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

Third-Quarter 2024 Financial Results Levi Strauss & Co. reported flat net revenues for Q3 2024, driven by Levi's brand growth and DTC strength, while updating fiscal 2024 guidance and initiating a strategic review for Dockers Financial and Operational Highlights Levi Strauss & Co. reported flat net revenues for Q3 2024, driven by Levi's brand growth and DTC strength, achieving significant gross margin expansion and increased adjusted diluted EPS Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Q3 2023 | YoY Change (Reported) | | :--- | :--- | :--- | :--- | | Net Revenues | $1.517 B | $1.511 B | 0% | | Gross Margin | 60.0% | 55.6% | +440 bps | | Net Income | $21 M | $10 M | +116% | | Adjusted Net Income | $132 M | $112 M | +18% | | Diluted EPS | $0.05 | $0.02 | +150% | | Adjusted Diluted EPS | $0.33 | $0.28 | +18% | - The Levi's® brand was the primary growth engine, with revenues increasing 5% globally, marking the highest growth in two years and a significant acceleration from the first half of the year[3] - The Direct-to-Consumer (DTC) business demonstrated strong performance with a 10% increase in net revenues (12% in constant currency), now comprising 44% of total net revenues[6] - Wholesale net revenues declined by 6% on a reported basis (5% constant currency); adjusting for the exit of the Denizen® business, the decline was 3%[6] Performance by Segment and Brand In Q3 2024, Europe was the strongest performing region with 6% reported revenue growth, while the Americas saw a slight 1% decline, and Asia's revenue was flat, with Dockers® decreasing and Beyond Yoga® growing Q3 2024 Net Revenues by Region (vs. Q3 2023) | Region | Net Revenues (USD M) | YoY Change (Reported) | YoY Change (Constant Currency) | | :--- | :--- | :--- | :--- | | Americas | $757 | -1% | 0% | | Europe | $407 | +6% | +7% | | Asia | $247 | 0% | +4% | Q3 2024 Net Revenues by Other Brands (vs. Q3 2023) | Brand | YoY Change (Reported) | YoY Change (Constant Currency) | | :--- | :--- | :--- | | Dockers® | -15% | -13% | | Beyond Yoga® | +19% | +19% | Balance Sheet and Shareholder Returns As of August 25, 2024, the company maintained a solid liquidity position of approximately $1.3 billion, including $577 million in cash and cash equivalents, with total inventories decreasing by 7% and $69 million returned to shareholders - The company's balance sheet shows cash and cash equivalents of $577 million and total liquidity of approximately $1.3 billion[11] - Total inventories decreased by 7% on a dollar basis compared to the prior year, indicating effective inventory management[11] Q3 2024 Shareholder Returns | Return Method | Amount (USD M) | | :--- | :--- | | Dividends ($0.13/share) | $52 | | Share Repurchases | $18 | | Total Returned | $69 | Strategic Initiatives The company has announced a significant strategic move by initiating a formal review of alternatives for its Dockers® brand, which could lead to a sale or other transaction, advised by Bank of America - A formal review of strategic alternatives for the Dockers® brand has been initiated, which could result in a potential sale or other strategic transaction[13] Fiscal 2024 Guidance Levi Strauss & Co. updated its full-year fiscal 2024 guidance, now expecting reported net revenue growth of approximately 1% and reaffirming its adjusted diluted EPS guidance at the mid-point of $1.17 to $1.27 Updated Fiscal 2024 Outlook | Metric | Guidance | | :--- | :--- | | Reported Net Revenues Growth | ~1% | | Constant-Currency Net Revenues Growth | 1.5% to 2% | | Adjusted Diluted EPS | Mid-point of $1.17 to $1.27 | Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flow statements, for the reported periods Consolidated Balance Sheets The consolidated balance sheet as of August 25, 2024, shows total assets of $6.25 billion, a slight increase from $6.05 billion at the end of fiscal 2023, with total liabilities at $4.38 billion and total stockholders' equity at $1.87 billion Key Balance Sheet Items (as of August 25, 2024) | Account | Amount (USD M) | | :--- | :--- | | Cash and cash equivalents | $577.1 | | Inventories | $1,275.2 | | Total current assets | $2,745.5 | | Total assets | $6,253.5 | | Total current liabilities | $1,946.1 | | Total liabilities | $4,380.4 | | Total