Levi Strauss Ramps Up With Five-year Plan, $10B in Sights

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The $10 billion mark is coming into focus at Levi Strauss & Co., where Chip Bergh, president and chief executive officer, has developed a five-year plan looking to power through any economic troubles in the landscape while ramping up growth in denim and beyond. 

“We wanted to emerge from the pandemic stronger and I can say definitively that we are a stronger company today than we were before the pandemic, then at the time of the IPO [in 2019],” Bergh told WWD ahead of the company’s investor day in New York on Wednesday. “You would never know it looking at our stock price.” 

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Shares of Levi’s have ebbed and flowed as Wall Street fell in and out of love with consumer stocks and tried to gauge the extraordinary impacts of inflation at 40-year highs, supply chain turmoil, the pandemic, the war in Ukraine and more. The company’s market capitalization has fallen to just over $7 billion from $11 billion in the past year. 

But Bergh pointed to Levi’s “structural economics,” the strength of its flagship brand and a portfolio of businesses that’s diversified and growing with the addition of Beyond Yoga last year

“We’ve got an amazing story to tell,” the CEO said. “We are highly differentiated versus every other company in our peer group. The Levi’s brand — there aren’t many brands that can touch it.” 

He also noted that Beyond Yoga is small but plays in a space that’s 2.5-times bigger than the $100 billion global denim market, that Levi’s has global scale and has navigated the supply chain troubles and has only about $100 million in net debt.  

“Our [earnings before interest and taxes] margins are north of 12 percent, that was our North Star at the time of the IPO,” Bergh said. 

Now the company has set its sights on a new North Star on the horizon. 

By 2027, Levi’s is now targeting: 

  • Revenues of $9 billion to $10 billion, boosting annual sales growth targets to a range of 6 percent to 8 percent, up from 4 percent to 6 percent, and building on revenues of $5.8 billion last year.

  • Adjusted EBIT margin expansion to 15 percent.

  • Tripling e-commerce sales, helping to move direct-to-consumer to 55 percent of total revenue, up from about 40 percent.

  • And a nearly 100 percent increase in revenues of both women’s looks and tops.

Levi’s also set up a $750 million share repurchase program and affirmed its annual guidance this year, targeting revenue growth of 11 percent to 13 percent to between $6.4 billion and $6.5 billion. 

To pull it off, Levi’s plans to “continue to invest in digital, data and AI capabilities as drivers of business performance, focused on increasing consumer loyalty, facilitating speed to market timelines and improving profitability.”

That has Levi’s focused on what it can control, bolstering operations and building on brand so the company can navigate whatever troubles come. 

Pointing to inflation — a key concern in the economy today — Bergh said Levi’s is ready.

“The reason having iconic brands and strong brands matters is, costs are going up,” the CEO said. “Everybody has to take pricing, we’ve been taking price….Strong brands really matter at a point of time that’s inflationary. Consumers may wind up buying less, but they’re going to wind up buying product that has meaning.”

The company’s average unit retail prices are up 10 percent year-to-date and it is still selling more units, showing continued demand in the market.

Levi’s is planning to continue to grow its direct to consumer business. - Credit: Jenna Bascom Photography
Levi’s is planning to continue to grow its direct to consumer business. - Credit: Jenna Bascom Photography

Jenna Bascom Photography

Levi’s is also operating in a sweet spot in the market, with both denim and more casual looks on the rise.

“We are driving growth in the denim category so we can grow through that category growth,” Bergh said. “I don’t think there’s a ceiling to how big the Levi’s brand could get. The only thing that gets in our way is ourselves and our management of how big Levi’s could be over time.”

The CEO, who has been at the helm for 11 years and successfully reoriented the brand to grow directly with the consumer, said half of the senior leaders that helped drive the brand’s advance are still on board and pushing the next leg of growth.

And there’s still plenty of room under the brand umbrella, said Bergh, noting that the company still sells three bottoms for every top, opposed to the industry average, which is the reverse of that, indicating there’s room for a lot more Levi’s shirts and jackets. 

Overall, the CEO said the global denim market is set to expand by 6 percent over the next several years. 

That has Levi’s growing with or a couple points ahead of the market — a trajectory that leaves a little wiggle room.

“Better to under promise and over deliver,“ Bergh said. “Could we be accused of sandbagging? Maybe.”

Certainly Bergh & Co. couldn’t be blamed for wanting a little extra wiggle room in the world today.

When Wall Street analysts had their chance to grill the CEO at the end of the investor meeting, they zeroed in on the long-term growth strategy given the current macro challenges.

“The Levi’s brand is stronger than it’s ever been,” Bergh told analysts. “We’re gaining share on women’s. It’s strong globally, around the world, as we measure our brand equity. Despite taking price increases, we’re still seen as a very good value. Now we’ve got the tailwind of casualization; we’ve got the tailwind of the new denim cycle. We’ve got the Levi’s brand really clicking on all cylinders. We’re just resonating with consumers today.”

Bergh also noted the company has new opportunities to develop outside its traditional business. 

“Beyond Yoga is the big opportunity, the big unknown,” the CEO said. “We have exactly zero stores today. We have plans to get a couple open here over, [maybe] the next half a year, several months. As we learn about Beyond Yoga, structurally it’s a really strong business, from a financial standpoint. And we’re going to have to see how that goes. If it takes off, maybe we’ll do more stores. We’ll see. That’s the big unknown.” 

Analysts also seemed concerned about lingering supply chain and inventory issues that have caused headwinds for retailers throughout the industry. 

Harmit Singh, Levi’s executive vice president and chief financial officer, said the company is chasing inventory in the U.S. 

“If we had inventory ready to fulfill, we could sell more,” he said. “And that’s across all of our brands. As we think long-term, will we be living with supply chain disruptions? Our view is definitely through this year. Things start getting better in 2023.”

He added that locking in cotton prices for the remainder of the year has helped offset inflationary pressures. So have lower rent prices, which are down between 10 percent and 15 percent, compared with pre-pandemic levels. 

“Let’s say traffic doesn’t come back at the same rate,” Singh explained. “That [lower rent price] will help offset.” 

Bergh also said the company is holding off on physical retail in China — which represents about 3 percent of total company revenues, but where traffic is still down between 40 percent and 50 percent because of continued lockdowns. 

“I don’t want to enter into a lot of leases if cities might be shut down off and on again for the next two years as this pandemic lingers on,” the CEO explained. “So, we’ve moderated our expectations in the near term And we’re moderating our investments in the near term because of lower traffic and the risk of their zero COVID-19 policy impacting retail revenues. 

“The biggest market for this category is still the U.S. by a long shot,” Bergh said. “That’s where the bulk of our focus is going to be over the next few years. The international thing, we’re dropping seedlings. But don’t expect us to show up with 25 stores in the U.K. next year. Not going to happen. We’re going to do it in a very financially, buttoned-up kind of way. Because that’s how we roll.”



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