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What’s Behind Levi’s Five-Year, $10 Billion Revenue Goal?

At an Investor Day presentation Wednesday, Levi Strauss & Co. CEO Chip Bergh summed up the denim giant’s five-year growth acceleration plan in one word: ambitious.

The goal comes as the San Francisco company has been firing on all cylinders in the wake of supply chain constraints that have cut into profits at apparel retailers and mass merchants alike.

Levi Strauss now sees annual revenue growing in a range of 6 percent to 8 percent through 2027, up from previous five-year targets of 4 percent to 6 percent. Such an increase would take LS&Co.’s revenue from $5.8 billion to close the 2021 fiscal year to a range between $9 billion and $10 billion.

And much of that growth will be powered by direct-to-consumer (DTC) sales, which drove 36 percent of revenue in 2021. By 2027, Levi’s wants that number to reach 55 percent.

The company is making a big bet on brick-and-mortar with plans to open approximately 400 locations through 2027 for a nearly 1,550-strong fleet, including Dockers and Beyond Yoga stores.

Bergh noted that despite its massive reach worldwide, Levi’s only has 51 freestanding stores in the U.S., presenting a “notable opportunity” for growth.

According to chief financial officer Harmit Singh, the opening pace of 80 per year tops the 70 stores it opened annually from 2015 to 2019. Singh said the impact of the openings would be accretive to the LS&Co. gross margins.

Company-operated e-commerce channels represented just 8 percent of net sales in 2021. Levi’s wants to grow this figure to 15 percent.

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The growth will come from improvements to, faster delivery times, free shipping on returns for Levi’s members and online-exclusive product launches, according to Singh.

“We are focused on delivering stronger channel economics, both by scaling volumes and by leveraging costs, especially as we take distribution in-house,” he said.

While direct channels are getting all the spotlight, Bergh said “DTC-first does not mean DTC-only.”

Rather, wholesale, which drives 54 percent of the company’s revenue, will pivot toward more premium, digital and high-quality distribution, with less availability in off-price and other traditional brick-and-mortar wholesale channels.

Despite wholesale’s decline from 70 percent of sales in 2012, “our wholesale gross margin and profitability are stronger today than at any time in recent history,” Bergh said. The channel has been able to adjust pricing and reduce promotions, and is still projected to grow in the single-digits over the next five years. In March, the company said it was expanding its presence to 300 more Target stores.

From a product perspective, the company is focused on expanding underpenetrated but high-margin businesses. Levi Strauss aims to grow women’s apparel to 42 percent of total revenue, up from the current 33 percent, while increasing tops’ share to 25 percent by 2027, up from 21 percent of sales.

Levi Strauss has been working on growing women’s and tops, which have expanded significantly from their respective 21 percent and 11 percent share of the business back in 2015.

The denim firm expects net revenue growth of 11 percent to 13 percent to between $6.4 billion and $6.5 billion for fiscal 2022 and adjusted diluted earnings per share (EPS) of $1.50 and $1.56.

Levi Strauss & Co. CEO Chip Bergh speaking to the audience at the denim giant's Investor Day on Wednesday.
Levi Strauss & Co. CEO Chip Bergh speaking to the audience at the denim giant’s Investor Day on Wednesday. Levi Strauss & Co.

COO lays out Levi’s supply chain digitization strategy

Liz O’Neill, Levi Strauss executive vice president and chief operations officer, shared how the business has managed to skirt the ongoing supply chain disruptions throughout the Covid-19 pandemic.

The company has manufacturing operations in 28 countries and a global distribution network of 35 facilities, and managed to reduce obsolete inventory by 100 basis points (1 percentage point) since 2019, while increasing adjusted gross margin 410 basis points (4.1 percentage points).

Looking forward, O’Neill said Levi’s will further build out supply chain capacity to support the $10 billion revenue goal, with two new facilities—one in the U.S. and one in Europe—being built through 2024 to help grow its omnichannel capacity so that “all products and all channels can be serviced under one roof.”

The company also will expand its sourcing base, seeking out emerging production markets to ensure diversification and cost competitiveness, O’Neill said.

O’Neill said Levi is leaning into digitization to bolster the company’s supply chain agility and responsiveness.

“We really think of digitization as the red thread that ties together our strategic pillars of capacity, resilience and agility,” O’Neill said. “We are … investing in each of these to ensure that we are getting to a truly digital operating model.”

Increased investment in robotics, RFID optimization and automation, largely within manufacturing technology will enhance capacity, the COO said. Resilience is being fortified through technologies like PLM, supply chain planning and by running cost scenarios. Powering the agility efforts are digital product design and 3D rendering, global line assorting tools, predictive forecasting and leveraging logistics and transportation platforms.

The digitization push also supports Levi’s sustainability initiatives, “whether it’s by helping us reduce waste—either with fewer samples because we’re designing digitally instead of physically, or because we air freight all over the world—or the ability to better match supply and demand and better reduce overproduction and waste,” O’Neill said.

Levi’s can also improve sustainability by leveraging traceability platforms with increased visibility into global production.

Levi forecasts its Dockers and Beyond Yoga banners to contribute combined revenue of nearly $1 billion by 2027. Last year, LS&Co. acquired activewear startup Beyond Yoga to  diversify its offerings.

The company said its board of directors approved the repurchase of up to $750 million in stock. LS&Co. shares has since risen more than 5 percent since Wednesday.