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Omnichannel Growth Buoys Levi’s Revenue and Income in Third Quarter

Strong showings in wholesale, retail and direct-to-consumer and some favorable conditions lifted Levi Strauss & Co. to a 45 percent jump in third-quarter net income, the company reported Tuesday.

In a Nutshell: Levi Strauss & Co. delivered its fourth straight quarter of revenue growth on the strength of its signature brand and a solid omnichannel strategy. Direct-to-consumer revenues grew 14 percent on performance and expansion of the retail network, as well as e-commerce growth. The company had 65 more company-operated stores at the end of the third quarter of 2018 than it did a year prior.

Sales: Net revenues for the third quarter ended Aug. 26 grew 10 percent, to $1.39 billion, driven by broad-based Levi’s brand growth in all regions and channels. Wholesale reported revenues grew 8 percent reflecting higher revenues in all regions.

In the Americas, excluding unfavorable currency effects of $8 million, net revenues grew 9 percent, to $793 million, boosted by wholesale and direct-to-consumer channels. In Europe, excluding unfavorable currency effects of $3 million, net revenues grew 17 percent, to $406 million on continued broad-based growth across wholesale and direct-to-consumer channels, with the strongest growth in women’s and tops. In Asia, excluding unfavorable currency effects of $4 million, net revenues gained 8 percent, to $196 million, with growth across all channels.

Earnings: Net income in the period increased 45 percent, to $130 million, primarily reflecting lower income taxes, higher operating income and gains on the company’s hedging contracts as compared with losses in the third quarter of 2017.

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Adjusted earnings before interest and taxes (EBIT) increased 10 percent, to $162 million in the period, as revenue growth and higher gross margins partially offset higher selling, general and administration expenses (SG&A) of $583 million compared with $510 million in the year-ago quarter. The adjustment included a $10 million correction to stock-based compensation expense recognized to reflect a shorter expense recognition period for retirement-eligible employees.

Gross margin for the third quarter was 53.2% of net revenues, compared with 51.8% in the same quarter of fiscal 2017, reflecting the margin benefit from revenue growth in the global direct-to-consumer channel.

Operating income for the third quarter rose 8 percent year-to-year, to $159 million in the period, reflecting the revenue growth and higher gross margins, partially offset by higher SG&A. In the Americas, operating income increased 4 percent, to $163 million, thanks to higher net revenues that outweigh direct-to-consumer and advertising expenses.

In Europe, operating income grew 25 percent, to $77 million, as strong revenue and gross margin balanced out direct-to-consumer and advertising investments. In Asia, operating income increased 30 percent, to $15 million.

CEO’s Take: Chip Bergh, Levi Strauss & Co. president and CEO, said: “We delivered our fourth consecutive quarter of double-digit revenue growth. This growth was broad-based across virtually every part of our business, including all four brands, men’s, women’s, tops and bottoms, and all regions and channels, with results that put us among the top performers in the industry.”