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Levi Strauss posts sales and earnings growth, raises outlook

By Prachi Singh

Oct 7, 2021

Management

Image: Levi's, Levi Strauss & Co.

Levi Strauss & Co. has reported net revenues of 1,498 million dollars, an increase of 41 percent on a reported basis, and 38 percent on a constant-currency basis, compared to the same period in the prior year.

The company’s wholesale net revenues increased 45 percent reflecting strong demand in the U.S. and Europe, direct-to-consumer (DTC) net revenues increased 34 percent due to increased revenues from company-operated stores, and the company’s global digital net revenues grew approximately 10 percent.

Compared to the third quarter of fiscal 2019, total company net revenues increased three percent on a reported basis and two percent on a constant-currency basis. On a reported basis, net revenues for wholesale grew three percent and DTC net revenues increased four percent due to company-operated e-commerce growth of 44 percent and an inflection of company-operated store growth in the Americas and Europe.

“We delivered a strong quarter with revenue growth versus pre-pandemic 2019 levels, despite a more difficult macro-environment than we expected,” said Chip Bergh, president and chief executive officer of Levi Strauss & Co., adding, “These results reflect the strength of the Levi’s brand, improving momentum in our direct-to-consumer business and the scale and agility of our supply chain network where we have executed against macro-headwinds exceptionally well.”

Review of Levi Strauss’ Q3 performance

The company’s gross profit was 862 million dollars as compared to 577 million dollars in the same quarter in the prior year. Gross margin was 57.6 percent of net revenues, up from 54.3 percent in the same quarter of the prior year. Adjusted gross margin was 57.5 percent, an increase of 390 basis points compared to the same period in the prior year.

Operating income for the quarter was 216 million dollars compared to 92 million dollars in the same quarter in the prior year. Adjusted EBIT of 222 million dollars compared to 84 million dollars in the same quarter of the prior year.

Net income was 193 million dollars compared to 27 million dollars and Adjusted net income was 197 million dollars compared to 31 million dollars in the same quarter of the prior year. Adjusted diluted earnings per share increased to 48 cents as compared to 8 cents for the same prior-year period.

“Adjusted EBIT margin exceeded our expectations driven by strong brand momentum. Looking ahead, we are raising our outlook across revenues and profits. We have taken pricing actions and believe we have pricing power to mitigate inflationary pressures,” added Harmit Singh, chief financial officer of Levi Strauss & Co.

Levi Strauss’ results across core geographies

In the Americas, the company’s net revenues and operating income increased versus 2020 reflecting the impact of the pandemic on prior year results. Compared to the third quarter of fiscal 2019, Americas net revenues grew nine percent.

The region’s wholesale net revenues grew 11 percent driven by strong performance of the Levi’s brand and Signature. The region’s DTC net revenues increased four percent primarily due to growth in e-commerce net revenues, which were up 40 percent. Net revenues through all digital channels grew 65 percent and represented 18 percent of the region’s sales in the quarter.

Compared to the third quarter of fiscal 2019, Europe net revenues grew seven percent on a reported basis and three percent on a constant-currency basis, driven by growth across all channels.

Wholesale net revenues increased three percent, driven by digital pure-players, while DTC net revenues increased 12 percent, driven by strong performance in our outlet stores. Company e-commerce net revenues grew 41 percent versus the third quarter of fiscal 2019. Net revenues through all digital channels grew 87 percent and represented 24 percent of the region’s sales in the quarter.

Compared to the third quarter of fiscal 2019, Asia net revenues declined 23 percent on reported and constant-currency bases driven by the ongoing impact of Covid-19 in the region. Wholesale and DTC store net revenues declined while company operated e-commerce net revenues increased 62 percent. Net revenues through all digital channels grew 93 percent and represented 20 percent of the region’s sales in the quarter.

For the fourth quarter, the company expects reported net revenues growth of 20 to 21 percent compared to the fourth quarter of fiscal 2020, which represents reported net revenues growth of six-to-seven percent compared to the fourth quarter of fiscal 2019; and adjusted diluted EPS of 38 to 40 cents, bringing the full-year adjusted diluted EPS outlook to 1.43 dollars to 1.45 dollars.