stockholders' equity | $1,873.1 | Consolidated Statements of Income For the third quarter of 2024, the company reported net revenues of $1.517 billion and a gross profit of $910.7 million, with operating income of $30.3 million impacted by a $111.4 million impairment charge, and net income more than doubling to $20.7 million Q3 2024 Income Statement Summary | Account | Three Months Ended Aug 25, 2024 (USD M) | Nine Months Ended Aug 25, 2024 (USD M) | | :--- | :--- | :--- | | Net revenues | $1,516.8 | $4,515.6 | | Gross profit | $910.7 | $2,688.9 | | Operating income | $30.3 | $51.8 | | Net income | $20.7 | $28.0 | | Diluted EPS | $0.05 | $0.07 | Consolidated Statements of Cash Flows For the nine months ended August 25, 2024, net cash provided by operating activities was $601.1 million, a significant improvement from the prior year, with net cash used for investing activities at $192.2 million and financing activities at $229.1 million, resulting in a net increase in cash Cash Flow Summary (Nine Months Ended Aug 25, 2024) | Activity | Amount (USD M) | | :--- | :--- | | Net cash provided by operating activities | $601.1 | | Net cash used for investing activities | $(192.2) | | Net cash used for financing activities | $(229.1) | | Net increase in cash | $178.3 | Reconciliation of GAAP to Non-GAAP Financial Measures This section provides reconciliations from GAAP to non-GAAP financial measures, offering additional insights into the company's adjusted operational performance and comparability Overview of Non-GAAP Measures The company utilizes non-GAAP financial measures such as Adjusted EBIT, Adjusted Net Income, and constant-currency results to provide investors with a clearer view of its core operational performance, excluding items like restructuring charges and asset impairments - Non-GAAP measures are used to supplement GAAP results, offering additional insight into financial performance from management's perspective and enhancing comparability[20] - Constant-currency reporting is used to eliminate the impact of fluctuating foreign exchange rates, thereby increasing the transparency of the underlying business performance[21][22] Reconciliation of Key Performance Metrics This section provides detailed reconciliations from GAAP to non-GAAP metrics, showing how GAAP Net Income of $20.7 million was adjusted to an Adjusted Net Income of $131.9 million for Q3 2024, and GAAP Diluted EPS of $0.05 to an Adjusted Diluted EPS of $0.33 Q3 2024 GAAP to Non-GAAP Reconciliation Summary | Metric | GAAP Figure | Non-GAAP (Adjusted) Figure | | :--- | :--- | :--- | | SG&A Expenses | $765.6 M | $735.3 M | | EBIT (from Net Income) | $30.3 M (Operating Income) | $175.4 M | | Net Income | $20.7 M | $131.9 M | | Diluted EPS | $0.05 | $0.33 | - Major adjustments for Q3 2024 included goodwill and intangible asset impairment charges ($111.4 million), restructuring related charges ($19.2 million), and impairments of property, plant, and equipment ($11.1 million)[31] Reconciliation of Cash Flow and Invested Capital The company calculates Adjusted Free Cash Flow and Return on Invested Capital (ROIC) as key non-GAAP indicators, with Adjusted Free Cash Flow turning positive to $439.3 million for the nine months ended August 25, 2024, and ROIC improving to 14.1% Adjusted Free Cash Flow (Nine Months Ended) | Metric | Aug 25, 2024 (USD M) | Aug 27, 2023 (USD M) | | :--- | :--- | :--- | | Net cash from operating activities | $601.1 | $176.6 | | Purchases of property, plant and equipment | $(161.8) | $(250.4) | | Adjusted free cash flow | $439.3 | $(73.8) | - Return on Invested Capital (ROIC) for the trailing four quarters ending August 25, 2024, was 14.1%, up from 12.1% for the period ending August 27, 2023[42] Constant-Currency Reconciliations The impact of foreign currency is detailed by reconciling reported results to constant-currency figures, showing that Q3 2024 reported net revenue was flat but grew by 2.0% on a constant-currency basis, and Adjusted EBIT growth accelerated from 27.3% to 31.4% Q3 2024 Growth: Reported vs. Constant-Currency | Metric | YoY Growth (Reported) | YoY Growth (Constant-Currency) | | :--- | :--- | :--- | | Total Net Revenues | 0.4% | 2.0% | | DTC Net Revenues | 9.9% | 12.0% | | Adjusted EBIT | 27.3% | 31.4% | | Adjusted Net Income | 17.8% | 19.6% |