Levi Strauss & (LEVI) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements, management's discussion, and market risk disclosures Item 1. Consolidated Financial Statements This section presents unaudited consolidated financial statements, including balance sheets, income, cash flows, and notes on key events Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates Consolidated Balance Sheet Highlights (in millions) | Account | August 25, 2024 | November 26, 2023 | | :--- | :--- | :--- | | Total Assets | $6,253.5 | $6,053.6 | | Cash and cash equivalents | $577.1 | $398.8 | | Inventories | $1,275.2 | $1,290.1 | | Total Liabilities | $4,380.4 | $4,007.2 | | Long-term debt | $1,020.5 | $1,009.4 | | Total Stockholders' Equity | $1,873.1 | $2,046.4 | Consolidated Statements of Income This section presents the company's financial performance over specific periods, detailing revenues, expenses, and net income Income Statement Summary (in millions, except per share data) | Metric | Three Months Ended Aug 25, 2024 | Three Months Ended Aug 27, 2023 | Nine Months Ended Aug 25, 2024 | Nine Months Ended Aug 27, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $1,516.8 | $1,511.0 | $4,515.6 | $4,536.7 | | Gross profit | $910.7 | $839.5 | $2,688.9 | $2,566.0 | | Operating income | $30.3 | $34.8 | $51.8 | $202.1 | | Net income | $20.7 | $9.6 | $28.0 | $122.7 | | Diluted EPS | $0.05 | $0.02 | $0.07 | $0.31 | Consolidated Statements of Cash Flows This section details the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for the Nine Months Ended (in millions) | Cash Flow Category | August 25, 2024 | August 27, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $601.1 | $176.6 | | Net cash used for investing activities | $(192.2) | $(160.9) | | Net cash used for financing activities | $(229.1) | $(139.1) | | Ending cash and cash equivalents | $577.1 | $294.5 | Notes to Consolidated Financial Statements Detailed explanations of accounting policies and financial statement items are provided, covering acquisitions, restructuring, impairments, and debt - In Q1 2024, the company initiated "Project Fuel," a multi-year global productivity initiative, resulting in $174.7 million in restructuring charges for the first nine months of 2024, primarily for severance and benefits[49][51] - The company recognized $111.4 million in impairment charges for the nine months ended August 25, 2024, related to the Beyond Yoga® brand, including goodwill, trademark, and customer relationship intangible assets[32][110] - Subsequent to the quarter's end, the company initiated a formal strategic review for the Dockers® brand, which could lead to a potential sale or other transaction[78] - During the first nine months of 2024, the company repurchased 3.3 million shares of common stock for $59.7 million and paid cash dividends totaling $147.1 million[26][58] - In December 2023, the company acquired the operating assets of its former Colombian distributor, Expofaro S.A.S, for $31.9 million in cash, including 40 retail stores and an e-commerce site[19] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for the third quarter and year-to-date 2024, highlighting DTC growth, wholesale declines, restructuring, and impairment impacts Overview This section provides a high-level summary of the company's business, revenue composition, and strategic initiatives like "Project Fuel" - The Direct-to-Consumer (DTC) channel generated 46% of net revenues in the first nine months of 2024, an increase from 43% in the same period of 2023[82] - Sales of Levi's® brand products constituted 89% of the company's total net sales in the first nine months of 2024[82] - The company is actively managing supply chain risks, including disruptions in the Red Sea and potential major port strikes on the U.S. East and Gulf Coasts[83] - Subsequent to the quarter end, the company announced a formal review of strategic alternatives for the Dockers® brand, which could include a sale[86] Results of Operations This section details Q3 and YTD 2024 financial results, noting flat net revenues, improved gross margin, and significant restructuring and impairment charges Q3 2024 vs Q3 2023 Performance (in millions) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $1,516.8 | $1,511.0 | +0.4% | | Gross Profit | $910.7 | $839.5 | +8.5% | | Gross Margin | 60.0% | 55.6% | +440 bps | | Operating Income | $30.3 | $34.8 | -12.9% | - DTC channel revenue grew 9.9% in Q3 and 8.3% YTD, while Wholesale channel revenue declined 6.0% in Q3 and 7.0% YTD on a reported basis[99][101] - Goodwill and other intangible asset impairment charges of $111.4 million were recognized in Q3 2024 related to the Beyond Yoga® acquisition[110] - Restructuring