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Levi Strauss Goes Public...Again

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Levi Strauss & Co. LEVI went public yesterday opening at $22.22, trading as high as $23.24 and as low as $22.00.

Levi Strauss is an American clothing brand that has been a household name for as long as jeans have existed. In fact Levi Strauss actually created the first pair of jeans in 1873. This company started in 1853 in San Francisco. Jeans gained its fame in the “dude ranch” era in the early 1900s and were quickly adopted by younger edgier generations until they became the societal norm we see today, with Levi leading the charge in this culture shift. Now Levi’s can be found in 50,000 retail stores across 110 countries.

Now after 166 years of operation they decide to open up ownership of the company to the public, again. They went public initially in 1971 to give the heirs of this empire a chance to cash out raising about $50 million. The family decided to take it private in 1985 through a $1.7 billion leveraged buyout, making it the largest buyout ever at the time. This 2019 IPO, raising $623.3 million and valuing the company at $6.55 billion, couldn’t have come at a more opportune time for Levi considering that their operational performance appears to be at an all-time high. Levi has had consistent top-line growth over the past 4 years as well as a 167% bottom line growth over the past 5 years. What some retail investors don’t know is that an IPO is most beneficial when a company is valued at its highest because the company only receives capital on the day of the IPO. An enterprise doesn’t collect on a soaring stock price. Only the shareholders do. With market valuations high, this appeared to be an ideal time for Levi to recapitalize.

As a potential shareholder we need to ask ourselves if this is the peak, or does Levi Strauss still have room for growth. This surge of $623.3 million into their balance sheet should help innovative CEO Charles V. Bergh further diversify Levi’s portfolio and reduce inefficiencies in its supply chain. This company has already been working to grow beyond its leading category of men’s bottoms and will further invest in tops and women’s apparel. Levi plans to dig its nails deeper into its emerging markets business, specifically China and India where they plan to open new stores and build rapport with their consumers. Just like every other retail business, they will focus on building out their e-commerce sites. Levi is also going to reduce time to market for new products to stay in front of trends.

One risk associated with any retail-apparel business is the amount of consumer discretionary spending that the economy has to spend. With unemployment close to the lowest it’s been in 50 years, and steady wage growth, businesses that rely on consumer discretionary spending don’t have anything to worry about yet. One thing that we can all agree on is that jeans aren’t going out of style anytime soon.

Stitch Fix (SFIX - Free Report) is another retail-apparel company that just went public in November of 2017. Stitch Fix is an online business that helps consumers pick their wardrobe that fits their style and who they are. SFIX is up 85% since its IPO and looks to have room to grow based on its Zacks Rank #2 (Buy). As you can see below estimates for three consecutive quarters following the current quarter EPS estimates have been revised up. This a signal for consumer discretionary spending growth as well as a positive sign for an apparel IPO.



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