Levi Strauss saw net revenues for the second quarter jump 156 percent to $1.28 billion, turning a profit compared to a loss in 2020.
In a Nutshell: Levi Strauss & Co. reported financial results for the second quarter that the company said exceeded its expectations on revenue, adjusted gross margin and adjusted earnings before interest and taxes (EBIT).
“Revenues in most markets are recovering faster than anticipated, and we are emerging from the pandemic with sustainable and improved structural economics,” Harmit Singh, chief financial officer of Levi Strauss & Co., said. “As we look forward, we’re raising our expectations for revenues and profits. Our balance sheet remains strong and we continue to return cash to shareholders, with dividends now back to pre-pandemic levels.”
The company’s expectations for the second half of fiscal 2021 are now higher than 2019. Reported net revenues growth of 28 percent to 29 percent is expected compared to the second half of fiscal 2020, which represents reported net revenues growth of 4 percent to 5 percent compared to the second half of fiscal 2019. Adjusted diluted EPS of 72 cents to 76 cents is forecast, bringing the full-year adjusted diluted EPS outlook to $1.29 to $1.33.
During the quarter, the Levi’s experienced temporary door closures in geographies affected by lockdowns associated with Covid-19 cases–approximately one-third of the full store footprint in Europe and 17 percent of doors globally were closed during the quarter. Currently, 92 percent of doors are open.
Direct-to-consumer (DTC) net revenues increased 141 percent in the period due to increased revenues from company-operated stores. E-commerce momentum continued despite store re-openings with growth of 42 percent reflecting the benefit of accelerating omnichannel initiatives. DTC stores and e-commerce comprised 29 percent and 8 percent, respectively, of total company net revenues in the second quarter.
The company’s global digital net revenues, which include net revenues attributable to owned e-commerce sites as well as the online businesses of its pure-play and traditional wholesale customers, grew approximately 75 percent compared to the same period in the prior year, and comprised approximately 23 percent of second quarter fiscal 2021 net revenues.
In the Americas, net revenues and operating income increased, reflecting the impact of the pandemic on prior-year results. Notably, company e-commerce net revenues grew 18 percent while lapping strong growth in the prior year.
In Europe, net revenues and operating income increased, reflecting the impact of the pandemic on prior year results, and company e-commerce net revenues grew 75 percent. In Asia, net revenues and operating income increased, reflecting the impact of the pandemic on prior year results, while company e-commerce net revenues grew 75 percent.
Sales: Net revenues for the second quarter ended May 30 increased 156 percent year over year to $1.28 billion. Wholesale net revenues increased 167 percent, reflecting strong demand above the second quarter of fiscal 2020.
Compared to the second quarter of fiscal 2019, total company net revenues decreased 3 percent. The same comparison saw Americas net revenues grow 3 percent, driven by growth in the U.S. market. The region’s wholesale net revenues grew 4 percent on strong performance by the Levi’s brand and Signature. Net revenues through all digital channels grew 61 percent and represented 19 percent of the region’s sales in the quarter.
Europe net revenues declined 8 percent from the 2019 period, with DTC down 21 percent, reflecting temporary store capacity restrictions and closures during one-third of the quarter. The region’s sales decline was partially offset by 4 percent revenue growth in wholesale and over 100 percent growth through all digital channels.
Compared to the second quarter of fiscal 2019, Asia net revenues declined 12 percent, as the COVID-19 pandemic continued to negatively impact several of the region’s large markets, including India, which accounted for roughly half the Asia region’s sales decline.
China marked an inflection to growth for the first time since the beginning of the pandemic. The Asia region’s sales decline was partially offset by revenue growth through all digital channels of 83 percent.
Earnings: Net income in the quarter was $65 million compared to a net loss of $364 million in the same quarter of the prior year. Adjusted net income of $93 million compared to an adjusted net loss of $192 million in the same quarter of the prior year was due to higher net revenues and adjusted gross margin partially offset with higher adjusted sales, general and administrative (SG&A) costs.
Adjusted diluted earnings per share increased to 23 cents compared to a loss of 48 cents for the same prior-year period.
Gross profit in the quarter was $750 million, compared to $170 million in the prior-year period. Gross margin was 58.8 percent of net revenues, up from 34.1 percent in a year earlierr, primarily reflecting $87 million in charges taken in the second quarter of fiscal 2020 related to COVID-19.
CEO’s Take: Chip Bergh, president and CEO of Levi Strauss & Co., said: “We generated strong momentum in the second quarter with the accelerated recovery of our revenues and delivered growth across all regions and channels. This was underscored by the strength of our brands and our ability to capitalize on evolving denim trends and a continued shift to casualization. As we move into the second half of 2021, we are focused on emerging stronger with our strategic priorities of leading with our enduring brand, accelerating our direct-to-consumer connections, and diversifying across categories, channels and geographies.”