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Levi Strauss (LEVI) Q2 Earnings Beat Estimates, Revenues Up
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Levi Strauss & Co. (LEVI - Free Report) delivered stronger-than-anticipated results in second-quarter fiscal 2021. Both the top- and bottom-line figures improved on a year-over-year basis, reflecting strong growth across channels and regions. The company’s online business continued to remain robust. Growth in gross margin also acted as an upside. Management highlighted that the second-quarter performance reflects recovery from the pandemic-led impacts. Performance was supported by strong brand offerings as well as the company’s ability to capitalize on evolving trends.
As the company moves into the second half of the fiscal, it expects to keep gaining from improving market trends. It is focused on its strategic priorities of accelerating direct-to-consumer connections, enhancing brand strength as well as diversifying business across categories and regions. Management provided an encouraging view for the second half of fiscal 2021, reflecting growth based on year on year as well as fiscal 2019 levels. The company also raised its third-quarter dividend by 33%.
This Zacks Rank #1 (Strong Buy) stock has gained 31.3% in the past six months compared with the industry’s rally of 19.3%.
Image Source: Zacks Investment Research
Here's How Q1 Earnings Scorecard Looks
Levi Strauss posted adjusted quarterly earnings of 23 cents a share that exceeded the Zacks Consensus Estimate of 9 cents. Notably, this marked the company’s ninth successive earnings beat. The company had reported a loss of 48 cents in the year-ago quarter. Year-over-year growth reflects gains from higher revenues and adjusted gross margin.
Net revenues of $1,276 million surpassed the Zacks Consensus Estimate of $1,213 million. The metric surged 156% year over year on a reported and 148% on a constant-currency (cc) basis. The company’s top line gained from growth across wholesale, direct-to-consumer as well as digital platforms. Compared with second-quarter fiscal 2019, net revenues declined 3% on a reported basis and 4% at cc.
Let’s Delve Deeper
Levi Strauss is focused on digital initiatives. The global digital net revenues, which comprise e-commerce sites and the online business of pure-play and traditional wholesale customers, surged roughly 75% year over year during the quarter under review. Global digital net revenues contributed around 23% to total revenues. The company gained from strong digital growth across all regions.
During the second quarter, wholesale revenues increased 167% backed by strong demand from prior-year quarter’s levels. Direct-to-consumer (DTC) revenues rose 141% owing to higher sales from company-operated stores. DTC stores and e-commerce accounted for 29% and 8%, respectively, of total net revenues. Within the DTC channel, e-commerce momentum continued even through stores reopened, thanks to accelerated omni-channel initiatives. The company operated e-commerce business increased 42% in the second quarter.
How Margins Fare?
Adjusted gross profit amounted to $743 million, rose 190% from the year-ago quarter’s levels. Adjusted gross margin — excluding the pandemic-related charges — expanded 670 basis points (bps) to 58.2%. Rise in gross margin can be attributed to price increases, source savings, lower promotions, higher share of full price sales due to more demand as well as higher proportion DTC channel sales, which has higher gross margins. Currency exchange rates favorably impacted the metric by nearly 30 bps year over year.
Adjusted SG&A expenses increased nearly 36% to $628.4 million owing to rise in incentive compensation and selling expenses.
Adjusted EBIT came in at $115 million against loss of $206 million in the year-ago quarter. The metric gained from higher revenues and gross margin. Adjusted EBIT margin was 9%.
Net revenues in the Americas surged 153% to $715 million. The year-over-year comparison reflects the impact of the pandemic in the prior-year quarter. Company e-commerce revenues increased 18% year on year in the region. In comparison with second-quarter fiscal 2019, net revenues in the Americas increased 3%, while wholesale revenues rose 4% and revenues through all digital channels rallied 61%.
Net revenues in Europe increased 183% to $365 million, reflecting the impact of the pandemic on the prior-year quarter. Company e-commerce revenues surged 75% year on year. Compared with second-quarter fiscal 2019 levels, net revenues in the region declined 8%, due to 21% decline in DTC revenues, partly offset by 4% growth in wholesale revenues and more than 100% growth in all digital channels.
Net revenues in Asia went up by 128% to $196 million. Company e-commerce revenues rose 75% year on year. Compared to second-quarter fiscal 2019, net revenues in the region declined 12% owing to adverse impacts of the pandemic on several large markets, partly offset by digital revenue growth of 83%.
A Look Into Other Metrics
Levi Strauss ended the quarter with cash and cash equivalents of $1,224 million and short-term investments of $95 million. These were complemented by $694 million available under its revolving-credit facility. This resulted in a total liquidity position of roughly $2 billion.
As of May 30, 2021, long-term debt and total shareholders’ equity were $1,263.8 million and $1,434 million, respectively. The company’s leverage ratio was 2 at the end of the quarter, down from from 4.1 at the end of the year-ago quarter. Total inventories were down 12% year over year at the end of the quarter.
