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Madewell to file for IPO, split from J.Crew

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today Sep 14, 2019
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Denim brand Madewell announced plans to split from J.Crew Group, Inc. and file for an initial public offering (IPO) on Friday, as its struggling parent company reported widening losses in the second quarter.


Madewell has consistently outperformed the J.Crew brand in recent quarters - Instagram: @madewell

 
A potential IPO has been on the cards for Madewell since April, when J.Crew announced the appointment of Michael J. Nicholson as its interim CEO and revealed that it was consulting its legal and financial advisors about a range of “strategic alternatives” for its flourishing denim business, including taking the brand public.
 
This possibility began to look a little more like a certainty in July, when Reuters reported that J.Crew had hired investment banks to help prepare for Madewell’s entry onto the stock market, citing three people familiar with the matter.

Friday’s SEC filing, made by Chinos Holdings, Inc. – the J.Crew subsidiary through which Madewell is operated – officially confirms the brand’s imminent split from its parent company, which has been privately owned by TPG Capital and Leonard Green & Partners since 2011.
 
Chinos, which will change its name to Madewell Group, Inc. prior to the completion of the offering, said that it will “use the proceeds of the IPO to repay indebtedness and for general corporate purposes.”
 
The company did not disclose the number of shares to be offered or the price range of the IPO.
 
The spin-off is the latest in a series of similar splits taking place in the US apparel industry this year. In May, VF Corporation spun off its denim business, which includes labels such as Wrangler and Lee, as Kontoor Brands, while Gap, Inc. recently gave an update on its upcoming separation from its Old Navy label, announcing that the turnaround of its namesake flagship brand will revolve around a renewed focus on jeanswear.
 
Much like these spin-offs, J.Crew Group’s split with Madewell aims to allow the company’s more successful business unit to push forward with growth-oriented strategies, while its remaining brands can focus on much-needed turnaround efforts.
 
All of the spin-offs also appear to be seeking to better position one of the resulting companies – Madewell, in the case of J.Crew Group – to take advantage of the resurgent popularity of denim, which is experiencing something of a comeback as the dominant athleisure trend from past seasons begins to wind down.
 
Madewell has been a consistent bright spot at J.Crew, a pattern reflected in the company’s latest quarterly results, which were also reported on Friday.
 
For the second quarter ended August 3, 2019, Madewell reported sales of $139.7 million, up 15% from the previous year, while the J.Crew brand’s revenues of $399.1 million reflected a decrease of 7%. Comparable sales increased 10% at Madewell and declined 4% at J.Crew.
 
 J.Crew Group’s total revenues for the quarter were therefore $588.8 million, essentially flat compared to the $587.6 million reported by the company in the prior-year period, with comparable sales decreasing 1%.
 
The group’s net loss came to $44.2 million, a significant deterioration from the loss of $6.1 million announced by the company in Q2 2018.
 
Taking into account the first quarter, when J.Crew Group managed to halve its losses, the company reported a net loss of $60.5 million in the first half of fiscal 2019, compared to $40.0 million in the same period in the previous.
 
J.Crew Group’s revenues in the period increased 4% to $1.17 billion, up from $1.13 billion, while comparable sales were essentially flat.

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