Lee Jeans

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 NDP’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. “Brick-and-mortar retailers already have enough headwinds. Levi’s story is a good story and that’s not just your average brand.”

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