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J.Crew Spins Off Madewell, Which Files For IPO

J.Crew Spins Off Madewell, Which Files For IPO

J.Crew is spinning off its Madewell premium denim brand, filing an initial public offering (IPO) with the Securities and Exchange Commission for Madewell’s parent, Chinos Holdings Inc. Chinos Holdings would be renamed Madewell Group Inc. before the completion of the offering.

The story of J.Crew and Madewell has been a tale of two brands in recent years: while Q2 2019 sales at J.Crew decreased 7% to $399.1 million and comparable sales dipped 4%, Madewell sales increased 15% to $139.7 million and comparable sales increased 10%.For Q2, J. Crew reported a net loss of $44.2 million, compared to a $6.2 million loss a year ago.

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In 2018, Madewell’s revenues grew by 32% to $614 million, with 87% of those sales generated through direct-to-consumer channels, according to the SEC filing. The brand is profitable, recording net income of $60 million last year, up from $45 million in 2017 and $12 million in 2016.

Madewell CEO Libby Wadle will continue to lead the company after it goes public. Wadle has been at J.Crew since 2004, was part of the team that launched Madewell in 2006 and was named its first-ever CEO earlier this year.

As of Feb. 2, 2019, J.Crew had debt of $1.7 billion, which ultimately could hinder the potential growth of the Madewell brand. Upon naming its interim CEO in April, J.Crew had first hinted at a Madewell IPO, saying that a spinoff of the fast-growing women’s brand could help it raise necessary cash and reduce the debt load.

J.Crew plans to raise $100 million as part of the offering, although this is a number that companies often use as a placeholder to calculate filing fees and is often changed. The company didn’t disclose how many shares it intends to offer to the public.

During Q2 2019, J.Crew completed a comprehensive review of its namesake business and launched a multi-year cost-optimization program that is expected to generate savings of approximately $50 million over the next three years, with approximately $10 million expected to be realized by the end of the 2019 fiscal year.

Madewell’s goals include expanding its e-Commerce penetration — from 37% of direct-to-consumer revenue in 2018 and 40% in the first half 2019 to more than 50% of total DTC revenue. The company also has a growing wholesale channel, selling its items at retailers like Nordstrom and Stitch Fix. This business brought in 13% of Madewell’s revenues.

The company plans to expand its e-Commerce assortment by adding more size options as well as expanding its selection of products in strategic categories such as swimwear, dresses, sneakers and denim assortments.

The retailer also plans to launch a mobile app in 2020 that is designed to be loyalty-centric and feature omnichannel capabilities such as app payment in-store. The loyalty aspect is a major draw for the Madewell brand, with 60% of active customers participating in the company’s membership program, Madewell Insider. These shoppers represent 80% of returning Madewell customers and more than 90% of shoppers that spend $500 in one visit.

In July, J.Crew sought consent for a Madewell IPO from a group of lenders including Anchorage Capital Group LLC and Blackstone Group Inc. ’s GSO Capital Partners, The Wall Street Journal reported.

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