Levi Strauss & Co. Reports Second-Quarter 2022 Financial Results

REPORTED NET REVENUES OF $1.5B INCREASES 15%, UP 20% IN CONSTANT CURRENCY VS. Q2 2021

OPERATING INCOME WAS $76M; ADJUSTED EBIT WAS $145M, UP 27% VS. Q2 2021

DILUTED EPS WAS $0.12; ADJUSTED DILUTED EPS WAS $0.29, UP 26% VS. Q2 2021

REAFFIRMS ANNUAL GUIDANCE FOR REVENUE AND EPS, INCREASES QUARTERLY DIVIDEND BY 20%

SAN FRANCISCO–(BUSINESS WIRE)–Levi Strauss & Co. (NYSE: LEVI) today announced financial results for the second quarter ended May 29, 2022.

«Our second quarter results demonstrate the power of our strategy, which continues to support strong revenue growth and margin expansion,» said Chip Bergh, president and chief executive officer of Levi Strauss & Co. «Our brands are resonating with consumers across geographies, channels and product categories. By continuing to advance our most impactful growth drivers – being brand-led, direct to consumer first and diversifying the portfolio, we are well-positioned to continue to drive growth and create significant value for all our stakeholders.»

Financial Highlights for the Second-Quarter

  • Reported net revenues of $1.5 billion up 15%, and up 20% on a constant-currency basis, versus Q2 2021 driven by growth across all business segments

    • Global Direct-to-Consumer reported net revenues up 16% versus Q2 2021 reflecting a 23% increase in company-operated stores
    • Global Wholesale reported net revenues up 15% versus Q2 2021
    • Net revenues through all digital channels represented approximately 20% of total second quarter net revenues, up 3% on top of 75% growth in the same quarter of the prior year
  • Gross margin was 58.1%; Adjusted gross margin was 58.2%, flat from Q2 2021
  • Operating margin was 5.2%; Adjusted EBIT margin was a Q2 record 9.9%, up from 9.0% in Q2 2021
  • Net income was $50 million; Adjusted net income was $117 million, up from $93 million in Q2 2021
  • Russia-Ukraine charges of $60 million ($0.15 per diluted share) related to the crisis, primarily full impairment of store assets, PP&E and goodwill
  • Diluted EPS was $0.12; Adjusted diluted EPS was $0.29, up from $0.23 in Q2 2021

«We delivered another solid quarter, growing reported net revenues 15% and adjusted EBIT 27%, while returning $80 million in capital to shareholders,» said Harmit Singh, chief financial officer of Levi Strauss & Co. «Although the operating environment remains dynamic, the diversity of our business is providing the resilience and flexibility needed to drive solid financial results in fiscal year 2022, while progressing us on our path to achieve net revenues of $9 to $10 billion and adjusted EBIT margin of 15% by fiscal year 2027.»

Highlights include:

 

 

 

Three Months Ended

 

Increase

(Decrease)

As Reported

 

Six Months Ended

 

Increase

As Reported

($ millions, except per-share amounts)

 

May 29,

2022

 

May 30,

2021

 

 

May 29,

2022

 

May 30,

2021

 

Net revenues

 

$

1,471

 

$

1,276

 

15

%

 

$

3,063

 

$

2,582

 

19

%

Net income

 

$

50

 

$

65

 

(23

) %

 

$

246

 

$

207

 

19

%

Adjusted net income

 

$

117

 

$

93

 

25

%

 

$

306

 

$

234

 

31

%

Adjusted EBIT

 

$

145

 

$

115

 

27

%

 

$

383

 

$

289

 

33

%

Diluted earnings per share(1)

 

$

0.12

 

$

0.16

 

(4

) ¢

 

$

0.61

 

$

0.50

 

11

¢

Adjusted diluted earnings per share(1)

 

$

0.29

 

$

0.23

 

6

¢

 

$

0.75

 

$

0.57

 

18

¢

(1)

Note: per share increase compared to prior year displayed in cents

Second-Quarter 2022 Details:

  • Net revenues of $1.5 billion increased 15% on a reported basis, and 20% on a constant-currency basis excluding $47 million in unfavorable currency impacts.

– DTC net revenues increased 16%, driven by company-operated stores. As a percentage of second quarter company net revenues, sales from DTC stores and e-commerce comprised 30% and 7%, respectively, for a total of 37%.

