In fact, after the close last night, it was reported that the deal was more than 10x over-subscribed. The rush of demand allowed the 36.67 mln share IPO to price at $17, above the $14-$16 expected range, generating $623.4 mln in total gross proceeds.
The relevance of LEVI's strong showing really can't be overstated. As many investors are well aware, the IPO market has been in hibernation for several months now. Therefore, the overall psyche regarding IPOs has been fragile at best. Had LEVI's IPO been a dud, that would have only played into the hesitancy that investors and companies looking to go public have been feeling.
Fortunately, that was not the case; pent-up demand for higher-quality IPOs helped to draw a lot of interest towards LEVI's IPO. That is a good omen ahead of Lyft's (LYFT) highly-anticipated IPO next week, which will set the stage for that of its much larger peer, Uber, a few weeks after.
It wasn't only pent-up demand that created the strong interest in LEVI's IPO, however. The company has turned a corner in terms of its financial performance, driven by steady debt reduction and robust growth in its e-commerce channel, leading to margin expansion and profit growth.
As for the deal itself, it was led by Goldman Sachs and JP Morgan, with most of the shares offered by selling shareholders. LEVI itself offers only 9.46 mln shares. The stock will open for trading later this morning on the NYSE.
This isn't LEVI's first foray as a public company. Specifically, LEVI went public in 1971, but the Levi Strauss family retained a large stake. However, the company didn't have great success as a public company during its first stint as declining profitability sank the stock. Consequently, the family took it private again in a $1.7 bln leveraged buy-out in 1984.
Twelve years later, the family bought more stock from employees and outside investors, which gave them even more control over the company. However, between the LBO and this buy-out, the company piled up a substantial amount of debt.
Like any other retailer, LEVI's business has faced challenges as consumers have shifted their buying habits towards online and digital channels. Large department stores, like Nordstrom (JWN) and Bloomingdale’s (M) -- two significant customers for LEVI -- have borne the brunt of this e-commerce trend. Given that about 57% of LEVI's revenue is generated from the wholesale channel, ascendant e-commerce trends have been and continue to be a major hurdle for the company.
The good news, though, is that LEVI is diversified in terms of customers, with no single customer accounting for 10% of revenue. In fact, its top ten wholesale customers only accounted for 27% of total revenue in FY18. LEVI also owns and operates its own brick-and-mortar stores (26% of revenue) across 32 countries.
But its e-commerce channel is where LEVI has really been focusing its efforts. In a recent interview, LEVI's CEO commented that e-commerce now represents about 10% of the company’s business, up from about 4% just several months prior, and that this proportion is growing very, very quickly. Furthermore, he stated that the wholesale e-commerce business is profitable, and its online owned and operated business is close to breakeven.
LEVI provided in its prospectus some preliminary results for the three months ended February 24, 2019. For the quarter, net revenue is expected to be $1.42-1.435 bln, up 6-7% yr/yr. Adjusted Net Income is projected to surge by 63-78% to $136-149 mln.
As for FY18, revenue was up 13.7% to $5.57 bln, led by a 25% spike in sales in Europe. The company reported widespread growth in all channels and products that was led by Levi's men's and women's lines. From a product standpoint, while men's jeans continue to be a key to its financial health, LEVI has been adding to its tops and women's lines, which have been a growth catalyst.
Gross margin improved to 53.8% from 52.3% for the year, primarily due to increased direct-to-consumer sales. As a result of the above, operating income jumped by 15.5% to $930.9 mln.