Clothing conglomerates VF (VFC) - Get Report , PVH (PVH) - Get Report and Iconix Brand Group (ICON) - Get Report are looking to sell underperforming brands, say industry sources, but they will face a challenge in that effort, since the current level of demand for apparel deals is not very robust.
PVH and Iconix officials didn't immediately respond to a request for comment. VF has said, though, that it could sell brands in its portfolio, but declined to comment on specific brands.
Like all apparel companies that rely in part on a wholesale model and sell inventory to customers that include ailing department stores, VF, PVH and Iconix are all under increasing pressure as consumers' shopping habits continue to evolve.
The pace of change has forced key apparel players to not only adapt, but to sell the stagnant or even flailing parts of their businesses.
At PVH, for example, the focus now is largely on its flagship Calvin Klein and Tommy Hilfiger brands.
The company, however, has sought to sell portions of its "heritage" brands, which includes Van Heusen, Izod, Arrow, Olga, Warner's and Speedo.
An industry source said PVH would eagerly welcome interest in those brands, but would seek to be compensated for the loss in cash flow relative to the company's valuation multiple. That multiple currently stands at nearly 9.2 times adjusted Ebitda, utilizing data provided by Bloomberg.
The Olga, Warner's and Speedo brands, which PVH still owns, account for around $450 million in net sales, according to the company's regulatory filings.
The remainder of the brands include Van Heusen, Izon and Arrow, and likely generate around $1.3 billion in net sales.
Of interest would be the wholesale operations of the heritage division, which had about $1.4 billion in net sales as of Feb. 1, 2015, and earnings before interest and taxes, or Ebit, of nearly $100 million, according to a Form 10-K filed with the Securities and Exchange Commission on April 1.
The retail operations of the brands that PVH would like to part with are faring poorly, however, with a loss of Ebit of nearly $25 million, according to the same filing.
Altogether, the heritage businesses generated close to $1.8 billion in net sales and Ebit of roughly $75 million.
If PVH could obtain a multiple of between 9 times and 10 times Ebitda for any of its heritage brands, or the equivalent to the conglomerate's multiple, it could then use that money to buy back stock or pay off debt.
But finding a buyer willing to pay a multiple rich enough may be tough, considering that the brands up for sale must contend with the decline of retail malls and their department store anchors, an industry source said.
Likewise, VF is weighing divestitures, as previously reported, but has since declined to comment on which specific brands it is selling.
The apparel group is most likely to part with brands in its "contemporary" division, said a source.
That's because those brands, including 7 For All Mankind, Splendid and Ella Moss, haven't performed very well since VF bought them between 2007 and 2009.
Splendid and Ella Moss were both picked up for at least nearly $210 million, which is the amount VF paid to buy the remainder it did not already own. Those brands combined generated nearly $100 million in revenue in 2009.
When 7 For All Mankind was bought in 2007 for $775 million, the designer denim business had $300 million in revenue.
But those brands haven't grown and have actually shrunk in size and been a disappointment, according to the source.
In 2015, the three brands had about $340 million in revenue, which compares to $400 million in revenue in 2014, according to regulatory filings, a drop of roughly 15%.
Profit also dropped for the contemporary brands division from more than $23 million in 2014 to close to $6 million in 2015.
As for Iconix, expect more deals like the one the apparel company recently inked, selling the Badgley Mischka intellectual property to Titan Industries and founders Mark Badgley and James Mischka for $16 million in cash, said an industry source.
There won't be a line of buyers, the source said, but there are brands Iconix owns that could perhaps be sold back to the original founders with the assistance of other investors with deep pockets.
Brands, such as Joe Boxer, Mossimo, Buffalo David Bitton, Rocawear and Ecko, that have been founded in the recent past, still have living founders who may want to be reunited with their creations.
Joe Boxer, for example, was founded by Nick Graham. Mossimo was started by Mossimo Giannulli. Rocawear was the brainchild of rapper Jay-Z, and Ecko a result of the vision of designer Marc Ecko.