Chip Bergh Sees Levi Strauss’ Strength Despite Economy
The economy might be flashing warning signs, but Chip Bergh, president and chief executive officer of Levi Strauss & Co., said the jeansmaker is gaining momentum now and is ready to take on what comes next.
In an interview with WWD, the CEO pointed to the long-term casualization trend that has solidified jeans as office wear, growth in higher margin businesses such as international, direct-to-consumer and women’s and second-quarter results that beat analysts’ top- and bottom-line expectations.
More from WWD
The company, he said, is “clicking on all cylinders.”
Levi’s second-quarter net income tallied $49.7 million, or 12 cents a diluted share, and was impacted by special charges. While that was down from $64.7 million, or 16 cents, a year ago, adjusted earnings of 29 cents a share came in 6 cents ahead of the 23 cents Wall Street analysts projected.
Revenues for the three months ended May 29 increased 15 percent to $1.47 billion — ahead of the $1.43 billion analysts had penciled in. On a constant currency basis, the top line grew 20 percent.
“In light of a really very challenging environment, I think the results are really, really good,” said Bergh, describing the strength as “broad based.”
Levi’s, of course, is not immune to the woes of the world and that did show up in the quarter’s numbers.
Fallout from Russia’s war in Ukraine saddled the jeansmaker with charges of $60 million, or 15 cents a share, and lower-income consumers shopping the Signature by Levi Strauss & Co. and Denizen brands are pulling back with inflation at 40-year highs.
But Bergh said Denizen, sold at Target, and Signature, sold at Walmart, are “a relatively small part of our overall business and they were down in the single digits.”
“There’s some evidence that the value-conscious customer, the lower-income consumer, is starting to feel the pinch a little bit more and starting to make choices based on that,” the CEO said, referring to inflation and the economy. “But we’re not seeing it affect the majority of our business.”
Levi’s, like many fashion companies, saw higher costs coming last year and raised prices to prepare — and so far the firm has been able to keep growing through inflation that’s at levels last seen when Ronald Reagan was in the White House.
“Our revenue growth was driven by a combination of really good unit growth as well as our [average unit retail price] being up 8 percent versus a year ago,” he said.
And if inflationary pressures — which have pushed gasoline prices to an average of $4.75 a gallon in the U.S. — do start to clamp down more broadly, Bergh said the Levi’s brand will help see the company through.
“When times get hard, consumers turn to the brand they trust,” he said. “They may not go out and buy three pairs of jeans this year, they might only get two and they might only get Levi’s.”
And increasingly they might be buying jeans to return to work — Bergh said that globally more than half of consumers say they can now wear jeans in the office.
The company is also growing in the businesses it wants to develop for the future.
Second-quarter sales at company-operated stores rose 23 percent, while wholesale increased 15 percent.
Digital channels accounted for 20 percent of total revenues, growing 3 percent on top of the 75 percent jump registered a year ago.
“I’m really pretty confident we’re going to be able to continue to navigate this given the strength of our portfolio and given the different levers we can pull to continue to drive profitable growth,” he said.
That doesn’t mean it will be particularly easy.
While Bergh said the company could still adjust prices some, much of that work has been done and costs could still creep higher, setting up a potential squeeze down the line.
But some key line items in Levi’s budget are also easing.
Harmit Singh, Levi’s executive vice president and chief financial officer, said cotton makes up 15 percent to 20 percent of product costs and is coming back down to earth after spiking.
It takes about 2 pounds of cotton to make a pair of jeans and while prices have averaged around 80 cents to 90 cents a pound over the last decade, Singh said that shot up to $1.30 a pound for the first half of next year.
Orders for the second half of next year are now back down to earth at 90 cents a pound, he said.
“Commodities are now beginning to come down,” the CFO said.
Now, if just the rest of the world would cooperate.
MORE FROM WWD:
PVH on Target as Strategic Plan Kicks Off
The Mouse Missteps: Lessons From Disney’s ‘Don’t Say Gay’ Debacle
David Simon’s New Holiday: National Outlet Shopping Day
Sign up for WWD's Newsletter. For the latest news, follow us on Twitter, Facebook, and Instagram.
