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Madewell Set for Initial Public Offering

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J.Crew Group said Friday that its Madewell concept will soon trade separately as a publicly-listed firm.

The registration statement for the proposed initial public offering was made on Friday by Chinos Holdings Inc. with the Securities and Exchange Commission. Chinos said on Friday that the company will be renamed Madewell Group Inc. prior to the completion of the IPO. News of the possible IPO had been circulating since earlier this year.

The SEC filing doesn’t yet indicate the exact number of shares to be offered, nor the expected price range for the proposed offering. The filing will likely be updated as the company moves closer to being listed. It currently lists a proposed maximum offering price of $100 million, and a registration fee of slightly over $12,000, but those numbers are often used as placeholders—and to determine a filing fee—until exact numbers are finalized.

Chinos said it will use the proceeds from the IPO to repay debt and for general corporate purposes.

According to the filing, Madewell had 2.6 million active customers during fiscal year 2018, and 60 percent are in its membership program, Madewell Insider. Fiscal year 2018 revenue totaled $614 million, with e-commerce penetration hitting 37 percent and the achievement of positive comparable sales growth in 41 of 42 quarters. Chinos said 600,000 jeans have been recycled, helping to create more than 1 million square feet of housing insulation.

For selected financial data the company provided in the filing, net income for the first half of fiscal 2019 rose 28.6 percent to $36 million from $28 million in the same period last year. Revenue rose 24.3 percent to $333 million from $268 million. E-commerce revenue is currently 40 percent of direct-to-consumer sales for the first half of 2019, up from 37 percent a year ago. Adjusted earnings before interest, taxes, depreciation and amortization rose nearly 34 percent to $71 million, up from $53 million in the first half.

Premium denim offerings are available at non-premium prices, between $100 and $150, while the popular entry-level Roadtripper jean starts at $75. The company said it uses promotions strategically to avoid training customers to buy on discount, which helps drive strong full-price sell through. There are plans to expand further into the $75 to $100 and $150-plus price ranges.

“We believe we have a meaningful opportunity to expand denim revenue to over $500 million globally on an annual basis, by growing share in existing and adjacent markets,” the filing said, although it didn’t state over what timeframe that might happen.

In preparation for the separation from parent company J.Crew Inc., both J.Crew and Chino are parties to a transition services agreement where the former parent will provide certain administrative capabilities for a set period of time after completion of the IPO.

Libby Wadle, chief executive officer, said in a letter to prospective shareholders in the filing, that the company still retains it start-up mentality, which she said allows it to remain nimble and helps challenge everyone to “get creative.” One mission, she said, is to “get more butts in our jeans–in the local communities through pop-ups, hosting over 2,500 local events last year, shopping parties and panel discussions, as well as charitable activities to give back to the locales that serves.”

First and foremost, Wadle noted, Madewell is a jeans brand.

“Our motto is ‘Good Days Start with Great Jeans’ because it’s what we truly believe: that stepping into the right pair of jeans is empowering, it makes you feel like the best version of yourself,” she said, adding that denim is a canvas for self-expression, a crucial factor for its targeted millennial customer base.

Wadle told investors that the company’s website is an online destination for Madewell’s variety of denim offerings, and that its Denim Bars across from the fitting rooms in stores, make it easier both for customers to try on jeans and seek stylists for a quick tip or better fit. The focus on premium denim and great jeans product is key, she explained, because a “loyal denim customer is more likely to shop additional categories.”

Those categories include tees, leather goods, vintage-inspired motorcycle jackets, sneakers, sandals and sweaters, as well as a range of tops and button-down shirts. During Fiscal 2018, 19 percent of the Madewell’s revenue was from what it calls lifestyle categories, like dresses, swimwear, beauty, fragrance and gifts. Madewell also includes a curated assortment of third-party brands, through exclusive buys and collaborations, such as Outdoor Voices, Lively, Vans, Sezane and Solid and Striped. Separately from its retail operations, the company has a wholesale partnership to introduce the brand to new customers and test new markets. The wholesale channel was launched in 2015 with Nordstrom, and has since been expanded to include Net-a-Porter, Zalando, Shopbop and Stitch Fix.

According to the filing, Madewell has room to grow, provided it can continue to fine-tune what its customers want from the brand.

Citing the Brand Tracking Study, 80 percent of those aware of Madewell would likely consider the brand for their next apparel purchase, while Madewell’s brand awareness is 45 percent.

The pitch to investors on its growth prospects was: “We believe our relatively low brand awareness, coupled with high affinity and purchase intent among existing customers, underscores a significant growth opportunity to convert potential new customers to loyal brand enthusiasts.”

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