Levi Strauss & Co. has announced financial results for the fourth quarter and fiscal year ended November 29, 2020. Due to the company’s fiscal year end, fiscal year 2019 did not have a Black Friday, while the first quarter and the fourth quarter of fiscal 2020 each included the benefit of a Black Friday, and fiscal 2020 also benefited from a 53rd week, which fell in the fourth quarter.
Fourth-Quarter 2020 Highlights
Net revenues of $1,386 million declined 12 percent on a reported and constant-currency basis, a significant sequential improvement from the reported third-quarter net revenues decline of 27 percent. The decrease was primarily due to the impacts of the COVID-19 pandemic, including reduced traffic and ongoing closures of company-operated and third-party retail locations for portions of the quarter in certain markets. The decline was partially offset by the benefit of a 53rd week and Black Friday, which collectively benefited the year-over-year net revenues growth comparison by about three percentage points.
- Direct-to-consumer revenue declined just five percent on a reported basis, as company e-commerce revenue increased 38 percent with growth across all regions, partially offsetting a decline in brick-and-mortar store revenues.
- The company’s global digital revenues, which includes the company’s e-commerce sites as well as the online business of its pure-play and traditional wholesale customers, grew approximately 34 percent on reported basis compared to the same period in the prior year, and comprised approximately 23 percent of fourth-quarter 2020 revenues, up from 15 percent in the fourth quarter of the prior year.
- Gross margin increased 100 basis points on reported basis to 55.3 percent, the company’s highest fourth-quarter gross margin in its recent history. Adjusted gross margin increased 30 basis points to 54.6 percent, primarily due to price increases, a higher proportion of sales in the higher-margin direct-to-consumer channel, lower promotions and healthy inventory.
- SG&A decreased nine percent to $653 million; the $67 million decrease primarily reflected the company’s cost-savings actions, net of continuing to invest in its omni-channel, A.I. and digitization initiatives.
- The company reported net income for the fourth quarter of $57 million and Adjusted net income of $81 million, as compared to $96 million and $108 million, respectively, in the fourth quarter of the prior year. The decline is primarily attributable to the adverse revenue impact of COVID-19. Higher interest expense reflects the company’s additional borrowing earlier in the year to enhance its liquidity position.
- Operating margin was seven percent; Adjusted EBIT was $113 million and adjusted EBIT margin was 8.2 percent, up from 7.9 percent in the third quarter, due to the company’s cost- reduction initiatives and higher gross margin, despite the substantial adverse revenue impact of COVID-19.
- Adjusted diluted EPS was 20 cents.
- Adjusted free cash flow was $172 million, a second consecutive quarter of positive adjusted free cash flow generation, despite the revenue decline, reflecting the company’s focus on financial discipline, cost controls, cash and working capital.
- Total inventories, net of reserves, at quarter end decreased eight percent compared to a year prior, reflecting the company’s inventory management efforts.
- Total available liquidity of $2.3 billion; cash and cash equivalents at quarter end were $1.5 billion.
“In this most extraordinary year, I’m proud of the team and our accomplishments in the face of so much adversity. The steps we took on structural costs, cash management, agility and new capabilities helped drive results far ahead of our own expectations and give me great confidence in our future,” said Chip Bergh, President & CEO of Levi Strauss & Co. “We will double down on elevating our iconic brand, investing in direct engagement with our fans, advancing our fast-growing digital business and further diversifying our portfolio. As we continue to accelerate these strategic focus areas, we will emerge a stronger, more profitable, more agile company.”
“We delivered strong results through the last months of our fiscal year despite the ongoing impact of the pandemic, including beating our revenue and Adjusted EPS expectations while posting a record fourth-quarter gross margin,” said Harmit Singh, Chief Financial Officer of Levi Strauss & Co. “While the future impact of COVID-19 remains uncertain in the near term, our sequentially-improving performance, financial discipline and focus on operational excellence have given us the confidence in our ability to execute our strategies against the things within our control, and, if conditions do not worsen, return the company to pre-pandemic revenues by the end of 2021, with Adjusted EBIT margins of twelve percent or more.”
COVID-19 Update
The Company’s top priority continues to be the health and safety of its associates, consumers and the employees of its business partners around the world. During the quarter:
- the company experienced temporary door closures in geographies affected by rising COVID-19 cases; currently, approximately 40 percent of the full store footprint in Europe, and 17 percent globally of all company-operated doors and franchisee doors are closed, with others operating on reduced hours.
- while sales remain down compared to the prior year, the company continues to mitigate ongoing traffic declines by driving meaningfully higher conversion.
- As store locations have reopened, the company’s e-commerce net revenues growth has remained strong, at 38 percent growth for the quarter as compared to the prior year.
- The company’s global digital business, which includes its e-commerce sites as well as the online business of its pure-play and traditional wholesale customers, comprised approximately 23 percent of fourth-quarter 2020 revenues, up from 15 percent in the prior year, as consumer spending continued to shift towards online shopping experiences due to the changing retail landscape resulting from the global pandemic.
- Cash flow trends were again healthy, as the company generated positive and strong net cash flows from operations and Adjusted free cash flow in the quarter.
As the company continues to navigate the COVID-19 pandemic and its impact, it remains focused on the areas that it believes will drive value and enable it to emerge stronger on the other side, including elevating its brands, investing in digital tools and capabilities, and accelerating efforts to diversify across geographies, product categories and distribution channels, including its direct-to-consumer and digital businesses.
Although quarterly trends appear to be improving sequentially, the recent resurgence of the virus underscores that the ultimate impact of the COVID-19 pandemic remains highly uncertain. The company expects that its business and results of operations, including net revenues, earnings and cash flows, will continue to be significantly adversely impacted for at least the first half of 2021, and there remains the possibility of additional COVID-19 related inventory and other charges.
