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In “Dynamic” Market, Levi Strauss Sees Revenue Rise

Driven by growth across all segments, Levi Strauss‘s second-quarter net revenues rose 15 percent to $1.5 billion.

In a Nutshell: Levi Strauss & Co., in reporting financial results for its second quarter on Thursday, reaffirmed expectations for fiscal 2022, with 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) is expected to come in at $1.50 to $1.56.

“We delivered another solid quarter, growing reported net revenues 15 percent and adjusted EBIT (earnings before interest and taxes) 27 percent, 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 [billion] to $10 billion and adjusted EBIT margin of 15 percent by fiscal year 2027.”

Levi Strauss reported selling, general and administrative (SG&A) expenses were $779 million compared to $644 million in the same quarter of the prior year. The increase primarily reflected the full impairment of certain long-lived assets in Russia.

Total inventories increased 29 percent 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.

Sales: Net revenues for the second quarter ended May 29 rose 15 percent to $1.5 billion compared to the same period in 2021, driven by growth across all business segments.

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Global direct-to-consumer (DTC) net revenues were up 16 percent versus a year earlier, reflecting a 23 percent increase in company-operated stores. Global wholesale net revenues increased 15 percent year over year, reflecting strong demand for the Levi’s brand globally.

Net revenues through all digital channels represented approximately 20 percent of total second-quarter net revenues, up 3 percent on top of 75 percent growth in the same quarter of the prior year.

In the Americas, net revenues grew 17 percent, driven by growth across wholesale and DTC channels. DTC net revenues increased 13 percent on strength in company-operated mainline and outlet stores. Wholesale net revenues rose 19 percent, driven by the Levi’s brand, particularly in the U.S. Net revenues through all digital channels was up 17 percent.

In Europe, net revenues rose 3 percent and DTC net revenues increased 23 percent, driven by strength in company-operated outlet and mainline stores. Wholesale net revenues decreased 10 percent. Net revenues through all digital channels declined 30 percent following over 100 percent growth in the same period last year.

In Asia, net revenues increased 16 percent, driven by wholesale and DTC channels and most markets outside of China. DTC net revenues rose 2 percent, and wholesale net revenues were up 35 percent.

Dockers and Beyond Yoga combined for net revenues and operating income increases, reflecting growth across channels for the Dockers brand, which was up 23 percent, and the acquisition of Beyond Yoga, which had net revenues of approximately $23 million.

Earnings: Net income in the quarter fell 23.1 percent to $49.74 million from $64.72 million in the prior-year period. Adjusted net income was $117 million, up from $93 million in second quarter of 2021.

Gross profit was $855 million, compared to $750 million in the same quarter of the prior year. Gross margin was 58.1 percent of net revenues, versus 58.8 percent in the prior-year period.

Operating income was $76 million compared to $107 million in the same quarter of 2021. The decrease reflected $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 year-earlier quarter due to higher net revenues partially offset by increased investments to support growth.

Diluted EPS decreased to 12 cents from 16 cents in the 2021 quarter due to a 15 cents unfavorable impact of the Russia-Ukraine charges. Adjusted diluted EPS increased to 29 cents compared to 23 cents, primarily due to increased adjusted net income offset by a 2 cents impact from currency translation.

CEO’s Take: Chip Bergh, president and CEO of Levi Strauss & Co., said: “Our second quarter results demonstrate the power of our strategy, which continues to support strong revenue growth and margin expansion. 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.”