charges of $174.7 million were recognized in the first nine months of 2024 related to the Project Fuel initiative[109] Liquidity and Capital Resources The company maintains strong liquidity, with increased cash from operations primarily due to improved inventory management, supporting reinvestment and shareholder returns - Total liquidity position was approximately $1.3 billion as of August 25, 2024, consisting of $577.1 million in cash and cash equivalents and $705.8 million in unused credit availability[124] - Cash provided by operating activities for the nine-month period ended August 25, 2024, was $601.1 million, a substantial increase from $176.6 million in the comparable 2023 period, primarily due to lower spending on inventory[128] - During the first nine months of 2024, the company used cash for $59.7 million in share repurchases and $147.1 million in dividend payments[125][130] Non-GAAP Financial Measures This section defines and reconciles non-GAAP measures like Adjusted EBIT and Adjusted Net Income, providing insights into underlying business trends by excluding special items Q3 2024 Reconciliation of Net Income to Adjusted EBIT (in millions) | Description | Amount | | :--- | :--- | | Net income | $20.7 | | Income tax (benefit) expense | $(0.9) | | Interest expense | $10.1 | | Other expense, net | $0.4 | | Goodwill and other intangible asset impairment charges | $111.4 | | Restructuring charges, net | $3.4 | | Restructuring related charges, severance and other, net | $19.2 | | Property, plant, equipment, right-of-use asset impairment | $11.1 | | Adjusted EBIT | $175.4 | Q3 2024 Reconciliation of Diluted EPS to Adjusted Diluted EPS | Description | Amount | | :--- | :--- | | Diluted earnings per share | $0.05 | | Goodwill and other intangible asset impairment charges | $0.28 | | Restructuring charges, net & related | $0.05 | | Other adjustments (PPE impairment, etc.) | $0.03 | | Tax impact of adjustments | $(0.08) | | Adjusted diluted earnings per share | $0.33 | - Adjusted free cash flow for the nine months ended August 25, 2024 was $439.3 million, a significant improvement from a use of cash of $(73.8) million in the prior year period[148] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states there have been no material changes in its primary market risk exposures or the management of those exposures since its 2023 Annual Report - There have been no material changes in primary market risk exposures or how those exposures are managed from the information disclosed in the 2023 Annual Report on Form 10-K[169] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of August 25, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of August 25, 2024, the company's disclosure controls and procedures were effective[170] - There were no changes to internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[171] PART II — OTHER INFORMATION This section covers various other disclosures, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is involved in various legal claims, but management does not believe any pending matters will materially impact its financial condition or results - The company does not believe any pending claims, complaints, and legal proceedings will have a material impact on its financial condition, results of operations or cash flows[173] Item 1A. Risk Factors The company reports that there have been no material changes to the risk factors previously disclosed in its 2023 Annual Report on Form 10-K - There have been no material changes to the company's previously reported Risk Factors from the Annual Report on Form 10-K for the year ended November 26, 2023[174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity, including shares bought back in Q3 2024 and remaining authorization Issuer Purchases of Equity Securities in Q3 2024 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | May 27 - Jun 30, 2024 | 141,091 | $19.36 | | Jul 1 - Jul 28, 2024 | 810,484 | $18.58 | | Total for Q3 | 951,575 | $18.70 | - As of September 25, 2024, the approximate value of shares that may yet be purchased under the repurchase program is $620.8 million[176] Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None[177] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[177] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the third quarter of 2024 - No directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the third quarter of 2024[178] Item 6. Exhibits This section lists the exhibits filed with the 10-Q report, including CEO and CFO certifications and interactive data files - Filed exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[181] - The filing includes Inline XBRL documents for interactive data[181]