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Levi’s Income Soars Despite Added Supply Chain Costs

Levi Strauss & Co. reported a 22 percent rise in revenue in the fourth quarter, despite impacts from supply chain constraints that cost the company $50 million.

In a Nutshell: Levi Strauss  said it expects fiscal 2022 net revenue growth of 11 percent to 13 percent compared to 2021, reaching between $6.4 billion and $6.5 billion. Adjusted diluted earnings per share (EPS) was forecast at $1.50 to $1.56.

“We achieved strong results, including multi-decade record revenues and profitability, delivering adjusted earnings before interest and taxes (EBIT) margin for the full year of 12.4 percent despite heightened supply chain challenges and product costs,” said Harmit Singh, chief financial officer of Levi Strauss. “This was the result of the unique strength of our brands and our ability to leverage our pricing power to more than offset inflationary pressures, while also reinvesting in our growth. Looking ahead, with the foundational work we have done to advance our growth strategies and improve our structural economics, we are highly confident in our 2022 outlook.”

The firm noted that in 2021, it created an integrated global commercial organization to continue to elevate and strengthen the Levi’s business. In the fourth quarter, the company separated the Dockers business to provide focus and reinvigorate the brand’s growth. It is leveraging a similar, separate structure for the newly acquired Beyond Yoga business.

Selling, general and administrative (SG&A) expenses were $791 million compared to $653 million in the same quarter in the prior year. Adjusted SG&A in the fourth quarter of fiscal 2021 was $776 million compared to $644 million in the same quarter in the prior year, reflecting higher investments in advertising and promotion, higher selling expenses due to increased sales and continued investments in omnichannel, AI and digitization initiatives.

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Adjusted free cash flow for 2021 was $230 million, an increase of $88 million compared to 2020. Total inventories increased 10 percent compared to the end of the corresponding prior-year period.

Sales: Net revenues for the fourth quarter ended Nov. 28 rose 22 percent to $1.69 billion versus $1.39 billion on the same period in 2020 and were up 7 percent compared to the 2019 quarter.

Direct-to-Consumer (DTC) net revenue rose 25 percent from a year earlier and were up 20 percent versus the comparable 2019 period. Company-operated store net revenue increased 28 percent versus the 2020 quarter and 14 percent against 2019. DTC e-commerce net revenue was up 22 percent on 2020 and 69 percent compared to 2019’s fourth quarter.

Global wholesale net revenues rose 20 percent from 2020 and 1 percent versus 2019, primarily reflecting strong demand for the Levi’s brand globally.

The company said the approximate 3 percent net revenues benefit from Black Friday and the acquisition of Beyond Yoga was offset by the impact of supply chain constraints, which was approximately $50 million.

For the year, net revenues rose 29 percent to $5.8 billion compared to 2020 and were flat to 2019.

Earnings: Net income in the quarter jumped 169 percent to $153 million from $57 million in the year-earlier period. Adjusted net income was $170 million, up from $81 million in the 2020 quarter. The increases were primarily due to an rise in operating income and adjusted EBIT, the company said.

Adjusted gross margin was 58.1 percent, up 350 basis points from the fourth quarter of 2020 and 380 basis points from the 2019 period.

Diluted earnings per share (EPS) was 37 cents and adjusted EPS was 41 cents, up 105 percent from 20 cents in the year-earlier period and 58 percent from 26 cents in 2019.

For the year, net income was $554 million compared to a loss of $127 million in 2020. Adjusted net income was $601 million, up from $84 million in 2020 and $456 million in 2019.

CEO’s Take: Chip Bergh, president and CEO of Levi Strauss & Co., said: “We had a strong finish to 2021 and I can confidently say that we are a stronger company than ever before. Today’s results reflect robust financial performance, marked by sequential improvement through the year, despite navigating ongoing business disruption from the pandemic. Through it all, we have stayed focused on our future and our momentum continues to accelerate into 2022.

“We are well positioned for long-term, sustainable growth–our strong brand equity is driving pricing power, we’re boldly diversifying our business and continuing to expand our high margin DTC business,” Bergh added. “As good as this past year has been, I am confident the future will be even better.”