CALVIN KLEIN’S JEANS LICENSEE FILES FOR IPO
Byline: Carol Emert
WASHINGTON — Calvin Klein Jeans are going public.
Designer Holdings Ltd., which holds the license to make the jeans and which has increased the volume of Calvin Klein Jeans six-fold since the deal began in August 1994, has filed for an initial public offering, the Securities and Exchange Commission said Tuesday.
Designer Holdings, based in New York, expects to net $68.4 million from the IPO, according to the filing. Some five million shares will be offered at an expected opening price of about $15.
The licensee generated revenues last year from the CKJ line of $361.4 million. In 1993, the last year Calvin Klein Inc. controlled its Calvin Klein Jeans products, the line had revenues of $59 million, according to the filing.
Last year, CKJ had a net income of $19.7 million; its 1993 net income was not divulged in the filing.
The progenitor of Designer Holdings, then known as Rio Sportswear Inc., went into business in 1984. In 1987, Rio acquired the exclusive license for Bill Blass women’s jeanswear. However, the Rio and Blass licenses were sold as of Jan. 1 to allow Designer Holdings to concentrate on high-end designer merchandise.
That deal remains contingent upon the approval of Bill Blass Ltd., which is expected shortly, the filing said. The Bill Blass and Rio businesses generated about $101 million for Designer Holdings last year.
Designer Holdings was formed last month as a holding company for Denim Holdings Inc., which was created in March 1995 as the merged form of Rio Sportswear Inc. and Jeanswear Holdings Inc. Jeanswear was the original holder of the CKJ license.
According to the filing, women’s apparel made up 20 percent of Calvin Klein Jeans in 1994. Men’s generated 41 percent of sales, juniors 31 percent, children’s 5 percent and petites 3 percent. Designer Holdings acquired the children’s license earlier this year.
Designer Holdings, which works with Calvin Klein designers to develop its lines, used a five-prong strategy to increase sales, according to the filing.
The company reengineered garments to fit and flatter more potential customers; it lowered prices on “designer-quality products” to better price points from designer price points; it developed specific marketing and merchandising strategies for its junior, petite and children’s lines; it enlarged the offerings of core basics in each line, and it established an inventory replenishment plan with retailers.
It also launched an ad campaign last year that generated tons of controversy and sold tons of jeans.
Basic items, which change seasonally, accounted for 65 percent of CKJ sales in 1995, while fashion items, which are continually updated, made up 35 percent of sales. Designer Holdings contracts its manufacturing mostly to domestic companies, allowing it to respond to trends quickly, the filing said.
“The women’s line is currently underrepresented in department store locations in comparison to the company’s men’s and juniors lines, and the company believes there is a significant opportunity for growth,” according to the filing. Klein’s women’s jeans line is currently available in 800 department store locations.
Designer Holdings’ growth strategy includes expanding product offerings, such as the recent addition of khaki to each of its lines. Designer Holdings also plans to expand its international distribution, which is currently only in Canada. It is negotiating a distribution agreement for Mexico and Central America with a third-party distributor.
The company intends to expand its business by adding accounts and in-store shops, increasing the number of lines sold by each account and improving operating efficiencies.
In addition to its Calvin Klein Jeans products, Designer Holdings is seeking licensing opportunities for other designer sportswear lines, the filing said.
In addition to its U.S. licensing, Designer Holdings has distributed CKJ label men’s, women’s, junior’s and petites lines in Canada since July 1995. In preparation for significant domestic and international growth, the company is increasing its distribution capacity and is installing a new management information system.
Some $34.7 million of the anticipated $68.4 million generated in the IPO will be used to retire a subordinated loan incurred in April 1995, and the rest to pay off a credit agreement, also from April, to The CIT Group and other lenders.
An additional five million shares will be sold by stockholders. Eight million shares will be sold in the U.S. and Canada while the remaining two million will be sold in other countries. Merrill Lynch & Co. and Morgan Stanley & Co. are underwriting the deal.
The filing identified Designer Holdings’ owners, but it did not disclose which ones are planning to participate in the offering.