Why an Iconic Denim Brand Is an Attractive Opportunity—Royce
article , video 03-22-2022

Why an Iconic Denim Brand Is an Attractive Opportunity

Miles Lewis discusses two opportunities he currently favors for our dividend value approach.


This video was recorded on 2/9/22. One of the companies discussed, Intertape Polymer Group, agreed to be acquired on 3/8/22 at a significant premium.

How are you positioning the portfolio in the bear market?

One of the themes that we kind of observed in 2021 was that we had a fair amount of companies that saw multiple compression. So the fundamentals got better throughout the year, and you can measure that very simply with earnings revisions. But the stocks lagged or were down on an absolute basis. And as a result, the multiples compressed. And so, when that happens, we see that as an opportunity, particularly, when we’ve done a lot of research on the fundamentals, and we feel really good about the near-term and medium-term outlook.

Which companies are you most optimistic about now?

So, the first company I would highlight is Levis. That’s one that I would imagine most of our viewers know very well. They are the global leader in the denim category. It’s an iconic brand that’s been around since the 1800s.

When we look at Consumer Discretionary companies, we see a really competitive industry landscape. When we participate there, we want to find companies with real franchise value. And we think Levis has franchise value in the form of its iconic brand. And that brand and that franchise value gives them pricing power, which is something that we look for in a business. And that’s particularly important in the inflationary environment that we’re in right now.

And we like Levis for a few key reasons. The first is that we think there’s been structural margin improvement that the market does not yet appreciate. The gross margins at Levis, in the most recent quarter, were 350 basis points higher than the same quarter in Q4 of 2019. And that’s with a litany of inflationary factors like logistics and cotton and wages.

The second reason is the denim cycle. And so denim, like the rest of fashion, is cyclical. And so if you go back and you look at the mid-2000 timeframe, what you saw is the category in North America growing about 10-11% a year for several years. And that was driven by a trend toward skinny jeans, slim-fit jeans, and things like that. You’re now seeing that trend reverse. And so there’s a new denim cycle underway, and you’re seeing that go towards looser fitting, more relaxed fitting jeans. And the CEO of Levis has talked about this repeatedly, and you’re beginning to see it in the data. And we think that that creates a multi-year tailwind for the category. And we think that Levis, as the dominant brand and the global leader, is going to do even better than the overall category.

And the third reason that we really like Levis is their e-commerce business. So Levis, like a lot of other retailers, was forced to really step up its game on the e-commerce side because of the pandemic. So their e-commerce business today is about 60% larger than it was pre-pandemic. And in 2021, it grew 30% on top of a very difficult compared from 2020. And despite all of these really fantastic attributes at Levis, in terms of margins and topline tailwinds, the stock has really not done very well. It peaked somewhere in the low 30s in the spring, sold off into the low 20s throughout the beginning of 2022. And we used that as an opportunity to add to our position. It’s trading at less than 13 times earnings, which, with the exception of the depths of the pandemic, is the cheapest Levis has been as a public company. And we see lots of fundamental improvement on the horizon.

So the next company is called Intertape Polymer Group. It’s actually a Canadian-listed company. We do own a few international stocks in Total Return, that are mostly in Canada. And the reason we like Intertape is because we view this as an industrial packaging company that’s effectively a backdoor play on e-commerce at a very deeply discounted multiple. About 60% of their business in tapes. They also have a wovens and a films business. And then they have a protective packaging business. The reason we like this business so much, is that about 27% of their revenues, as of the end of 2020, were from e-commerce.

They have a product that our viewers probably see and touch every single day, or at least on a weekly basis, but they don’t know it. And it’s called water-activated tape. So if you see an Amazon box come to your front door and there’s a black strip of tape over it, with the blue Prime logo on it, that is something called water activated tape. It’s a tape that is paper based one side, with an adhesive on the other side, and then it’s activated by water, and that’s what creates the bond to the box that it’s in. That tape is almost exclusively sold by Intertape Polymer Group. They have about 85 or 90% of that market. And so they’re riding the coattails of ecommerce, not only with Amazon, but with Target, and Wal-Mart, and lots of other well-known ecommerce companies. And so, we think this is a great opportunity to get into a company that’s trading at a deeply discounted multiple, with exposure to secular growth of e-commerce.



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Average Annual Total Returns as of 12/31/21 (%) 

Total Return 6.87 25.78 17.36 9.91 11.17 7.87 9.19 10.75 12/15/93
Russell 2000 Value 4.36 28.27 17.99 9.07 12.03 7.19 9.18 9.76 N/A
Russell 2000 2.14 14.82 20.02 12.02 13.23 8.69 9.36 9.15 N/A

Annual Operating Expenses: 1.25

1 Not annualized.

All performance information reflects past performance, is presented on a total return basis, reflects the reinvestment of distributions, and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when redeemed. Shares redeemed within 30 days of purchase may be subject to a 1% redemption fee, payable to the Fund, which is not reflected in the performance shown above; if it were, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by the Fund through its investments in mutual funds, hedge funds, private equity funds, and other investment companies.

The thoughts and opinions expressed in the video are solely those of the persons speaking as of February 8, 2022 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

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Percentage of Fund Holdings As of 12/31/2021 (%)

Total Return



Intertape Polymer Group


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