Levi Strauss & (LEVI) - 2025 Q2 - Quarterly Report

Part I Consolidated Financial Statements The company's financial statements for the period ending June 1, 2025, reflect revenue growth and a significant increase in net income compared to the prior year, largely driven by improved gross margins and lower restructuring charges, with total assets increasing to $6.53 billion and the Dockers® business classified as discontinued operations Consolidated Balance Sheets As of June 1, 2025, total assets were $6.53 billion, an increase from $6.38 billion at the end of fiscal 2024, driven by higher inventories and other non-current assets; total liabilities remained relatively stable at $4.44 billion, while total stockholders' equity increased to $2.09 billion from $1.97 billion Key Balance Sheet Items (in millions) | Balance Sheet Item | June 1, 2025 | December 1, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $653.6 | $690.0 | | Inventories | $1,248.9 | $1,131.3 | | Total current assets | $2,929.1 | $2,851.1 | | Total assets | $6,533.2 | $6,375.5 | | Long-term debt | $1,033.7 | $994.0 | | Total liabilities | $4,443.2 | $4,405.0 | | Total stockholders' equity | $2,090.0 | $1,970.5 | Consolidated Statements of Income For Q2 2025, net revenues increased to $1.45 billion from $1.36 billion year-over-year, with net income from continuing operations rising substantially to $79.6 million from $17.2 million, driven by higher gross profit and lower restructuring charges Income Statement Highlights (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $1,446.0 | $1,358.8 | $2,972.8 | $2,839.0 | | Gross profit | $905.8 | $832.4 | $1,853.4 | $1,702.2 | | Operating income | $108.0 | $20.9 | $299.6 | $21.5 | | Net income from continuing operations | $79.6 | $17.2 | $219.8 | $7.3 | | Net income | $67.0 | $18.0 | $202.0 | $7.3 | | Diluted EPS (Continuing Operations) | $0.20 | $0.04 | $0.55 | $0.02 | Consolidated Statements of Cash Flows For the first six months of 2025, net cash provided by operating activities decreased to $238.0 million from $548.8 million in the prior year, while net cash used for investing activities was $129.7 million and for financing activities was $152.4 million Cash Flow Summary - Six Months Ended (in millions) | Cash Flow Activity | June 1, 2025 | May 26, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $238.0 | $548.8 | | Net cash used for investing activities | ($129.7) | ($141.4) | | Net cash used for financing activities | ($152.4) | ($162.9) | | Net (decrease) in cash | ($36.4) | $242.6 | | Ending cash and cash equivalents | $653.6 | $641.4 | Notes to Consolidated Financial Statements Key notes detail the definitive agreement to sell the Dockers® business, now a discontinued operation, the ongoing "Project Fuel" restructuring initiative, and disaggregated revenue data showing growth in the DTC channel - The company entered into a definitive agreement to sell its Dockers® business, which is now classified as discontinued operations; the transaction is expected to close in two phases, on July 31, 2025, and January 31, 2026[27][47] - The Denizen® brand was discontinued, with the wind-down substantially complete as of March 2, 2025[27] - The "Project Fuel" restructuring initiative incurred charges of $6.8 million and $13.5 million for the three and six months ended June 1, 2025, respectively[72] - Dividends of $0.13 per share were declared in both January and April 2025, with a subsequent dividend of $0.14 per share declared for Q3 2025[85][87] Management's Discussion and Analysis (MD&A) Management reports a 6.4% increase in Q2 2025 net revenues, driven by growth in Americas and Europe, improved gross margin to 62.6%, and the sale of the Dockers® brand, maintaining strong liquidity of approximately $1.5 billion Overview and Key Factors Levi Strauss & Co., primarily driven by the Levi's® brand, is diversified across wholesale and DTC channels, with key factors including the pending Dockers® sale, the "Project Fuel" initiative, and macroeconomic pressures - The company has entered into a definitive agreement to sell its Dockers® business, which is now reported as discontinued operations[119] - The "Project Fuel" initiative, a multi-year global productivity plan, is underway to optimize operations and reduce costs, resulting in restructuring charges of $6.8 million in Q2 2025[120] - Key business risks include potential tariffs on products from Asia, macroeconomic pressures affecting consumer spending, foreign currency volatility, and evolving tax legislation like Pillar Two[121] Revenue Mix - First Six Months of 2025 | Category | % of Net Revenues | | :--- | :--- | | International Business | 57% | | Levi's® Brand | ~94% | | DTC Channel | 51% | | Wholesale Channel | 49% | Results of Operations Q2 2025 net revenues grew 6.4% to $1.45 billion, with gross margin expanding to 62.6% due to lower product costs, and operating income surging to $108.0 million from $20.9 million due to revenue growth, margin expansion, and significantly lower restructuring charges Net Revenues Growth by Segment & Channel (Q2 2025 vs Q2 2024) | Segment/Channel | Reported Growth | Organic Growth | | :--- | :--- | :--- | | Total | 6.4% | 8.8% | | Americas | 5.1% | 8.9% | | Europe | 14.0% | 14.6% | | Asia | (0.9)% | 0.2% | | Beyond Yoga® | 11.9% | 11.9% | | Wholesale | 2.7% | 7.3% | | DTC | 10.5% | 10.3% | - Gross margin for Q2 2025 increased to 62.6% from 61.3% year-over-year, primarily due to lower product costs, favorable channel mix, and higher full-priced sales[146][147] - SG&A expenses increased 4.6% to $791.0 million in Q2 2025, but decreased as a percentage of revenue to 54.7% from 55.7% year-over-year[133][148] Operating Income by Segment (in millions) | Segment | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Americas | $153.3 | $126.5 | | Europe | $69.4 | $53.3 | | Asia | $29.6 | $33.9 | | Beyond Yoga® (loss) | ($4.4) | ($2.9) | | Total Operating Income | $108.0 | $20.9 | Liquidity and Capital Resources The company maintains a strong liquidity position of approximately $1.5 billion, with capital allocation priorities focused on reinvestment, dividends, and share repurchases, having paid $102.8 million in dividends and repurchased $30.5 million of stock in the first half of 2025 - Total liquidity position as of June 1, 2025, was approximately $1.5 billion[170] - Capital allocation priorities are: 1) reinvestment in the business, 2) returning capital to stockholders via dividends (target 25-35% payout ratio) and share buybacks, and 3) pursuing strategic acquisitions[168] - In the first six months of 2025, the company used cash for $102.8 million in dividend payments and $30.5 million in common stock repurchases[176] - Cash provided by operating activities decreased to $238.0 million for the first six months of 2025 from $548.8 million in the prior year, primarily due to higher spending on inventory and incentive payments[174] Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted EBIT and Adjusted Net Income to provide a clearer view of underlying business trends, with Adjusted EBIT increasing 38.7% to $119.3 million in Q2 2025 Reconciliation of Net Income to Adjusted EBIT (Q2 2025, in millions) | Metric | Amount | | :--- | :--- | | Net income from continuing operations | $79.6 | | Income tax expense | $22.9 | | Interest expense | $11.8 | | Other (income) expense, net | ($6.3) | | Restructuring charges, net | $6.8 | | Restructuring related charges and other, net | $4.5 | | Adjusted EBIT | $119.3 | Reconciliation of Diluted EPS to Adjusted Diluted EPS (Q2 2025) | Metric | Amount | | :--- | :--- | | Diluted EPS from continuing operations | $0.20 | | Restructuring charges, net | $0.02 | | Restructuring related charges and other, net | $0.01 | | Tax impact of adjustments | ($0.01) | | Adjusted diluted EPS | $0.22 | - Organic net revenues, which exclude currency impacts and divestitures, grew 8.8% in Q2 2025, compared to reported growth of 6.4%[225] Market Risk Disclosures There have been no material changes in the company's primary market risk exposures or their management since the 2024 Annual Report on Form 10-K disclosures - There have been no material changes in primary market risk exposures from the information disclosed in the 2024 Annual Report on Form 10-K[254] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 1, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 1, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[255] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[256] Part II Legal Proceedings & Risk Factors The company is involved in various ordinary course legal proceedings not expected to have a material impact, and there have been no material changes to previously disclosed risk factors - 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[258] - There have been no material changes to the company's previously reported Risk Factors[259] Share Repurchases and Equity Sales No shares were repurchased during Q2 2025, with $560.4 million remaining under the share repurchase authority as of July 3, 2025, and no unregistered sales of equity securities occurred - No shares were repurchased during the second quarter of 2025[262] - The remaining share repurchase authority was $560.4 million as of July 3, 2025[262]