– Wholesale net revenues increased 15% reflecting strong demand for the Levi’s® brand globally.

– The company’s global digital net revenues grew approximately 3% compared to the same period in the prior year and comprised approximately 20% of second quarter fiscal 2022 net revenues.

  • Gross profit was $855 million, as compared to $750 million in the same quarter of the prior year. Gross margin was 58.1% of net revenues, as compared to 58.8% in the same quarter of the prior year. Adjusted gross margin, which excludes COVID-19 and acquisition-related charges, was 58.2%, flat compared to the same period in the prior year. Adjusted gross margin, as compared to the same prior year period, reflects the benefit of a higher proportion of sales in the DTC channel, lower promotions, a higher percentage of full price sales and price increases, which were offset by the impact of higher product and freight costs.
  • Selling, general and administrative (SG&A) expenses were $779 million compared to $644 million in the same quarter of the prior year. This increase primarily reflects the full impairment of certain long-lived assets in Russia. Adjusted SG&A was $711 million compared to $628 million in the same quarter of the prior year. Adjusted SG&A leverage of 90 basis points was due to strong sales and continued control of SG&A expenses.
  • Operating income of $76 million compared to $107 million in the same quarter of the prior year. The decrease reflects $60 million of charges related to the Russia-Ukraine crisis. Adjusted EBIT, excluding Russia-Ukraine, COVID and acquisition-related charges, was $145 million compared to $115 million in the same quarter of the prior year due to higher net revenues partially offset by increased investments to support growth.
  • Net income was $50 million compared to $65 million in the same quarter of the prior year, primarily due to the decrease in operating income described above. Adjusted net income was $117 million compared to $93 million in the same quarter of the prior year. The increase is due to the increase in Adjusted EBIT and lower interest expense, partially offset by higher income taxes.
  • The effective income tax rate was 36.1% for the second quarter, compared to (16.2)% in the same quarter of the prior year. The increase in the effective tax rate was primarily due to Russia-Ukraine charges, which had no tax benefit, unfavorably impacting our effective income tax rate by approximately 16 percentage points.
  • Diluted earnings per share decreased to $0.12 compared to $0.16 in the same quarter of the prior year due to the $0.15 unfavorable impact of the Russia-Ukraine charges. Adjusted diluted earnings per share increased to $0.29 compared to $0.23 in the same quarter of the prior year. The increase is primarily due to increased adjusted net income offset by a $0.02 impact from currency translation.

Additional information regarding Adjusted gross margin, Adjusted SG&A, Adjusted EBIT, Adjusted EBIT margin, Adjusted net income, Adjusted diluted earnings per share, as well as amounts presented on a constant-currency basis, all of which are non-GAAP financial measures, is provided at the end of this press release.

Second-Quarter Segment Overview

Reported net revenues and operating income for the quarter are set forth in the table below:

 

 

Net Revenues

 

Operating Income(1)

 

 

Three Months Ended

 

% Increase

 

Three Months Ended

 

% Increase

($ millions)

 

May 29,

2022

 

May 30,

2021

 

 

May 29,

2022

 

May 30,

2021

 

Americas

 

$

776

 

$

661

 

17

%

 

$

159

 

$

148

 

8

%

Europe

 

$

367

 

$

355

 

3

%

 

$

67

 

$

59

 

12

%

Asia

 

$

222

 

$

192

 

16

%

 

$

19

 

$

6

 

203

%

Other Brands

 

$

106

 

$

68

 

56

%

 

$

4

 

$

2

 

66

%

(1)

Segment operating income is equal to segment Adjusted EBIT.

  • In the Americas, net revenues grew 17% on a reported basis and 17% on a constant-currency basis, driven by growth across both our wholesale and DTC channels. DTC net revenues increased 13% due to strength in company-operated mainline and outlet stores. Wholesale net revenues grew 19%, driven by the Levi’s® brand, particularly in the U.S. Net revenues through all digital channels grew 17% and represented 18% of the segment’s sales in the quarter.

    Operating income for the segment increased due to higher net revenues, partially offset by higher SG&A expenses as a percentage of net revenues.

