Lauren Silva Laughlin -
Levi Strauss’s initial public offering may be a few sizes too big. The 166-year old jeans-to-jumpsuits maker is worth some $8.7 billion after shares surged by a third on its return to the public market after more than three decades.
Investor orders flew off the shelves fast, pushing the price well above the top of the company’s anticipated range. That is perhaps justified, but it’s a stretch — and suggests denim’s current fashion resurgence won’t wear thin.
Thursday’s successful debut is thanks in large part to a jeans renaissance in Europe. Levi’s sales there grew more than 25 per cent in the year to November 25, after a one-fifth jump the previous year. The popularity of its products in the United States, meanwhile, has dwindled.
At some 12 times last year’s EBITDA, Levi’s valuation appears to fit comfortably between two major rivals. Wrangler brand-owner VF trades at more than 16 times EBITDA, while Ralph Lauren is closer to 9 times.
The trouble is that similar brands’ valuations have not kept up with global fashion whims. Worldwide denim sales have grown every year since 2009, Euromonitor International data show.
Yet shares in Guess and Ralph Lauren underperformed the S&P 500 Index — and declined over the past five years. Even the geographic diversity that may have helped persuade investors to jump in to Levi’s stock is no guarantee of success: Prada shares have also declined dramatically since 2014, despite growing beyond US and European markets.
Focus can hurt, too, of course. Diesel USA, a division of its eponymous Italian parent, and True Religion filed for bankruptcy as their core American market shrank.
Levi’s might look better in its more global outfit, but investors would do well to remember that fashion fads fade. — Reuters
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