Levi Strauss is exploring the sale of its Dockers brand as a means to pay down debt and shift its focus toward growing its core Levi's and Levi Strauss jeans brands. The company also hopes to increase its competitiveness and overall capital structure.
"Selling the Dockers business would be a significant next step towards achieving our long-term financial performance goals for the company," San Francisco-based Levi Strauss said in a statement Tuesday. The company had previously announced other plans to help slumping sales.
The Dockers casual clothing business, first introduced in 1986, brings in about $1.4 billion in annual revenue, which includes $360 million in licensee wholesale revenue. The company said
will help with the possible sale.
As of May 9, Levi Strauss had about $2.02 billion in total debt, excluding cash, and available liquidity resources of about $490 million.
Indeed, Levi Strauss needs a boost to its bottom line. The company's financial results were disappointing in full-year 2003 as it swung to a loss of $349 million, from a profit of $7 million in 2002. Total sales dropped to $4.02 billion from $4.15 billion in 2002.
On April 13, the company posted a loss of $2 million in its latest quarter, which was narrower than its loss of $58 million in the year-earlier period, but operating income dropped to $61 million from $66 million.
Total sales in the quarter rose to $962 million from $877 million a year earlier. Despite the overall rise in sales, the company cited sales declines in its U.S. men's Dockers business.
At the time of the quarterly report, the company said it was undergoing "an intensive analysis of our business strategies, plans and operations" with the restructuring firm Alvarez & Marsal. Levi Strauss said it was "rationalizing its product lines," which included "narrowing our merchandising assortments, exiting unprofitable or low-volume product lines."
In May, the company plans to cut 200 staff positions and 75 open positions in North America.
"We have sufficient liquidity and expect to remain in covenant compliance throughout the year whether we sell the Dockers business or not," said Jim Fogarty, Levi's CFO, in Tuesday's statement. Fogarty, from the Alvarez & Marsal restructuring firm, has been interim CFO at Levi since Dec. 1. He had replaced Bill Chiasson, who left the company.
Jones Apparel Group
could be a potential suitor to buy the Dockers brand, said one buy-side analyst who preferred not to be named. "They've been collecting a number of brands and like a wide portfolio," he said.
Indeed, Jones' portfolio of brands is quite diverse. Its brands include Jones New York, Polo Jeans Company licensed from
Polo Ralph Lauren
, Evan-Picone, Gloria Vanderbilt, l.e.i., Energie, Nine West, Easy Spirit, Enzo Angiolini, Bandolino, Napier and Albert Nipon, among others.
"They're an acquisitive company," the analyst said. One of Jones' units is also in the process of attempting to buy
in a cash tender offer.
However, a possible deal-breaker for Jones, suggested the buy-side analyst, could be whether or not the Dockers management team would move to work for the new owners. "Typically, Jones likes to bring a strong management team along with it," he noted.
Another potential suitor, according to Jim Ragen, senior equity analyst at Crowell Weedon, is
, which is in the process of buying
VF owns the Lee and Wrangler jeans brands and has also been in acquisition mode, Ragen said, having bought the North Face and Nautica brands in 2003.
A third, but less likely, candidate is
, said Ragen, who acknowledged that a potential buy would be "complicated and difficult" because Sears already sells Dockers in its stores and because the brand is widely carried at Sears competitors. (Ragen owns shares of Sears, but Crowell Weedon does not do investment banking for Sears.)
"Dockers is more suited for an apparel company than an apparel retailer," said Ragen. "Any retailer that bought it would probably want to put it for a private label. But Dockers has become too big to become a private label."
Nevertheless, Ragen said he wouldn't completely rule out a Sears bid because he thinks the company would like a broader offering of company-owned apparel brands besides its existing Lands' End and Covington lines.