For the six-month period ended May 30, 2021, net cash provided by operating activities was $248 million. Adjusted free cash flow for the six-month period amounted to $60 million.
Levi Strauss paid out dividends worth 6 cents per share worth $24 million in fiscal second quarter. For fiscal third quarter, management increased its quarterly dividend to 8 cents per share, worth nearly $32 million. The hiked dividend will be paid out in cash on or after Aug 18, 2021, to shareholders of record of Class A and Class B common stock as on Aug 2.
COVID-19 Updates
During the reported quarter, the company witnessed temporary door closures across geographies owing to COVID-19 lockdowns. About a third of the total store footprint in Europe and 17% of doors globally were shut in the fiscal second quarter. Management informed that currently, 92% of doors are open.
Levi Strauss is continuing to witness broad-based strength across its business as it continues to recover from the impacts of the pandemic. The company has been elevating brands, investing in digital tools and capabilities, and pacing up efforts to diversify across geographies, product categories and distribution channels.
Outlook
Management is impressed with the business momentum witnessed in the first-half of the fiscal, and expects the same to persist in the second-half as well. As a result, management expects a much stronger performance in the second-half of the fiscal than previously anticipated.
The company projects year-over-year growth of 28-29% in revenues for the second half of fiscal 2021. This reflects revenue growth of 4-5% from the second-half of fiscal 2019, including currency benefits of two points. In the Americas, management expects second-half revenues to grow mid-single digits from fiscal 2019 levels. In Europe, the metric is likely to increase by high-single to low-double digits. In Asia, revenues in the second-half are likely to remain below fiscal 2019 levels, due to the impacts of the pandemic.
The company expects adjusted earnings in the second half to be 72-76 cents per share, bringing the full-year adjusted earnings view to $1.29-$1.33. Second-half bottom line expectations reflect growth of more than 26% from fiscal 2019 levels, while the same for full year reflects growth of more than 15%. The Zacks Consensus Estimate for fiscal 2021 earnings is currently pegged at $1.11.
Burlington Stores, Inc. (BURL - Free Report) has a trailing four-quarter earnings surprise of 74.7%, on average. The stock sports a Zacks Rank #1.
Costco Wholesale Corporation (COST - Free Report) has a long-term earnings growth rate of 9.1%. It presently carries a Zacks Rank #2 (Buy).
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Levi Strauss (LEVI) Q2 Earnings Beat Estimates, Revenues Up
Levi Strauss & Co. (LEVI - Free Report) delivered stronger-than-anticipated results in second-quarter fiscal 2021. Both the top- and bottom-line figures improved on a year-over-year basis, reflecting strong growth across channels and regions. The company’s online business continued to remain robust. Growth in gross margin also acted as an upside. Management highlighted that the second-quarter performance reflects recovery from the pandemic-led impacts. Performance was supported by strong brand offerings as well as the company’s ability to capitalize on evolving trends.
As the company moves into the second half of the fiscal, it expects to keep gaining from improving market trends. It is focused on its strategic priorities of accelerating direct-to-consumer connections, enhancing brand strength as well as diversifying business across categories and regions. Management provided an encouraging view for the second half of fiscal 2021, reflecting growth based on year on year as well as fiscal 2019 levels. The company also raised its third-quarter dividend by 33%.
This Zacks Rank #1 (Strong Buy) stock has gained 31.3% in the past six months compared with the industry’s rally of 19.3%.
Here's How Q1 Earnings Scorecard Looks
Levi Strauss posted adjusted quarterly earnings of 23 cents a share that exceeded the Zacks Consensus Estimate of 9 cents. Notably, this marked the company’s ninth successive earnings beat. The company had reported a loss of 48 cents in the year-ago quarter. Year-over-year growth reflects gains from higher revenues and adjusted gross margin.
Net revenues of $1,276 million surpassed the Zacks Consensus Estimate of $1,213 million. The metric surged 156% year over year on a reported and 148% on a constant-currency (cc) basis. The company’s top line gained from growth across wholesale, direct-to-consumer as well as digital platforms. Compared with second-quarter fiscal 2019, net revenues declined 3% on a reported basis and 4% at cc.
Let’s Delve Deeper
Levi Strauss is focused on digital initiatives. The global digital net revenues, which comprise e-commerce sites and the online business of pure-play and traditional wholesale customers, surged roughly 75% year over year during the quarter under review. Global digital net revenues contributed around 23% to total revenues. The company gained from strong digital growth across all regions.
During the second quarter, wholesale revenues increased 167% backed by strong demand from prior-year quarter’s levels. Direct-to-consumer (DTC) revenues rose 141% owing to higher sales from company-operated stores. DTC stores and e-commerce accounted for 29% and 8%, respectively, of total net revenues. Within the DTC channel, e-commerce momentum continued even through stores reopened, thanks to accelerated omni-channel initiatives. The company operated e-commerce business increased 42% in the second quarter.