  • In Europe, net revenues grew 3% on a reported basis and 15% on a constant-currency basis. DTC net revenues increased 23%, driven by strength in company-operated outlet and mainline stores. Wholesale net revenues decreased 10% on a reported basis and were flat on a constant-currency basis. Net revenues through all digital channels declined 30% following over 100 percent growth in the same period last year and represented 23% of the segment’s sales in the quarter.

    Operating income for the segment increased due to higher net revenues and gross margins, partially offset by higher SG&A expenses as a percentage of net revenues.

  • In Asia, net revenues increased 16% on a reported basis and 21% on a constant-currency basis. The increase in net revenues was driven by both our wholesale and DTC channels and most markets outside of China. DTC net revenues increased 2% driven by strength in our company-operated mainline stores. Wholesale net revenues increased 35% driven by growth across most markets. Net revenues through all digital channels grew 17% and represented 15% of the segment’s sales in the quarter.

    Operating income for the segment increased due to higher net revenues and lower SG&A expenses as a percentage of net revenues.

  • For Other Brands, Dockers® and Beyond Yoga® combined, net revenues and operating income increased, reflecting growth across channels for the Dockers® brand, which was up 23%, and the acquisition of Beyond Yoga®, which had net revenues of approximately $23 million.

Year-to-date 2022 Results are included in the company’s Quarterly Report on Form 10-Q for the quarter ended May 29, 2022.

Balance Sheet Review as of May 29, 2022

  • Cash and cash equivalents were $602 million and short-term investments were $96 million, while total liquidity was approximately $1.5 billion.
  • The company’s leverage ratio was 1.1 as compared to 2.0 at the end of the second quarter of fiscal 2021.
  • Total inventories increased 29% compared to the end of the corresponding prior-year period, in line with the company’s expectations, and the ongoing strategy to build core inventory to mitigate supply chain risk and capture consumer demand. In addition, inventory levels were lower than normal at the end of the second quarter last year due to the impact of global supply chain disruption.

Additional information regarding leverage ratio, which is a non-GAAP financial measure, is provided at the end of this press release.

Shareholder Returns

In the second quarter, the company returned approximately $80 million to shareholders, including:

  • Dividends of $40 million, representing a dividend of $0.10 per share, up 64% from prior year
  • Share repurchases of $40 million, reflecting two million shares retired

In June 2022, the Board of Directors approved a $750 million share repurchase program with no expiration date.

The company declared a dividend of $0.12 per share totaling approximately $48 million, payable in Cash on August 17, 2022 to the holders of record of Class A common stock and Class B common stock at the close of business on August 1, 2022.

Guidance

The company reaffirms expectations for fiscal 2022 and are as follows:

  • Net revenues growth of 11% to 13% compared to FY 2021, between $6.4 billion and $6.5 billion.
  • Adjusted diluted EPS of $1.50-to-$1.56.

The company plans to share additional details during its investor conference call. The company’s outlook assumes no significant worsening of the COVID-19 pandemic, inflationary pressures or further currency impacts.

Investor Conference Call

To access the conference call, please pre-register on https://register.vevent.com/register/BI6d429c80e9c1464b8c9cfd0a839f8968. Registrants will receive confirmation with dial-in details.

A live webcast of the event can be accessed on https://edge.media-server.com/mmc/p/jej85fp6. A replay of the webcast will be available on http://investors.levistrauss.com starting approximately two hours after the event and archived on the site for one quarter.

Please see http://www.levistrauss.com/investors/earnings-webcast for a discussion and reconciliation of non- GAAP measures referenced on the investor conference call.

About Levi Strauss & Co.

Levi Strauss & Co. is one of the world’s largest brand-name apparel companies and a global leader in jeanswear. The company designs and markets jeans, casual wear and related accessories for men, women and children under the Levi’s®, Dockers®, Signature by Levi Strauss & Co.™, Denizen® and Beyond Yoga® brands. Its products are sold in more than 110 countries worldwide through a combination of chain retailers, department stores, online sites, and a global footprint of approximately 3,200 brand-dedicated stores and shop-in-shops. Levi Strauss & Co.’s reported 2021 net revenues were $5.8 billion. For more information, go to http://levistrauss.com, and for company news and announcements go to http://investors.levistrauss.com.

