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

Q2 2025 Financial Performance Overview Executive Summary & Key Highlights Levi Strauss & Co. reported a strong second quarter for 2025, with significant growth in revenue and profitability, driven by the success of its strategic initiatives, particularly its DTC-first model. The company demonstrated broad-based strength, leading to an increase in its full-year financial outlook despite anticipated tariff impacts Q2 2025 Key Performance Indicators | Metric | Q2 2025 Performance | YoY Change | | :--- | :--- | :--- | | Reported Net Revenues | $1.4 billion | +6% | | Organic Net Revenues | - | +9% | | Gross Margin | 62.6% (Record) | +140 bps | | Adjusted EBIT Margin | 8.3% | +190 bps | | Adjusted Diluted EPS | $0.22 | +37% | - CEO Michelle Gass stated that the strong quarter is clear evidence of the company's strategic agenda gaining traction, as it transforms into a denim lifestyle brand and a best-in-class DTC retailer[2] - CFO Harmit Singh announced an increase in the full-year revenue and EPS forecast, attributing the company's inflection to a focus on the core Levi's® brand and its DTC-first strategy, which is creating a higher growth and margin profile[2] Detailed Financial Performance The company's revenue growth was propelled by strong performance in the Americas and Europe. The Direct-to-Consumer (DTC) channel was a key driver, growing 11% and now comprising 50% of total net revenues. Gross and operating margins expanded significantly, benefiting from lower product costs and favorable channel mix Regional and Channel Growth | Region/Channel | Reported Growth | Organic Growth | | :--- | :--- | :--- | | By Region | | | | Americas | +5% | +9% | | Europe | +14% | +15% | | Asia | -1% | 0% | | By Channel | | | | DTC | +11% | +10% | | Wholesale | +3% | +7% | - The Direct-to-Consumer (DTC) channel now represents 50% of the company's total net revenues for the second quarter[3] - Gross margin increased by 140 basis points to a record 62.6%, primarily driven by lower product costs and a favorable channel mix[6] Operating and Net Income Metrics | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Operating Margin | 7.5% | 1.5% | | Adjusted EBIT Margin | 8.3% | 6.3% | | Net Income (Continuing Ops) | $80 million | $17 million | | Adjusted Net Income | $89 million | $65 million | | Diluted EPS (Continuing Ops) | $0.20 | $0.04 | | Adjusted Diluted EPS | $0.22 | $0.16 | Balance Sheet and Shareholder Returns As of June 1, 2025, the company maintained a strong liquidity position with approximately $1.5 billion. It continued to return capital to shareholders, increasing its Q2 dividend payout by 8% year-over-year and announcing a further dividend increase for Q3 2025 - The company held $654 million in cash and cash equivalents and maintained total liquidity of approximately $1.5 billion[13] - Total inventories saw a 15% increase on a dollar basis compared to the previous period[13] - In Q2, the company returned approximately $51 million to shareholders via a dividend of $0.13 per share. For Q3, the dividend has been increased to $0.14 per share[8][9] - The company has $560 million remaining under its current share repurchase authorization, with no expiration date[9] Fiscal 2025 Outlook (Updated) Reflecting strong first-half performance, Levi Strauss & Co. has raised its full-year 2025 guidance. The company now expects higher net revenue growth and has increased its adjusted diluted EPS range, even after factoring in a 20 basis point impact from tariffs Fiscal 2025 Guidance Comparison | Metric | Updated FY2025 Guidance | Previous FY2025 Guidance | | :--- | :--- | :--- | | Reported Net Revenue Growth | 1% to 2% | (1%) to (2%) | | Organic Net Revenue Growth | 4.5% to 5.5% | 3.5% to 4.5% | | Adjusted EBIT Margin | 11.4% to 11.6% | Maintained | | Adjusted Diluted EPS | $1.25 to $1.30 | $1.20 to $1.25 | - The updated guidance assumes U.S. tariffs on imports from China will remain at 30% and from the rest of the world at 10% for the remainder of the year[10] Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets As of June 1, 2025, total assets stood at $6.53 billion, a slight increase from $6.38 billion at the end of fiscal 2024. This was primarily due to a rise in inventories to $1.25 billion. Total liabilities remained stable at $4.44 billion, resulting in an increase in total stockholders' equity to $2.09 billion Consolidated Balance Sheet Highlights | Balance Sheet Item ($ millions) | June 1, 2025 | Dec 1, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | 653.6 | 690.0 | | Inventories | 1,248.9 | 1,131.3 | | Total Assets | 6,533.2 | 6,375.5 | | Total current liabilities | 1,979.8 | 2,010.5 | | 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 the second quarter