Dive Brief:
- Chinos Holdings, J. Crew's parent company, on Friday filed a document with the Securities and Exchange Commission for an initial public offering. Chinos Holdings will be renamed Madewell Group, Inc. prior to the completion of the public offering, according to a company press release.
- The price range and number of shares for the offering have yet to be determined. Proceeds from the IPO will be used to, "repay indebtedness and for general corporate purposes," per the release.
- As part of the IPO, Madewell will split off from sister company J. Crew, according to the document.
Dive Insight:
In a move the company first began considering five months ago, J. Crew's more successful sub-brand Madewell made clear intentions for an initial public offering and a separation from its sister brand.
"We have consistently grown at Madewell, but we have retained both our focus and the start-up mentality of our earlier days, which allows us to remain nimble, challenges us to get creative and motivates us to always look toward the future," stated Madewell CEO Libby Wadle. Wadle, who has served as president of the brand since 2017, was promoted to be Madewell's first CEO in April, furthering speculation that the company was anticipating a break from its foundational company.
In J. Crew's second quarter earnings filed on Friday, Madewell's more secure financial footing was reiterated, with sales decreasing at the namesake brand by 7% to just under $400 million and comparable sales dropping 4%. In comparison, Madewell sales increased 15% to $139.7 million and comparable sales increasing 10% (following an increase of 28% in the second quarter a year ago).
"While J.Crew continues to struggle, Madewell has emerged as the company’s crown jewel, accounting for the majority of profits," said Raya Sokolyanska, vice president-senior analyst at Moody's, in comments emailed to Retail Dive.
J. Crew is clear on its vision for a turnaround of the company, with interim CEO Michael Nicholson stating in an earnings conference call on Friday that it is positioning itself to return to profitable growth over time. Part of that process involves a multi-year cost optimization program, which would ultimately result in $50 million in savings over three years, with $10 million of those cost savings realized in fiscal 2019. Savings are critical at a time when the company still struggles with a large debt load.
"The IPO could garner a substantial valuation and help pay down a meaningful portion of the over $1.7 billion in debt, but the ultimate ability to address J.Crew’s highly leveraged capital structure depends on the public market’s receptivity to apparel retailers and the company’s operating performance," Sokolyanska added.
