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By: Matt Ely | mge5079@psu.edu|February 14, 2019
Levi Strauss & Co. is getting ready for one of the highest anticipated IPOs of the year. This will be the company’s second IPO in its 146 year history. They were first offered back in 1971 but only remained on the public markets until 1985 when a leveraged buyout took them private. They will be listed on the New York Stock Exchange under the ticker LEVI. Levi Strauss hopes to raise about $600 million at a company valuation of roughly $5 billion. The news pushed shares of competitors stock such as Urban Outfitters (URBN) and American Eagle (AEO) downward.
The family owned company will remain in control of significant voting power, reports The Wall Street Journal. They hope to convince the public of their innovation strategy which includes a larger focus on ecommerce and to tap into a larger share of the women’s clothing market. Since ecommerce represented only 4% of total revenue last year and women’s clothing coming in at 29%, there is plenty of potential to grow in these markets. However, they have said that they want to continue to have their main focus be the classic men’s jeans.
Companies need to be able to adapt to changing times so raising money in the equities market will allow for financial flexibility moving forward if Levi’s can make smart decisions to stay ahead of the curve. They rely heavily on wholesale purchases from department stores, who have had their fair share of struggles and have closed hundreds of stores across the country recently. Also, since they must report all financials to the public, they will face more scrutiny if they begin to struggle. This will put more pressure on management to make the right decisions on the future of Levi’s.
I see this as a bad sign for Levi’s based on what they stated the purpose of the IPO will be. They said funds will be used mainly for corporate purposes like operating expenses and capital expenditures. This in addition to the slumping sales that have plagued the industry in recent years points to a company struggling and just looking for more immediate access to capital.
Like many IPOs, Levi stock will likely see a big jump right off the bat, but will probably struggle in the long term as fashion styles continue to trend away from the classic blue jeans. As such an old company, I believe it will be hard for them to change old habits and business models which will hurt the stock price.
Although I don’t believe Levi Strauss is in immediate danger as sales remain strong for now, being a public company comes with a lot of responsibility. Decisions will have to maximize shareholder value and that may cause some friction with the current family owners. Their last attempt at being a public company only lasted 14 years, so hopefully they have learned from that attempt and will continue to run Levi Strauss & Co. as a great American business.
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