How Margins Fare?
Adjusted gross profit amounted to $743 million, rose 190% from the year-ago quarter’s levels. Adjusted gross margin — excluding the pandemic-related charges — expanded 670 basis points (bps) to 58.2%. Rise in gross margin can be attributed to price increases, source savings, lower promotions, higher share of full price sales due to more demand as well as higher proportion DTC channel sales, which has higher gross margins. Currency exchange rates favorably impacted the metric by nearly 30 bps year over year.
Adjusted SG&A expenses increased nearly 36% to $628.4 million owing to rise in incentive compensation and selling expenses.
Adjusted EBIT came in at $115 million against loss of $206 million in the year-ago quarter. The metric gained from higher revenues and gross margin. Adjusted EBIT margin was 9%.
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Regional Performance
Net revenues in the Americas surged 153% to $715 million. The year-over-year comparison reflects the impact of the pandemic in the prior-year quarter. Company e-commerce revenues increased 18% year on year in the region. In comparison with second-quarter fiscal 2019, net revenues in the Americas increased 3%, while wholesale revenues rose 4% and revenues through all digital channels rallied 61%.
Net revenues in Europe increased 183% to $365 million, reflecting the impact of the pandemic on the prior-year quarter. Company e-commerce revenues surged 75% year on year. Compared with second-quarter fiscal 2019 levels, net revenues in the region declined 8%, due to 21% decline in DTC revenues, partly offset by 4% growth in wholesale revenues and more than 100% growth in all digital channels.
Net revenues in Asia went up by 128% to $196 million. Company e-commerce revenues rose 75% year on year. Compared to second-quarter fiscal 2019, net revenues in the region declined 12% owing to adverse impacts of the pandemic on several large markets, partly offset by digital revenue growth of 83%.
A Look Into Other Metrics
Levi Strauss ended the quarter with cash and cash equivalents of $1,224 million and short-term investments of $95 million. These were complemented by $694 million available under its revolving-credit facility. This resulted in a total liquidity position of roughly $2 billion.
As of May 30, 2021, long-term debt and total shareholders’ equity were $1,263.8 million and $1,434 million, respectively. The company’s leverage ratio was 2 at the end of the quarter, down from from 4.1 at the end of the year-ago quarter. Total inventories were down 12% year over year at the end of the quarter.
For the six-month period ended May 30, 2021, net cash provided by operating activities was $248 million. Adjusted free cash flow for the six-month period amounted to $60 million.
Levi Strauss paid out dividends worth 6 cents per share worth $24 million in fiscal second quarter. For fiscal third quarter, management increased its quarterly dividend to 8 cents per share, worth nearly $32 million. The hiked dividend will be paid out in cash on or after Aug 18, 2021, to shareholders of record of Class A and Class B common stock as on Aug 2.
COVID-19 Updates
During the reported quarter, the company witnessed temporary door closures across geographies owing to COVID-19 lockdowns. About a third of the total store footprint in Europe and 17% of doors globally were shut in the fiscal second quarter. Management informed that currently, 92% of doors are open.
Levi Strauss is continuing to witness broad-based strength across its business as it continues to recover from the impacts of the pandemic. The company has been elevating brands, investing in digital tools and capabilities, and pacing up efforts to diversify across geographies, product categories and distribution channels.
Outlook
Management is impressed with the business momentum witnessed in the first-half of the fiscal, and expects the same to persist in the second-half as well. As a result, management expects a much stronger performance in the second-half of the fiscal than previously anticipated.
The company projects year-over-year growth of 28-29% in revenues for the second half of fiscal 2021. This reflects revenue growth of 4-5% from the second-half of fiscal 2019, including currency benefits of two points. In the Americas, management expects second-half revenues to grow mid-single digits from fiscal 2019 levels. In Europe, the metric is likely to increase by high-single to low-double digits. In Asia, revenues in the second-half are likely to remain below fiscal 2019 levels, due to the impacts of the pandemic.
The company expects adjusted earnings in the second half to be 72-76 cents per share, bringing the full-year adjusted earnings view to $1.29-$1.33. Second-half bottom line expectations reflect growth of more than 26% from fiscal 2019 levels, while the same for full year reflects growth of more than 15%. The Zacks Consensus Estimate for fiscal 2021 earnings is currently pegged at $1.11.
3 Retail Stocks to Consider
Target Corporation (TGT - Free Report) , sporting a Zacks Rank #1, has a long-term earnings growth rate of 13.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Burlington Stores, Inc. (BURL - Free Report) has a trailing four-quarter earnings surprise of 74.7%, on average. The stock sports a Zacks Rank #1.
Costco Wholesale Corporation (COST - Free Report) has a long-term earnings growth rate of 9.1%. It presently carries a Zacks Rank #2 (Buy).
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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