Levi’s bounces back in Q3 despite pandemic concerns

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Running a fashion business is always something of a high-flying act – and more than ever now, with supply chain disruptions, soaring cotton prices, a rush for the web and the coronavirus pandemic. ongoing.

But Chip Bergh has managed to keep his balance at Levi Strauss & Co.

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The CEO on Wednesday made significant gains in third quarter revenue and bottom line, closed the $ 400 million acquisition of Beyond Yoga and said that despite everything, the brand was booming.

“Over the past couple of quarters, there’s growing evidence – and this quarter perhaps with a little exclamation mark – that we’re taking a much stronger business out of the pandemic,” Bergh told WWD. . “For the first time, we are now reaching pre-pandemic 2019 levels.”

“We are structurally a better company,” he said. “We are more diverse. We are sailing through all of these external headwinds, whether it’s the pandemic or supply chain constraints, cotton prices, we are sailing through that and still delivering great results. “

Third-quarter net profits climbed to $ 193.3 million from $ 27 million a year earlier. And revenue for the three months ended Aug. 29 rose 40.9% to $ 1.5 billion from $ 1.1 billion.

Among the highlights of the quarter:

• Direct revenues to consumers increased 34% year-over-year and 4% year-over-year in 2019.

• Wholesale sales increased 45% from a year ago and 3% from two years ago.

• And overall digital sales are up 10% from a year ago and 76% from the same period in 2019.

Digital now accounts for around 20% of Levi’s revenue, which is in line with the broader industry trends that have seen consumers turn harshly to the web during the pandemic and stay there as they become more comfortable shopping online.

The company improved its outlook for the full year and is now looking for adjusted earnings per share of $ 1.43 to $ 1.45, from $ 1.29 to $ 1.33 expected in July.

Faced with the big supply chain questions ahead of the holiday season, it looks like a victory. And after a day of decline in the market, investors reacted to the results by pushing Levi’s shares up 2.3% to $ 24.80 in aftermarket trading.

Bergh said the company had built a larger supply base and decided years ago not to source more than 20 percent of its volume from any of the 24 countries where Levi’s products are made. . About half of the company’s background activities are also cross-sourced, meaning the same product can be manufactured in multiple countries, allowing the brand to move production to another market if a problem arises. .

“The revenue impact of all the different supply chain constraints we faced was $ 10 million,” he joked, noting that this success came from a sales base of $ 1.5 billion.

Harmit Singh, chief financial officer, added that although cotton prices have increased, the company does not buy cotton directly and locks prices in advance. Thus, the increase in cotton prices only adds 1 percent to costs in the first half of next year.

“In the second half [of 2022] – we are in the process of finalizing the costs of this – we think it will be in the mid single digit inflation range, ”Singh said.

But Levi’s has seen higher prices before and is in a good position to deal with them now.

“The brand has never been so popular,” said the CFO. “It’s very different from what the situation was in 2011 when cotton [price inflation] raised his ugly head.

Bergh – who declared the start of a new denim cycle early on after the look of the lockdown salon began to fade – expects the brand’s bread and butter to keep pushing forward the company.

“About half of our denim volume in the last quarter was in these loose fit, for both men and women,” he said. “The denim industry is growing faster than the clothing industry as a whole. ”

And if history is any guide, the trend could continue for a while.

“The last denim cycle, which was really focused on skinny jeans, lasted for over 10 years,” Bergh said, adding that a new bottom silhouette is “good for the whole industry” and stimulates sales of tops and shoes as well as customers adjust. their gaze.

Chip Bergh by Levi Strauss &;  Co. - Credit: Patrick Macleod / WWD

Chip Bergh of Levi Strauss & Co. – Credit: Patrick Macleod / WWD

Patrick Macleod / WWD

Levi’s evolved rapidly during the pandemic.

The company has downsized and streamlined while going more digital and taking new steps towards sustainability.

Now he’s branching out with Beyond Yoga, his first acquisition of an outside brand in over a decade.

Beyond Yoga introduces a new kind of casual, launching Levi’s into athleisure with the very inclusive brand that offers sizes ranging from XXS to 4X.

Beyond Yoga is expected to add over $ 100 million to Levi’s sales and immediately generate gross margins.

Bergh said the 16-year-old brand is based on body positivity, inclusiveness and diversity – principles that are very much in mind in fashion today.

“The brand presents itself as a very genuine and sincere brand and that is what is important in today’s world,” said the CEO. “This brand has a very long track record of success and although it is relatively small today, we believe it has a lot more long term benefits.”

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