First Quarter Levi Strauss (LEVI) Earnings and Revenue Beat the Mark – April 7, 2022

Levi Strauss & Co. (LEVI Free Report) released strong first-quarter fiscal 2022 results, in which sales and earnings beat Zacks’ consensus estimate and improved year-over-year. Impressive gains from its e-commerce business and strategic efforts, including brand strength, fueled quarterly performance.

Shares of the San Francisco, Calif.-based player are down 15% in the past three months compared to the industry’s 19.7% decline.

Image source: Zacks Investment Research

Q1 Metrics

LEVI’s adjusted earnings of 46 cents per share beat Zacks’ consensus estimate of 42 cents. In addition, quarterly profits rose 35.3% from the level of the quarter a year ago.

Net revenue of $1,591.6 million beat Zacks’ consensus estimate of $1,555 million. Additionally, the metric jumped 22% on a reported basis and 26% on a constant currency basis, excluding unfavorable foreign exchange impacts of $38 million.

Direct-to-consumer (DTC) net revenue increased 35% driven by gains from company-operated stores and e-commerce businesses. In quarterly revenue rates, DTC store and e-commerce sales accounted for 30% and 9% respectively, for a total of 39%. In addition, net wholesale revenue increased 15% on robust demand for the Levi’s brand globally.

Levi Strauss’ global digital revenue grew approximately 16% year-over-year, representing nearly 25% of Q1 2022 revenue.

By segment, net revenue in the Americas jumped 26.4% year-over-year to $765.9 million, while in Europe the metric rose 12.6% to $469.4 million and that in Asia, by 10.9% to reach $258.4 million. LEVI’s new Other Brands segment, comprised of Dockers and Beyond Yoga, reported revenue of $97.9 million, up 96.2% year-over-year.

Margins and costs

Adjusted gross profit was $945.6 million, up significantly from $752.8 million in the prior year quarter. Excluding the pandemic and acquisition-related costs, gross margin of 59.4% increased 170 basis points (bps) year-over-year.

Adjusted general and administrative expenses jumped 22.3% to $707.7 million due to higher selling and distribution expenses as well as higher incentive compensation. As a revenue rate, adjusted general and administrative expenses jumped 20 basis points to 44.5%, reflecting high investments in advertising and promotion and higher distribution expenses.

Adjusted EBIT was $237.9 million, up 36.7% from the prior quarter. Additionally, adjusted EBIT margin was 14.9%, up 160 basis points year-on-year driven by higher sales and gross margin.

Other finance

Levi Strauss ended the quarter with cash and cash equivalents of $678.3 million and short-term investments of $98.8 million. These were supplemented by $837 million available under its revolving credit facility, resulting in a total liquidity position of $1.6 billion.

As of February 27, 2022, long-term debt and total equity were $1,020.5 million and $1,723.6 million, respectively. Total inventory increased 20% year over year to $1,006.2 million. In the three months of fiscal 2022, cash from operations was $86 million due to higher collection of trade receivables, partially offset by higher inventory expenses and SG&A expenses. Currently, Zacks Rank #4 (Sell) LEVI’s Adjusted Free Cash Flow was negative $124 million over the same period.

During the first fiscal quarter, Levi Strauss repurchased 3 million shares. Subsequent to the end of the quarter, LEVI completed the $200 million share buyback program by repurchasing an additional 2 million shares for $40 million. Management has declared a cash dividend of 10 cents per share aggregating approximately $40 million, payable on or after May 24, 2022 to its shareholders of record as of May 6.

Outlook

Given Levi Strauss’ strength in business strategies and growth, management remains optimistic about fiscal 2022. They continue to see strong demand for the products across all geographies and categories. It reaffirmed its forecast for the 2022 financial year.

Levi Strauss continues to forecast an 11-13% increase in net revenue from fiscal 2021 levels in the $6.4-6.5 billion range. Adjusted EPS is guided between $1.50 and $1.56, compared to $1.47 earned in fiscal 2021.

Zacks’ consensus estimate for fiscal 2022 sales and earnings is currently pegged at $6.5 billion and $1.52, respectively.

Solid Choices in Retail

Some higher-ranking stocks in the broader retail sector are Capri Holdings (IRCP free report), Operation of the starter barn (STARTUP free report) and Tapestry (TRP free report).

Capri Holdings, which offers accessories and footwear, currently sports a Zacks No. 1 (Strong Buy) rating. CPRI has an expected earnings per share (EPS) growth rate of 53.9% over three to five years. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks’ consensus estimate for Capri Holdings’ current year sales and EPS suggests growth of 37% and 215.8%, respectively, over the corresponding figures for the prior year. CPRI has a four-quarter earnings surprise of 1,018.2% on average.

Boot Barn Holdings, a lifestyle retailer of Western and work-related footwear, apparel and accessories, currently has a Zacks rank of No. 2 (buy). BOOT has an expected EPS growth rate of 20% over three to five years.

Zacks’ consensus estimate for Boot Barn Holdings’ current year sales and EPS suggests growth of 62.6% and 220.8%, respectively, over the corresponding figures for the prior year. BOOT has a trailing four-quarter earnings surprise of 47.1%, on average.

Tapestry, a renowned designer of fine accessories, currently carries a Zacks ranking of 2. TPR has a trailing four-quarter earnings surprise of 28.2%, on average.

Zacks’ consensus estimate for Tapestry sales and EPS for the current year suggests growth of 17.5% and 22.9%, respectively, over the corresponding levels of the prior year. TPR has an expected EPS growth rate of 10% over three to five years.

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