Levi Strauss’ First-quarter Transformation
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Faced with the pandemic, Chip Bergh pushed Levi Strauss & Co. to become leaner and more digital — and the results of the chief executive officer’s efforts started to become more apparent in the first quarter.
Sales and profits both fell against a year earlier, but pound for pound, the company is getting more bang for its buck.
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Gross margins increased 250 basis points to 58.2 percent of sales for the first quarter — a record high for the company, which cut costs and realigned last year, rightsizing on the fly as COVID-19 shut retail down.
“We’re feeling pretty good about the progress that we’ve made,” Bergh told WWD in an interview Thursday. “We’ve exceeded our own internal expectations and exceeded external expectations across the board. We feel that we are going to deliver on our promise to emerge from the pandemic a stronger, healthier company. The brand is really really strong, really shifting to a [direct-to-consumer]-first mind-set. We feel like we’ve got some good momentum.”
For the first quarter ended Feb. 28, Levi’s net profits fell 7 percent to $143 million, with adjusted profits down 14 percent to $140 million. But adjusted earnings per share of 34 cents came in 9 cents better than the 25 cents Wall Street analysts projected on average.
Revenues fell 13 percent to $1.3 billion due to impacts from the pandemic, including slower store traffic and closures. About one-third of the company’s store base in Europe was closed during the quarter — a portion that has risen to more than 40 percent this quarter.
Levi’s sales in the Americas fell 14 percent to $641 million, while Europe was down 16 percent to $429 million and Asia was off just 5 percent to $235 million.
Levi’s digital sales — through its own sites and third-party players — grew 41 percent in the quarter and made up about 26 percent of the company’s total revenues (up from 16 percent a year ago).
Harmit Singh, chief financial officer, said, “We’re well on our way to get a third of our revenues [from e-commerce] as the consumer digitizes.”
The pandemic focused Levi’s, and other companies across fashion, on the digital opportunity as the shutdowns created a clean break from brick-and-mortar retail for a time.
“As the pandemic hit, we knew we needed to make a number of pivots pretty quickly,” Bergh said. “We increased our investment in building out e-commerce and omnichannel capabilities. We didn’t even have buy online, pick up in store prior to the pandemic and we built that and buy online, pick up curbside literally in a couple of days. We kind of focused on using the crisis of the pandemic to strengthen ourselves from an economic standpoint. We had to deal with the reality that we were going to be a smaller business as a result of the pandemic.”
It’s still too early to read just how it all pans out, but big changes have come to stay. Levi’s, for instance, cut 15 percent of its corporate workforce, or 700 jobs, in July and has begun operating with more of a direct-to-consumer mind-set.
The first quarter offers a tough comparison with a year earlier, when the retail and fashion business outside of China avoided most of the impacts of the coronavirus. In turn, results in the current quarter will look rosier as they will be compared with the nearly complete retail shutdown in the second quarter last year.
Levi’s, which had been looking for 18 to 20 percent sales growth in the first half, boosted that projection to a 24 to 25 percent increase.
And while the company hasn’t offered a projection for the back half, there are hopes that something more like normal is on its way.
“If things continue at the pace that they’re on right now, especially on vaccinations here in the U.S and as they accelerate in Europe and across Asia, I think there is good reason to be somewhat optimistic about the second half. It is very possible that, in the fourth quarter, we will be ahead of the fourth quarter of 2019,” said Bergh.
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