Levi Strauss & Co. said on Tuesday it would explore selling its Dockers casual clothing brand to help pay down a heavy debt load as the legendary blue jeans maker struggles to reverse years of slumping sales.
The San Francisco-based company said selling Dockers, which generates annual revenue of about $1.4 billion, would help it focus on boosting its traditional Levi's brand as well as the Levi Strauss Signature clothing line sold in discount retailers like Wal-Mart Stores Inc. and Target Corp.
"It's just a sign that Levi needs to shore up its own balance sheet, and this is the one thing in it that represents the jewel in the crown for them," said Jim D'Aquilla, a managing director with the Mercanti Group, a boutique investment bank focusing on the consumer sector.
Levi Strauss officials declined to say how much the company expected to raise from selling Dockers as it seeks to reduce a debt load, less cash, of about $2.02 billion.
But bankers said the unit would likely fetch between $1 billion and $1.4 billion because it offers strong cash flow and a number of attractive licensing deals.
Levi Strauss gave no timetable for a sale but said it could take several months. After the announcement, Levi Strauss 12.25 percent notes maturing in 2012 rose 4 cents on the dollar to 94 cents on the dollar, up from about 67 cents in late February.
Chief Executive Officer Phil Marineau told Reuters that selling the Dockers brand, which is aimed at young professionals, would help make Levi Strauss a more nimble company. But he said the price would have to be right.
"We know what we expect to get from it," Marineau said. "This is not sell at any price."
Industry bankers said the auction of Dockers should generate significant interest from some of the country's largest pants and jeans makers, including VF Corp. .
Levi Strauss said it would seek to amend loan agreements to ease a sale. It also said it had the financial resources to comply with debt deals through 2004 if it does not sell Dockers.
The decision to explore selling the unit comes after Levi Strauss last December hired the outside turnaround specialist firm Alvarez & Marsal to help boost the jeans maker's battered business.
The proposed sale comes as the privately held company, which reports earnings because of its outstanding bonds, has struggled to reverse seven straight years of sliding sales amid tough competition from more youth-oriented brands.
The company, which got its start selling supplies to prospectors who flocked to California during the Gold Rush of the mid-19th Century, has cut jobs, closed factories and seen its credit rating slashed due to its lagging business performance and high debt load.
Levi Strauss said it has hired Citigroup Inc. to help in the potential sale of the Dockers unit.