US denim giant Levi Strauss has booked a 5% increase in first-quarter net revenues to US$1.5bn and says inventory management measures mean it is well-positioned to weather the impact of the Covid-19 storm.
For the three months ending 23 February, group net income rose to US$152.6m from $146.6m a year earlier, lifted by lower income tax rate but offset in part by the timing of marketing and admin costs.
Overall revenues were up, despite it taking a US$20bn hit in Asia due to store closures around the coronavirus outbreak.
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By GlobalDataPrior to Covid-19, its first quarter net revenue growth in China was in the double digits – but at the end of the quarter nearly all company-operated owned and franchisee doors in mainland China were closed. Currently, all but six franchisee doors in mainland China have reopened.
Asia revenues during the first quarter declined 2% to $248m and operating income plunged 24% to $33m.
Its Americas unit, meanwhile, saw a 4% increase in net revenues during the three month period to $746m while operating income growth was flat at $124m. In Europe, revenues rose 10% to $513m while operating income grew 9% to $132m.
Since mid-March the company has temporarily closed all its doors (both company-operated and franchise) in the Americas and Europe, as well as most doors in Asia outside greater China, Korea and Japan. Accordingly, the adverse impact to the company’s second-quarter net revenues, earnings and cash flows is expected to be materially significant.
“Our first-quarter results underscore the strength of the Levi’s brand and the efficacy of our strategies to diversify our business, both of which will be crucial to coming out of the current crisis stronger than ever,” said Chip Bergh, president and CEO of Levi Strauss & Co.
“As this human and economic tragedy unfolds globally over the coming months, we are taking swift and decisive action that will ensure we remain a winner in our industry. I believe the true character of a company is shown in a time of crisis, and as we have in the past, we will navigate this one by leveraging our strengths and seizing opportunities that will help us continue to thrive over the long-term.”
During the first quarter, inventories were 7% lower on last year’s figures, reflecting inventory efficiency. Going forward, much of its strategy is going to centre around inventory management as it makes its way through the crisis.
On an investor call in the wake of the results, the group said a significant majority of its inventory is core replenishment or “evergreen products,” which it can carry over into future seasons. It has “aggressively cut purchases and cancelled orders” for the second half of 2020 while working with suppliers to manage the flow of finished goods in-line with reduced demand in the short term. Separately, the group plans to boost its ship-from-store capabilities, allowing stores to fulfil e-commerce orders to help manage inventory further.
“Significant gross margin expansion, lower inventory and higher earnings all contributed to strong financial performance in the first quarter of 2020,” said Harmit Singh, executive vice president and CFO of Levi Strauss & Co. “In the short term we are reducing costs and capital spend while managing inventory and gross margins. We’ve built a healthy balance sheet that provides us significant liquidity to both weather the storm in the near term and emerge from this stronger, with our long-term growth algorithm intact.”
