Levi Strauss & Co.
The denim jeans maker Levi Strauss & Co. reported a first quarter double-digit decline in sales as ongoing store closures and a lack of foot traffic impacted results. However, higher gross margins and cost-saving initiatives helped offset the declines.
Revenue declined 13% on a reported basis (and 16% in constant-currency) to $1.3 billion compared to the same period in the prior year.
The decrease was primarily due to reduced traffic in the US and ongoing closures of company-operated and 3rd party retail locations, particularly in Europe. The first quarter of fiscal 2021 did not include the benefit of a Black Friday, like the first quarter of fiscal 2020 did, which impacted revenue by around three percentage points.
Global digital net revenue grew 41% compared to the same period a year-ago, and comprised approximately 26% of total first-quarter 2021 net revenues - which is up from 16% in the first quarter of the prior year.
Gross profit fell 9.4% to $760 million. Gross margins increased 250 basis points to 58.2%, a record high for the company. Adjusted EBIT was $174 million, and the Adjusted EBIT margin was 13%, a 70 basis points increase from the first quarter of 2020. Costs were well contained, declining 12% from Q1 2020.
Net income declined 6.67% to $142.5 million, or 35 cents per share. The decline in profits is primarily attributable to the adverse revenue impact of Covid-19, as well as higher interest expense, reflecting the company’s additional borrowing in the prior year to enhance its liquidity position. The interest expense will decline in future quarters as the company issued US Dollar bonds of $500 million at a 3.5% coupon and used the proceeds and cash on hand to repay its $800 million 5% coupon bonds in March 2021. The company had total available liquidity of $2.8 billion; and cash and cash equivalents at quarter end were $2 billion.
Levis boosted its sales and profit outlook for the first half of the year, and is anticipating sales will return to pre-pandemic levels by the fourth quarter.
Sales are expected to grow 24% to 25%, and adjusted earnings are forecast to be in a range of 41 cents to 42 cents, which implies earnings of 7 cents to 8 cents during the fiscal second quarter – better than analysts had expected.
The San Francisco-based company, which listed in March 2019, is planning on adding 40 self-branded stores and 200 outlet locations in the US to improve direct-to-consumer sales. These new generation stores will be designed to be smaller and equipped with AI machine learning to help with stock levels. Levis has been battered by quarantine restrictions and the use of comfier bottoms in Zoom meetings. Despite that, the share is up 30% year-to-date on reopening optimism.