Forward Looking Statements

This press release and related conference call contain, in addition to historical information, forward-looking statements, including statements related to: the continued impact of the COVID-19 pandemic on the company’s business; future financial results, including revenues, adjusted EBIT margins, return on invested capital levels, adjusted gross margins, adjusted SG&A, tax rate, and adjusted diluted EPS; capital expenditures; pricing initiatives; new store openings; inflationary pressures; global economic conditions; investments in high growth initiatives; future dividend payments; future share repurchases; future shareholder return; and efforts to diversify product categories, distribution channels and geographies, and the related revenue projections. The company has based these forward-looking statements on its current assumptions, expectations and projections about future events. Words such as, but not limited to, “believe,” “will,” “so we can,” “when,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily estimates reflecting the best judgment of senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Investors should consider the information contained in the company’s filings with the U.S. Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K for fiscal year 2021 and its Quarterly Report on Form 10-Q for the quarter ended May 29, 2022, especially in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections. Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this press release and related conference call may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated or, if no date is stated, as of the date of this press release and related conference call. The company is not under any obligation and does not intend to update or revise any of the forward-looking statements contained in this press release and related conference call to reflect circumstances existing after the date of this press release and related conference call or to reflect the occurrence of future events, even if such circumstances or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

Non-GAAP Financial Measures

The company reports its financial results in accordance with generally accepted accounting principles in the United States (GAAP) and the rules of the SEC. To supplement its financial statements prepared and presented in accordance with GAAP, the company uses certain non-GAAP financial measures, such as Adjusted gross profit, Adjusted gross margin, Adjusted SG&A, Adjusted EBIT (both reported and on a constant-currency basis), Adjusted EBIT margin (both reported and on a constant-currency basis), Adjusted net income (both reported and on a constant-currency basis), Adjusted diluted earnings per share (both reported and on a constant-currency basis), constant-currency net revenues, net debt, leverage ratio, Adjusted free cash flow and return on invested capital to provide investors with additional useful information about its financial performance, to enhance the overall understanding of its past performance and future prospects and to allow for greater transparency with respect to important metrics used by management for financial and operating decision-making. The company presents these non-GAAP financial measures to assist investors in seeing its financial performance from management’s view and because it believes they provide an additional tool for investors to use in computing the company’s core financial performance over multiple periods with other companies in its industry. The tables found below present Adjusted gross profit, Adjusted gross margin, Adjusted SG&A, Adjusted EBIT (both reported and on a constant-currency basis), Adjusted EBIT margin (both reported and on a constant-currency basis), Adjusted net income (both reported and on a constant-currency basis), Adjusted net income margin (both reported and on a constant-currency basis), Adjusted diluted earnings per share (both reported and on a constant-currency basis), constant-currency net revenues, net debt, leverage ratio, Adjusted free cash flow, and return on invested capital, and corresponding reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. Certain items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the company’s financial position, results of operations and cash flows and should therefore be considered in assessing the company’s actual financial condition and performance. Non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgment by management in determining how they are formulated. Some specific limitations include but are not limited to, the fact that such non-GAAP financial measures: (a) do not reflect cash outlays for capital expenditures, contractual commitments or liabilities including pension obligations, post-retirement health benefit obligations and income tax liabilities; (b) do not reflect changes in, or cash requirements for, working capital requirements; and (c) do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on indebtedness. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the company’s financial results prepared in accordance with GAAP. The company urges investors to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate its business. See “RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES” below for reconciliation to the most comparable GAAP financial measures. A reconciliation of non-GAAP forward looking information to the corresponding GAAP measures cannot be provided without unreasonable efforts due to the challenge in quantifying various items including but not limited to, the effects of foreign currency fluctuations, taxes, and any future restructuring, restructuring-related, severance and other charges.

Constant-currency

The company reports certain operating results on a constant-currency basis in order to facilitate period-to-period comparisons of its results without regard to the impact of fluctuating foreign currency exchange rates. The term foreign currency exchange rates refers to the exchange rates used to translate the company’s operating results for all countries where the functional currency is not the U.S. Dollar into U.S. Dollars. Because the company is a global company, foreign currency exchange rates used for translation may have a significant effect on its reported results. In general, the company’s financial results are affected positively by a weaker U.S. Dollar and are affected negatively by a stronger U.S. Dollar as compared to the foreign currencies in which it conducts its business. References to operating results on a constant-currency basis mean operating results without the impact of foreign currency exchange rate fluctuations.

