Levi Strauss & Co. reports third-quarter 2021 financial results

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Levi Strauss & Co. (NYSE: LEVI) today announced financial results for the third quarter ended August 29, 2021. Due to the significant impact of COVID-19 on prior year figures, this release also includes comparisons to the same period in 2019 for additional context.

Financial Highlights for the Third Quarter

•Reported net revenues of $1.5 billion up 41% versus Q3 2020 and up 3% versus Q3 2019

◦Direct-to-Consumer reported net revenues up 34% versus Q3 2020 and up 4% versus Q3 2019

◦Global Wholesale reported net revenues up 45% versus Q3 2020 and up 3% versus Q3 2019

◦Net revenues through all digital channels grew 10% versus Q3 2020 and 76% versus Q3 2019

◦Digital sales represented approximately 20% of total third quarter revenues

•Gross margin was 57.6%; Adjusted gross margin was 57.5%, up 390 basis points from Q3 2020 and 450 from Q3 2019

•Operating margin was 14.4%; Adjusted EBIT margin expanded to a third quarter record of 14.8%, up from 7.9% in Q3 2020 and 12.2% in Q2 2019

•Net income was $193 million; Adjusted net income was $197 million up from $31 million in Q3 2020 and $128 million in Q3 2019

•Diluted EPS was $0.47; Adjusted diluted EPS was $0.48, up from $0.08 in Q3 2020 and $0.31 in Q3 2019

•Adjusted free cash flow for the first nine months of 2021 was $251 million, above prior year

Subsequent to Quarter- End:

•The company paid back the remaining $200 million balance of its 2025 Notes, returning gross debt back to pre-pandemic levels

•The company completed the acquisition of Beyond Yoga, for an aggregate purchase price of approximately $400 million, diversifying the business into the high growth activewear segment

•The Board of Directors authorized a $200 million share repurchase program

“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. “These results reflect the strength of the Levi 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. Our future is bright given our iconic Levi brand and the acquisition of Beyond Yoga, which establishes our position in the fast growing, high-margin premium activewear market as we continue to capitalize on global casualization trends.”

“Adjusted EBIT margin exceeded our expectations driven by strong brand momentum,” said Harmit Singh, chief financial officer of Levi Strauss & Co. “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. Our third quarter performance combined with our confidence in our outlook also enables us to allocate capital across all of our core priorities: investing in our business; paying down debt; closing an inorganic acquisition; and returning cash to shareholders in the form of dividends and a newly-authorized $200 million share repurchase program.”

•Net revenues of $1,498 million increased 41 percent on a reported basis, and 38 percent on a constant-currency basis, compared to the same period in the prior year.

–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 our company-operated stores. As a percentage of third quarter company net revenues, sales from DTC stores and e-commerce comprised 30 percent and six percent respectively.

–The company’s global digital net revenues grew approximately 10 percent compared to the same period in the prior year and comprised approximately 20 percent of third quarter fiscal 2021 net revenues.

–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.

•Gross profit was $862 million, as compared to $577 million 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, which excludes the COVID-19 related charges, was 57.5 percent, an increase of 390 basis points compared to the same period in the prior year. The increase in gross margin reflects a higher proportion of sales in our DTC channel, which has higher gross margins, price increases, lower promotions, and a higher share of full price sales. Favorable currency exchange rates benefited year-over-year comparisons by approximately 20 basis-points.

•Selling, general and administrative (SG&A) expenses were $650 million compared to $484 million in the same quarter in the prior year. Adjusted SG&A in the third quarter of fiscal 2021 was $640 million compared to $485 million in the same quarter in the prior year, due to an increase in incentive compensation and higher selling expenses reflecting increased sales and higher advertising and promotion expenses. Compared to 2019, SG&A expenses were up $54 million reflecting an increase in DTC investments, higher compensation expense and higher advertising.

•Operating income of $216 million compared to $92 million in the same quarter in the prior year. Adjusted EBIT of $222 million compared to $84 million in the same quarter of the prior year. The increases were primarily due to higher net revenues and gross margin partially offset with higher SG&A expenses in the current year.

•Net income was $193 million compared to $27 million in the same quarter of the prior year and Adjusted net income was $197 million compared to $31 million in the same quarter of the prior year. The increases were primarily due to the increase in operating income and Adjusted EBIT, respectively, as described above. Additionally, the company recorded foreign exchange losses in the prior year, and in the current year, incurred a lower tax rate and lower interest expense reflecting our debt refinancing and repayment activity.

•Adjusted diluted earnings per share increased to $0.48 as compared to $0.08 for the same prior-year period.