Denim’s Comeback Gives Levi Strauss Its IPO Opening

(Bloomberg) -- Levi Strauss & Co. is trying to go public as jeans fend off their most resilient and pliable rival yet: yoga pants.

The denim category has been battling a fashion shift in the U.S. toward more sporty looks like leggings, which the industry has dubbed “athleisure.” It’s been tough, with imports of elastic knit pants surpassing those of denim for the first time in 2017. But the one-time staple of American closets has recently staged the beginning of a comeback: The jeans category in the U.S. grew 2.2 percent to $16.7 billion in 2018 after four straight years of declines, according to data from Euromonitor.

“It’s better than a couple of years ago,” said Chen Grazutis, an analyst for Bloomberg Intelligence. “It’s steady.”

Levi Strauss, whose blue jeans earned a patent in 1873, is one of the brands making a comeback. Although the company was initially slow to adapt to the yoga trend, scrambling to add stretch and performance aspects to its jeans while retaining their classic look, it has since turned its business around, including in the critical Americas region. Global sales rose 14 percent to $5.6 billion in fiscal 2018 compared to the year prior, the company reported last week. Sales of women’s clothing, which had been most affected by the rise of leggings, have grown in the double-digits for eight straight quarters and now represent nearly a third of Levi’s total business.

 “It’s clear that we’ve built a solid foundation,” Chief Executive Officer Chip Bergh said on a conference call with analysts earlier this month. “We’re gaining market share as the growth we’re delivering outpaces the category.”

Still, denim companies aren’t out of the woods yet. They still face an ongoing struggle as department stores shutter locations and big-box retailers push more private-label jeans. The share of Levi’s revenue that comes from selling lower-priced apparel to big retailers like Walmart Inc. and Target Corp. was 27 percent last year, down from 30 percent in 2016. Sales of those value labels, which include Signature and Denizen, increased 28 percent last year, according to the filing.

Read more about the IPO filing on your Bloomberg terminal here.

Meanwhile, styles of jeans have remained idle over the past decade, with fashion trends unable to dethrone the skinny jean as the most prominent silhouette. That’s left shoppers bored with few hot new looks to chase—and little reason to update their wardrobes. Luxury labels, such as Off-White and Vetements, have helped denim regain interest with shoppers by reworking classic designs.

With more resources, Levi Strauss is betting that it can take its brand recognition and popular 501 line and win more market share globally. The company has boosted sales in Europe more than 20 percent the past two years. And China, despite being the world’s second-largest economy, makes up just 3 percent of total revenue. Bergh said he sees the market as "a huge long-term opportunity."

To contact the editor responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net

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