of 2025, the company reported a significant improvement in profitability. Net revenues grew to $1.45 billion, driving gross profit to $905.8 million. Operating income surged to $108.0 million, and net income from continuing operations increased more than fourfold to $79.6 million, or $0.20 per diluted share Consolidated Statements of Income Highlights | Income Statement Item ($ millions) | Three Months Ended June 1, 2025 | Three Months Ended May 26, 2024 | | :--- | :--- | :--- | | Net revenues | 1,446.0 | 1,358.8 | | Gross profit | 905.8 | 832.4 | | Operating income | 108.0 | 20.9 | | Net income from continuing operations | 79.6 | 17.2 | | Diluted EPS from continuing operations | $0.20 | $0.04 | Consolidated Statements of Cash Flows For the first six months of fiscal 2025, net cash from operating activities was $238.0 million, a decrease from $548.8 million in the prior-year period. The company utilized $129.7 million for investing activities, mainly for capital expenditures, and $152.4 million for financing activities, including dividends and stock repurchases Consolidated Statements of Cash Flows Highlights | Cash Flow Item ($ millions) | Six Months Ended June 1, 2025 | Six Months Ended 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) increase in cash | (36.4) | 242.6 | Reconciliation of GAAP to Non-GAAP Financial Measures Overview of Non-GAAP Measures The company employs non-GAAP financial measures like Adjusted EBIT, Adjusted Net Income, and Organic Net Revenues to offer investors a clearer perspective on its core operational performance. These metrics, which exclude items such as restructuring charges, currency impacts, and divestiture effects, are integral to management's financial and operational decision-making - The company uses non-GAAP measures to supplement GAAP results, providing additional information on financial performance, enhancing understanding of past performance and future prospects, and increased transparency[17][18] - Key non-GAAP measures include Adjusted SG&A, Adjusted EBIT, Adjusted Net Income, Adjusted Diluted EPS, Organic Net Revenues, and Adjusted Free Cash Flow[38] Reconciliation of Adjusted EBIT and Net Income For Q2 2025, Adjusted EBIT rose 39% to $119.3 million from $86.0 million YoY, while Adjusted Net Income increased 35% to $88.5 million. The primary adjustments from GAAP figures involved excluding restructuring charges ($6.8 million) and related costs ($4.5 million) associated with the 'Project Fuel' initiative, providing a clearer view of ongoing operational profitability Adjusted EBIT and Net Income Reconciliation | Q2 2025 Reconciliation ($ millions) | GAAP Measure | Adjustments | Non-GAAP Measure | | :--- | :--- | :--- | :--- | | Operating Income / Adjusted EBIT | 108.0 | +11.3 | 119.3 | | Net Income (Cont. Ops) / Adjusted Net Income | 79.6 | +8.9 | 88.5 | - Key adjustments for Q2 2025 include $6.8 million in restructuring charges and $4.5 million in restructuring-related charges, primarily related to the 'Project Fuel' initiative[46][51][58] Reconciliation of Organic Net Revenues In Q2 2025, total organic net revenue growth was 8.8%, outpacing the reported 6.4% growth. This performance was driven by strong organic growth in Europe (+14.6%) and the Americas (+8.9%), as well as the DTC channel (+10.3%). The core Levi's® brand achieved 9.1% organic growth. The adjustments account for currency fluctuations and prior-year divestitures Q2 2025 Growth | Q2 2025 Growth | Reported | Organic | | :--- | :--- | :--- | | Total Net Revenues | 6.4% | 8.8% | | Americas | 5.1% | 8.9% | | Europe | 14.0% | 14.6% | | Asia | (0.9%) | 0.2% | | Wholesale Channel | 2.7% | 7.3% | | DTC Channel | 10.5% | 10.3% | | Levi's® Brand | 7.4% | 9.1% | - The variance between reported and organic revenue growth is attributed to the impact of foreign currency exchange rates and the divestitures of the Denizen® and Footwear businesses in the prior year[83] Other Non-GAAP Reconciliations The company's trailing four-quarter Return on Invested Capital (ROIC) improved significantly to 17.7% from 14.0% year-over-year, indicating more efficient capital deployment. Adjusted Free Cash Flow for the first six months was $131.9 million. On a constant-currency basis, Q2 Adjusted EBIT grew 41.9%, demonstrating strong underlying business momentum - Adjusted Free Cash Flow for the six months ended June 1, 2025, was $131.9 million, compared to $437.0 million in the same period last year[76] - Return on Invested Capital (ROIC) for the trailing four quarters increased to 17.7% as of June 1, 2025, up from 14.0% a year prior[81] Constant-Currency Growth Rates | Q2 2025 Constant-Currency Growth | YoY Growth | | :--- | :--- | | Adjusted EBIT | 41.9% | | Adjusted Net Income | 35.3% | | Adjusted Diluted EPS | 37.5% |