 countries.
Its e-commerce channels is where LEVI has really been focusing its efforts. In a recent interview, LEVI's CEO commented that e-commerce now represents about 10% of its business, up from about 4% just several months ago, and that this proportion is growing very, very quickly. Furthermore, he stated that its wholesale e-commerce business is profitable and its online owned and operated business is close to breakeven.
The prospectus provides some preliminary results for the three months that ended Feb. 24, 2019. For the quarter, net revenue is expected to be $1.42-$1.435 bln, up 6-7% yr/yr. Adjusted Net Income is projected to surge by 63-78% to $136-$149 mln.
As for FY18, revenue was up 13.7% to $5.57 bln, led by a 25% spike in sales in Europe. The company reported widespread growth in all channels, led by Levi’s men’s and women’s products. From a product standpoint, while men's jeans continues to be a key to its financial health, LEVI has been adding to its tops and women's lines, which has been a growth catalyst.
Gross margin improved to 53.8% from 52.3%, primarily due to increased direct-to-consumer sales.
As a result of the above, operating income jumped by 15.5% to $930.9 mln.