Levi Strauss & Co has announced financial results for the first quarter ended 27 February:
- Q1 net revenues of $1.6bn increased 22% on a reported basis, and 26% on a constant-currency basis, excluding $38m in unfavourable currency impacts.
- DTC net revenues increased 35%, driven by both company-operated stores and e-commerce.
- The company’s global digital net revenues grew approximately 16% compared to the same period in the prior year and comprised about 25% of Q1 net revenues.
- Gross margin was 59.3% of net revenues, up from 58.2% in the same quarter of the prior year.
- Net income was $196m, compared to $143m in the prior year. Adjusted net income was $189m, compared to $140m. The company recognised lower interest expense offset with higher income taxes and a Covid-19 government subsidy gain within net income in the current year.
- Levi Strauss reaffirms expectations for fiscal 2022 and expects net revenues growth of 11-13% compared to FY 2021, between $6.4-$6.5bn.
“We started the year with strong consumer demand and solid momentum across geographies, channels and categories,” says Chip Bergh, president, and CEO of Levi Strauss & Co. “Our teams’ disciplined execution of our strategic priorities enabled us to deliver strong top and bottom-line growth as we capitalise on structural tailwinds and successfully manage a dynamic operating environment. The strength of our brands and strategy position us to deliver sustainable growth well into the future.”
CFO Harmit Singh adds: “We achieved excellent financial results in the first quarter, driving strong double-digit revenue growth and record gross margin enabling us to deliver adjusted EBIT margin of 14.9%. The ongoing consumer demand across our portfolio of brands and our proven ability to deliver profitable growth give us the confidence to reaffirm our full-year outlook despite the incremental headwinds from ongoing macro challenges.”
Commenting on the numbers, Pippa Stephens retail analyst at Global Data, notes Levi’s continued to exhibit a strong performance in Q1 FY2021/22, as the desirability of its products and focus on direct-to-consumer (DTC) channels drove total revenue up by $286.0m to $1.6bn, 5.7% above that of pre-pandemic levels. However, its growth slowed slightly versus the prior quarter, with sales in Q4 FY2020/21 up 7.4% on a two-year basis, with this deceleration likely due to the rise in virus cases and heightened economic uncertainty, she adds.
“While Asia displayed the strongest growth, increasing by 4.4% on a two-year basis, Europe was Levi’s weakest link, with sales 8.5% below pre-pandemic levels. This is despite it having made a full recovery in the region in Q4 FY2020/21, with the rise of the Omicron variant in December 2021 leading consumers to limit their social interactions once more, reducing the need for new fashion purchases. Regardless of this, its view for FY2021/22 remains unchanged, still expecting growth of 11-13%.
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“Though it experienced rapid online growth in Q1 FY2020/21 due to the temporary closure of physical stores amid Covid-19 lockdowns, Levi’s online sales (including those through wholesale partners) continued to rise in Q1 FY2021/22, growing by 16% year-on-year to represent 25% of total sales (26% in Q1 FY2020/21 due to store closures). However, its own website still only accounts for 9% of total sales, which is much lower than many of its competitors, highlighting that the brand needs to strengthen its online presence, such as by offering faster and more affordable delivery options. However, Levi’s is wise to continue opening more stores internationally, since fit is very important when it comes to buying jeans, with many shoppers preferring to try them on instore before purchasing, and this is especially true for Levi’s due to its higher price points. The experiential aspects it has been integrating into its locations, such as customized printing and its Tailor Shops, will also help highlight its points of difference.
“So far, the brand has been reasonably resilient to the many pressures impacting the global apparel market. Though it has increased its prices and offered fewer promotions to mitigate high inflation rates and heightened cotton costs, this does not seem to have deterred shoppers, since its products are known to be made to last so consumers are more willing to make the investment, allowing it to increase its gross margin by 1.7ppts. However, supply chain issues have impacted its net revenues by approximately $60m, likely due to consumers often having a specific style of jeans in mind that they want to buy, so will delay purchasing if this is unavailable. The brand suspended its operations in Russia at the beginning of March in response to its invasion of Ukraine, and while its sales will inevitably be impacted by this, it is more protected than other players, since only 4% of its total revenues in 2021 derived from Eastern Europe, of which only half was from Russia.”
In Q4, Levi Strauss reported net revenues of US$1.7bn for the three months ended 28 November, marking a 22% rise on the prior-year period and a 7% increase compared to the fourth quarter of 2019. Net income amounted to $153m with adjusted net income of $170m, up from $81m a year ago and $108m in the pre-pandemic fourth quarter.
