Debt-Heavy Levi Strauss Looks to Sell Off Dockers Brand, Mend Its Namesake Lines

Long-suffering Levi Strauss & Co. said Tuesday that it would explore the sale of its Dockers casual clothing brand in hopes of reducing the company’s debt and allowing it to focus on its declining denim business.

The 150-year-old San Francisco-based jeans maker didn’t say how much it expected to receive from a Dockers sale, whether it was in talks with interested buyers, or when it hoped to complete such a deal.

Dockers, the nation’s market leader in casual slacks, had $1.4 billion in sales last year -- about 24% of Levi’s revenue.

Bankers said Dockers could fetch $1 billion to $1.4 billion because it offered good cash flow and strong licensing deals. About 26% of the unit’s sales -- $360 million -- come from licensed goods. Mervyn’s and Kohl’s are among the biggest retailers of Dockers apparel.

Levi, which lost $349 million last year on $4.1 billion in revenue, has about $2 billion in debt.

Analysts said the most likely buyers would be other apparel makers, such as North Carolina-based VF Corp., the maker of Wrangler and Lee brand jeans that has been growing through acquisitions. VF executives declined to comment.

Last month, VF announced a deal to buy Vans Inc., the skateboard shoemaker, for $396 million.

Selling Dockers would be a “significant next step toward achieving our long-term financial performance goals for the company,” Levi Chief Executive Phil Marineau said.

Chief among them would be reversing a seven-year sales slide. In its most recent quarter, U.S. sales of Levi’s brand apparel fell 5% from a year earlier; Dockers plummeted 17%, in part because Levi halted production of a boys line.

As a result, the company said last month that it would lay off at least 200 North American workers and eliminate 75 vacant jobs. Levi has cut 6,400 jobs in the last 3 1/2 years. The Dockers unit employs about 500 people.

Analysts say it is difficult to assess a sale of Dockers without knowing how much money it would bring.

Nonetheless, several said a sale could be a crucial short-term step to shoring up the company’s balance sheet, even if losing Dockers might be a bitter pill somewhere down the line.

“What it would do is quickly reduce debt if they were to come to an agreement with a potential buyer,” said Jayne Ross, a credit analyst with Standard & Poor’s. “But what they lose is revenue, a cash-flow stream and business diversification.”

Levi executives said they would seek amendments to the company’s lending agreements to help push a sale through. The company’s available liquidity totals about $490 million.

Shoring up Levi’s finances is only part of the solution, said Tom Razukas, an analyst with Fitch & Co.

A sale of Dockers “would be a step toward concentrating on the Levi brand, with the game plan being to drive revenue up and thus earnings and cash flow,” Razukas said. “They’ve got to revive the brand, they’ve got to revive the top line.”

The company is making some headway. In its December-February fiscal quarter, sales rose 10%, to $962 million, thanks in part to its new discount-store brand, Signature.

Privately held Levi discloses financial results because its bonds are publicly traded. After the announcement, Levi’s 12.25% notes maturing in 2012 rose 4 cents on the dollar, to 94 cents. That’s up from about 67 cents in late February.

Times wire services were used in compiling this report.