The company believes disclosure of constant-currency results is helpful to investors because it facilitates period-to-period comparisons of its results by increasing the transparency of the underlying performance by excluding the impact of fluctuating foreign currency exchange rates. However, constant-currency results are non-GAAP financial measures and are not meant to be considered as an alternative or substitute for comparable measures prepared in accordance with GAAP. Constant-currency results have no standardized meaning prescribed by GAAP, are not prepared under any comprehensive set of accounting rules or principles and should be read in conjunction with the company’s consolidated financial statements prepared in accordance with GAAP. Constant-currency results have limitations in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies.

The company calculates constant-currency amounts by translating local currency amounts in the prior-year period at actual foreign exchange rates for the current period. Constant-currency results do not eliminate the transaction currency impact, which primarily include the realized and unrealized gains and losses recognized from the measurement and remeasurement of purchases and sales of products in a currency other than the functional currency. Additionally, gross margin is impacted by gains and losses related to the procurement of inventory, primarily products sourced in EUR and USD, by the company’s global sourcing organization on behalf of its foreign subsidiaries.

Source: Levi Strauss & Co. Investor Relations

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

(Unaudited)

 

 

 

May 29,
2022

 

November 28,
2021

 

 

 

 

 

(Dollars in thousands)

ASSETS

Current Assets:

 

 

 

Cash and cash equivalents

$

601,870

 

 

$

810,266

 

Short-term investments in marketable securities

 

96,396

 

 

 

91,550

 

Trade receivables, net

 

609,180

 

 

 

707,625

 

Inventories

 

1,112,835

 

 

 

897,950

 

Other current assets

 

222,081

 

 

 

202,510

 

Total current assets

 

2,642,362

 

 

 

2,709,901

 

Property, plant and equipment, net

 

513,776

 

 

 

502,562

 

Goodwill

 

368,162

 

 

 

386,880

 

Other intangible assets, net

 

289,176

 

 

 

291,332

 

Deferred tax assets, net

 

556,120

 

 

 

573,114

 

Operating lease right-of-use assets, net

 

1,019,524

 

 

 

1,103,705

 

Other non-current assets

 

348,637

 

 

 

332,575

 

Total assets

$

5,737,757

 

 

$

5,900,069

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

 

 

 

Accounts payable

 

558,665

 

 

 

524,838

 

Accrued salaries, wages and employee benefits

 

221,815

 

 

 

274,700

 

Accrued sales returns and allowances

 

188,467

 

 

 

209,364

 

Short-term operating lease liabilities

 

243,841

 

 

 

245,369

 

Other accrued liabilities

 

517,826

 

 

 

615,347

 

Total current liabilities

 

1,730,614

 

 

 

1,869,618

 

Long-term debt

 

998,484

 

 

 

1,020,700

 

Postretirement medical benefits

 

47,033

 

 

 

51,439

 

Pension liabilities

 

151,105

 

 

 

155,218

 

Long-term employee related benefits

 

104,802

 

 

 

108,544

 

Long-term operating lease liabilities

 

925,049

 

 

 

969,482

 

Other long-term liabilities

 

52,338

 

 

 

59,407

 

Total liabilities

 

4,009,425

 

 

 

4,234,408

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

Common stock — $0.001 par value; 1,200,000,000 Class A shares authorized, 98,326,863 shares and 97,567,627 shares issued and outstanding as of May 29, 2022 and November 28, 2021, respectively; and 422,000,000 Class B shares authorized, 298,351,504 shares and 302,209,813 shares issued and outstanding, as of May 29, 2022 and November 28, 2021, respectively

 

397

 

 

 

400

 

Additional paid-in capital

 

592,827

 

 

 

584,774

 

Accumulated other comprehensive loss

 

(394,182

)

 

 

(394,387

)

Retained earnings

 

1,529,290

 

 

 

1,474,874

 

Total stockholders’ equity

 

1,728,332

 

 

 

1,665,661

 

Total liabilities and stockholders’ equity

$

5,737,757

 

 

$

5,900,069

 

Contacts

Investor Contact:

Aida Orphan

Levi Strauss & Co.

(415) 501-6194

Investor-relations@levi.com

Media Contact:

Elizabeth OwenLevi Strauss & Co.

(415) 501-7777

newsmediarequests@levi.com

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