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Mayank Marwah
Mayank Marwah
Articles (994) 

Levi Strauss Beats 3rd-Quarter Earnings and Revenue Projections on Robust Online Growth

Sales were down in the US, Europe and Asia on store closures

October 07, 2020 | About:

Levi Strauss Co. (NYSE:LEVI) released its third-quarter earnings after the market closed on Oct 6. The company recorded higher than expected earnings and revenue for the quarter as strong online sales negated sales loss due to pandemic-related store closures. However, results were down on a year-over-year basis.

Performance at a glance

The San Francisco-based manufacturer of denim products posted earnings per share of 8 cents, which exceeded analysts' expectations of a loss per share of 22 cents. Revenue of $1.06 billion tumbled 27% on a year-over-year basis, but edged past estimates of $822.2 million.

Reflecting on the company's performance, executive vice president and chief financial officer Harmit Singh said:

"The strength of the Levi's brand is demonstrated in our gross margins, and revenues have been recovering from COVID-19 related disruptions faster than expected, driven by e-commerce, international and our women's business, particularly within Europe and in the United States. Inventory is healthy headed into holiday, we are making investments in our digital transformation, and our cost and working capital actions have put us on a clear and accelerated path to achieving our adjusted EBIT margin 'North Star' of at least 12% when revenues recover to pre-COVID levels."

E-commerce sales grew 52% in the reported quarter and accounted for 24% of the company's total quarterly revenue. The growth includes both sales on Levi.com and its wholesale partners like Amazon (NASDAQ:AMZN).

The company noted its wholesale channel sales dropped 29% in the reported quarter, while the direct-to-consumer business fell 22%.

At the end of the quarter, the company had total liquidity of about $2 billion. In addition, the company has $608 million available under its revolving credit facility.

A closer look

The company reported sales declines in all regions as stores remained shut for the majority of the quarter due to the coronavirus outbreak. Sales fell 29% in the U.S., 16% in Europe and 42% in Asia. Online sales in all the segments were strong, but not enough to make up for the loss of sales due to store closures.

The company's women's business flourished during the quarter, courtesy of robust demand for blouses, shorts and jeans. Presently, women's apparel account for 37% of Levi's total sales, up from 20% in 2015. The company strategizes to boost the women's category such that it accounts for 50% of the top line in the long term.

The jeans maker reported in July that it would cut 700 jobs, which is equal to 15% of its global corporate workforce, in an effort to trim costs. Berg said that the move would result in annual savings of $100 million.

Guidance

For the fourth quarter, the clothing company is guiding for earnings of around 14 cents to 16 cents per share. This is line with analysts' projections. Revenue is expected to decline between 14% and 15%, which is better than analysts' expectations of 19.62%.

Disclosure: I do not hold any positions in the stocks mentioned.

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About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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