In a Nutshell: While fourth-quarter revenue was “masked” by Black Friday falling in the first quarter of fiscal 2020, Levi Strauss & Co. still posted a 3 percent gain in net revenue for the year.
The company said expectations for fiscal 2020, as compared to fiscal 2019, are for net revenue growth of around 6 percent. This estimate incorporates anticipated benefits of a Black Friday week in the first quarter, and a 53rd week, which will fall in the fourth quarter and will include a second Black Friday.
Adjusted earnings before interest and taxes (EBIT) margin expansion is expected in the range of 30 to 40 basis points, reflecting gross margin expansion partially offset by an increase in adjusted sales, general and advertising (SG&A) expense as a percentage of revenues. Adjusted diluted earnings per share (EPS) is forecast in the range of $1.18 to $1.22.
Capital expenditures are expected to be approximately $200 million to $210 million, with nearly 100 new company-operated store openings on a gross basis in 2020, in addition to 80 stores from the company’s acquisition in South America.
Sales: Net revenues for the fourth quarter ended Nov. 24 declined 2 percent to $1.57 billion.
The company’s direct-to-consumer net revenues were flat in the quarter, as expansion and improved performance of the retail network and e-commerce growth were offset by the lack of a Black Friday benefit in the current year. This, in turn, adversely impacted the year-over-year direct-to-consumer net revenues growth comparison by 7 percent, and the total company net revenues growth comparison by about 2 percent.
Net revenues from the company’s wholesale business declined 1 percent on both a reported and constant-currency basis, as a 4 percent decline in U.S. wholesale was partially offset by growth in Europe.
In the Americas, net revenues declined 5 percent, with the region’s direct-to-consumer net revenues falling 7 percent, reflecting the lack of a Black Friday benefit in the current year, which adversely impacted the year-over-year direct-to-consumer net revenues growth comparison by about 9 percent, and the total region’s net revenues growth comparison by about 2 percent.
The region’s wholesale net revenues declined 4 percent, primarily reflecting reduced shipments to the off-price channel in 2019, the Dockers line reset in the second half of 2018, and the impact of an acquisition of a South American distributor in 2019.
In Europe, net revenues grew 5 percent, reflecting continued broad-based growth in both direct-to-consumer and wholesale channels across the region. The lack of a Black Friday benefit in the current year adversely impacted the total region’s year-over-year net revenues growth comparison by about 3 percent.
In Asia, net revenues grew 1 percent, primarily on growth in the direct-to-consumer channel. Revenue growth across most of the region’s markets was partially offset by declines in Hong Kong, reflecting the unrest there, and in India, a seasonal shift in the timing of shipments.
For the year, net revenues grew 3 percent to $5.8 billion. The lack of a Black Friday benefit in the fourth quarter and the acquisition of a South American distributor in 2019 collectively adversely impacted the company’s year-over-year net revenues growth comparisons by about 1 percent.
The company’s direct-to-consumer net revenues grew 10 percent due to performance and expansion of the retail network and e-commerce growth–the company’s retail network had 81 more company-operated stores at the end of 2019 than a year prior.
Wholesale net revenues grew 2 percent, reflecting international growth partially offset by a 3 percent decline in U.S. wholesale net revenues.
Earnings: Net income for the fourth quarter fell 2 percent to 96 million compared to $97 million a year earlier.
Operating income for the quarter was up 2 percent $132 million, as higher net revenues in Europe and Asia were partially offset by higher SG&A expenses associated with the expansion of the company-operated retail network.
Gross profit of $851 million for the fourth quarter rose 1 percent from $847 million in the prior year. Gross margin of 54.3 percent of net revenues was up 110 basis-points compared with 53.2 percent in the same quarter of 2018, primarily reflecting lower sales to the off-price channel and price increases. Currency unfavorably impacted fourth-quarter gross margin by 20 basis points.
For the year, net income rose 38.6 percent to $395 million from $285 million in the prior year, primarily due to a charge in 2018 from the impact of the change in tax law in the United States.
For the year, gross margin was flat on a reported basis. Currency unfavorably impacted fourth-quarter gross margin by 60 basis points. Excluding the unfavorable currency effects, gross margin expansion reflected direct-to-consumer and international growth and the benefit of price increases the company has taken.
CEO’s Take: Chip Bergh, president and CEO of Levi Strauss & Co, said: “We are pleased with our results in fiscal 2019. We delivered six percent revenue growth for the year on a constant-currency basis, at the high end of our expectations. Growth was broad-based by region, channel and category. Underlying fourth quarter organic revenue growth met our expectations in spite of being masked by Black Friday falling in fiscal 2020. We outperformed our fourth-quarter expectations in U.S. wholesale, gross margin and EPS…As we look ahead to 2020 and beyond, we are confident we’ll continue to drive profitable growth over the long-term by executing our strategies.”