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J. Crew is considering an IPO for its Madewell clothing brand

Key Points
  • J. Crew is exploring a potential initial public offering for its fastest growing brand Madewell, the company said in a release Thursday.
  • Last month, CNBC reported that J. Crew tapped restructuring lawyers for the second time in as many years to explore options for reworking its debt, as the U.S. clothing chain struggles with falling sales and a dwindling cash pile.
  • The clothing company carries a debt load exceeding $1.7 billion, according to sources.
Source: Madewell

J. Crew is exploring a potential initial public offering for its fastest growing brand Madewell, the company said in a release Thursday.

The IPO for the preppy fashion retailer could happen as early as "the second half of 2019."

J. Crew said the move is a part of its initiative to "maximize value, position both the J.Crew and Madewell brands for long-term growth, and deleverage and strengthen the Company's balance sheet." The clothing company carries a debt load exceeding $1.7 billion, according to a Reuters report.

J. Crew's top priority this year is to return its flagship brand to profitability and sustain momentum for its quickly growing Madewell apparel business.

"We believe a potential IPO of Madewell, which had another record year of performance in 2018, could unlock significant value and generate meaningful proceeds that would strengthen our balance sheet and increase our overall financial flexibility to address our 2021 debt maturities, giving us an improved platform to support J.Crew's turnaround and allowing Madewell to achieve its full potential over the long-term," said Michael Nicholson, its interim CEO, in a statement Thursday.

Nicholson, who has served as the company's president and chief operating officer, was named interim CEO Thursday. Previously the company was led by a team of four executives, who comprised the office of the CEO. That structure has been in place since Nov. 2018.

Jack Weingart, co-managing partner of TPG Capital, was named to J. Crew's board, replacing Carrie Wheeler, who will be transitioning off the board after eight years with the company.

The CEO of Madewell, Libby Wadle, will continue with the company, as will Lynda Markoe, who is its chief administrative officer. Nicholson and Wadle will report to the board. The fourth member, Adam Brotman, chief experience officer, will resign for personal reasons. Brotman departs on April 19.

"With debt maturities on the horizon in 2021 and very high leverage, J.Crew faces an elevated risk of a second financial restructuring after its 2017 debt exchange," said Moody's Vice President Raya Sokolyanska, in an email.

Sokolyanska noted that Madewell generates less than a quarter of the company's revenue, but it has shown same-store sales growth at a time when J.Crew's brand was posting declines.

"If executed, a Madewell IPO could improve the capital structure and better position the company to address its debt," she said.

Last month, Reuters reported that J. Crew tapped restructuring lawyers for the second time in as many years to explore options for reworking its billions in debt, as the U.S. clothing chain struggles with falling sales and a dwindling cash pile.

J. Crew hired restructuring attorneys at Weil, Gotshal & Manges, the law firm that helped negotiate a previous debt workout for the company and most recently steered department store operator Sears through bankruptcy proceedings. A bankruptcy filing is not on the horizon for J. Crew, sources told Reuters.

J. Crew faces stiff competition in the retail space, from the rise of more casual athleisure apparel to e-commerce firms such as Amazon that have squeezed an array of traditional retailers.

The New York-based retailer has been private since 2011 when TPG Capital and Leonard Green & Partners completed a leveraged buyout for $3 billion.

J. Crew's announcement also comes of the heels of the highly anticipated Levi's IPO, which debuted on the New York Stock Exchange last month.

J.Crew Group, Inc. (the "Company") today provided a strategic update, including the announcement of a review of strategic alternatives for the Company, as well as certain leadership and governance changes.

The Company, in consultation with its legal and financial advisors, is actively exploring strategic alternatives to maximize the value of the Company, including a potential initial public offering ( "IPO") of its Madewell business, which, if pursued, could be completed as early as the second half of 2019. The Company is considering an IPO of Madewell as part of its previously-stated initiatives to maximize value, position both the J.Crew and Madewell brands for long-term growth, and deleverage and strengthen the Company's balance sheet.

Separately, Michael J. Nicholson, President and Chief Operating Officer, has been named Interim Chief Executive Officer of J.Crew Group, Inc., effective immediately. Additionally, Jack Weingart, Co-Managing Partner of TPG Capital, has been appointed to the Company's Board of Directors, replacing Carrie Wheeler, who will be transitioning off the Board after eight years with the Company. Mr. Nicholson's appointment replaces the Office of the CEO, previously comprised of four executives, which has led the Company since November 2018. Libby Wadle will continue as President & CEO of Madewell, and Lynda Markoe will continue as the Chief Administrative Officer of the Company. Both Mr. Nicholson and Ms. Wadle will report to the Board of Directors. Separately, Adam Brotman, President and Chief Experience Officer, has decided to resign from his position for personal reasons and will be leaving the Company effective April 19, 2019.

Chad Leat, Chairman of the Board of Directors, remarked, "Today's announcement regarding the decision to review strategic alternatives reflects our continued focus on maximizing the value of our Company and our conviction in Madewell's long-term growth potential, which we believe will further enhance our financial flexibility to support a turnaround at J.Crew. The Board is confident in Mike's ability to lead the Company in this dynamic retail environment during this transition period. His appointment reflects the key role he has played leading the Company and directing strategies positioned to improve performance and maximize value."

"On behalf of the Board, we would like to thank Libby, Lynda, Adam, and Mike for their leadership during this transition period, and we thank Carrie for her leadership and dedication to the Company on the Board of Directors," Mr. Leat continued. "We wish Adam the best in his future endeavors, and we look forward to Mike's leadership during this important time for the Company and to Libby and Lynda's continued contributions."

Michael Nicholson, Interim CEO, commented, "I look forward to working with the Board of Directors and our team to build on the decisive actions we have taken to date to refocus our strategy and improve performance in 2019 with the goal of returning J.Crew to profitability, while working with Libby to continue the strong growth at Madewell."

"We believe a potential IPO of Madewell, which had another record year of performance in 2018, could unlock significant value and generate meaningful proceeds that would strengthen our balance sheet and increase our overall financial flexibility to address our 2021 debt maturities, giving us an improved platform to support J.Crew's turnaround and allowing Madewell to achieve its full potential over the long-term."

Mr. Nicholson joined J.Crew in 2016 as President, Chief Operating Officer and Chief Financial Officer, bringing extensive experience across all aspects of retail. Prior to joining J.Crew, Mr. Nicholson was Executive Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer of ANN INC. from December 2012 until August 2015. Previously, from 2007 to 2012, he served as Executive Vice President, Chief Financial Officer and Treasurer of ANN INC., and prior to that, held leadership positions at Limited Brands, Inc. and Victoria's Secret Beauty Company. Earlier in his career, Mr. Nicholson held senior positions at Colgate Palmolive and Altria Group, Inc.

Jack Weingart is the Co-Managing Partner of TPG Capital, TPG's U.S. and European private equity platform with approximately $35 billion of assets under management. He is also a member of the firmwide executive committee of TPG Global. Between 2006 and 2017, Mr. Weingart served as Managing Partner of the Funding Group, which comprises the firm's capital markets and fundraising activities. Prior to joining TPG in 2006, Mr. Weingart was a Managing Director at Goldman, Sachs & Co., responsible for managing the firm's West Coast leveraged finance and financial sponsor business.