Followers of the apparel game may have already known Levi's is preparing to open a huge new flagship store in New York's Times Square, but its latest news was less fashion and more finance: After a long period of private ownership, it's allegedly looking at an initial public offering and a return to the public markets.
In this segment of the podcast, Market Foolery host Mac Greer, along with senior analysts Andy Cross and Ron Gross, discuss the company's place in its industry, its business model, their questions about the offering, and the various reasons it might be a good fit for your portfolio. (Just don't take their advice about fashion -- these guys are not the GQ demographic.)
A full transcript follows the video.
This video was recorded on Nov. 15, 2018.
Mac Greer: Guys, our final story, one that is near and dear to my heart. We're going to talk Levi's! We're going to talk denim. We're going to talk jeans. They're getting ready to open this massive flagship store in Times Square. It'll be their largest store in the world. But that's not why we're talking about Levi's. We're talking about Levi's because, according to reports, they are talking about going public again. I say again because Levi's was a public company from 1971 to 1985. Does a Levi's IPO have us excited?
Ron Gross: An iconic American brand, for sure. They're trying to raise $600 [million to] $800 million, a valuation of around $5 billion, it looks like. I don't know if it gets me excited from a stock perspective. I have to see what kind of valuation this looks like relative to cash flow and earnings. I don't know what growth potential looks like, whether this is an international play or retail play. Obviously, they have their own stores, almost 3,000 of them, but they sell into 50,000 retail locations around the world. Levi's Dockers, Denizen brands. I'll keep an eye on it. It's not some hot tech IPO, that's for sure, but I've never been a hot tech IPO investor anyway.
Greer: Ron, we were talking about this before -- apparently, Levi's T-shirts are all the rage these days. Who knew?
Gross: Who knew? I'm telling you, iconic. It's an iconic American brand.
Greer: Do you ever wear Dockers?
Gross: Do only old men wear Dockers, is my question. Because then I'll answer your question.
Andy Cross: With pleats!
Greer: I wore pleats for like 10 years too long. And finally, I had a group of friends, it was like an intervention. They basically said, "You have to quit wearing pleated pants." No one had told me! And, apparently, the braided belt, that went out.
Gross: That went out, too. Did you wear the stretch waistband Dockers? Or just the straight-up Dockers?
Greer: No, the straight-up Dockers, but they were pleated. It was a bad look. Someone should have just pulled me aside. Sometimes tough love is the best love.
Gross: Don't throw out that braided belt. That'll come back.
Greer: Oh, my gosh, I'm banking on it. Andy, what do you think of Levi's?
Cross: As Ron was saying, even though it's headquartered in San Francisco, not some high-tech investment, it's not. It'll probably be priced around 1 times sales. It looks profitable. It looks like it's growing nicely. There has been a resurgence here, along with the iconic brand, the Americana. There's enough to get me kind of excited. But the business in general has proven to be quite tough over the years. Gap struggled. We know what the retail channels are looking like with them. More and more of their business might be tied to their own distribution, rather than dependent on the likes of the other storefronts, particularly those that are tied more to malls. Traffic is down there.
It will be interesting to see how they use their brand, and how that translates to a new buying experience compared to where it was the last time it went to the public markets. It's a much different marketplace now.
Gross: I'd be curious why they need $600 [million to] $800 million of capital. Is somebody trying to cash out of this business? Do they need that capital because of some growth strategy? I'd need to see their projected use of funds.
Cross: Yeah, and how much the family still owns may be tied to it. It is interesting. Why now? Why right now? Are they trying to push the growth story that they can't find internally with their own capital? Why offer shares versus taking on more debt? That'd be pretty cheap right now. It might be a liquidity event from a core group of shareholders.
Greer: The business is 165 years old.
Gross: That's amazing.
Greer: It's pretty cool. It's very cool. Here's another fun fact, if you're out and about and there's a lull in the conversation. Worldwide denim market, $95.5 billion. How much of that does Levi's have, according to 2017 figures?
Cross: I'll say a little bit less than that, 10%.
Greer: There's a lot of upside if you think denim is going to be around for a while.
Gross: Kids do not wear jeans anymore. Male children. The girls still wear them. But there is no jean market right now for kids.
Greer: That's true.
Gross: So that might be an opportunity, or it might be a red flag.
Greer: That's such a good point. My boys will not wear jeans. They wear athleisure wear. I know lululemon hates that term, but that's what it is. It's athleisure. It's something I'm going to be wearing in 20 years when I drive a golf cart.
Gross: [laughs] That sounds awesome. Sign me up.