Levi Strauss & (LEVI) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The company reported a $10.6 million net loss for Q1 2024, driven by $116.2 million in restructuring charges, with improved operating cash flow Consolidated Balance Sheets Total assets slightly decreased to $5.96 billion as of February 25, 2024, driven by lower inventories, while cash increased and stockholders' equity declined Consolidated Balance Sheet Highlights (in millions) | Account | Feb 25, 2024 | Nov 26, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $516.7 | $398.8 | | Inventories | $1,150.4 | $1,290.1 | | Total Assets | $5,961.5 | $6,053.6 | | Long-term debt | $1,006.0 | $1,009.4 | | Total Liabilities | $3,985.4 | $4,007.2 | | Total Stockholders' Equity | $1,976.1 | $2,046.4 | Consolidated Statements of Operations The company reported a $10.6 million net loss for Q1 2024, driven by an 8% revenue decline to $1.56 billion and $116.2 million in restructuring charges Statement of Operations Summary (in millions, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net revenues | $1,557.6 | $1,688.9 | | Gross profit | $906.5 | $942.3 | | Restructuring charges, net | $116.2 | $11.4 | | Operating (loss) income | $(0.4) | $157.4 | | Net (loss) income | $(10.6) | $114.7 | | Diluted (loss) earnings per share | $(0.03) | $0.29 | Consolidated Statements of Cash Flows Net cash from operations significantly improved to $286.0 million in Q1 2024, resulting in an ending cash balance of $516.7 million Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $286.0 | $(160.8) | | Net cash used for investing activities | $(71.7) | $(19.1) | | Net cash (used for) provided by financing activities | $(94.5) | $77.8 | | Net increase (decrease) in cash | $117.9 | $(107.8) | | Ending cash and cash equivalents | $516.7 | $321.8 | Notes to Consolidated Financial Statements Key notes detail 'Project Fuel' restructuring charges of $116.2 million, with DTC revenue growth offsetting wholesale decline, and $24.9 million in share repurchases - The company initiated a multi-year global productivity initiative, 'Project Fuel', resulting in $116.2 million in restructuring charges for Q1 2024, primarily for severance. An additional $10.1 million in related consulting fees and a $5.5 million goodwill impairment for the footwear business were also recognized[67][68][69] Net Revenues by Segment and Channel (Q1 2024 vs Q1 2023, in millions) | Segment/Channel | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | By Segment | | | | Americas | $735.8 | $823.0 | | Europe | $423.5 | $455.1 | | Asia | $288.8 | $289.5 | | Other Brands | $109.5 | $121.3 | | By Channel | | | | Wholesale | $803.5 | $984.9 | | Direct-to-consumer | $754.1 | $704.0 | | Total Net Revenues | $1,557.6 | $1,688.9 | - During Q1 2024, the company repurchased 1.5 million shares of its Class A common stock for $24.9 million at an average price of $17.15 per share[39] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 7.8% revenue decline to U.S. wholesale, offset by DTC growth, resulting in an operating loss due to $116.2 million in restructuring charges, with improved gross margin Overview and Key Factors The company navigates a challenging retail environment with inflation and supply chain disruptions, focusing on 'Project Fuel' and DTC/e-commerce investment - The company launched 'Project Fuel', a multi-year global productivity initiative, in Q1 2024 to optimize its operating model and fuel long-term growth. The first phase resulted in $116.2 million in restructuring charges[109][110] - Key business challenges include inflation impacting consumer demand and costs, supply chain disruptions in the Red Sea affecting transit times, and increased competition in e-commerce[106][107][108] - The Direct-to-Consumer (DTC) channel grew to 48% of net revenues in Q1 2024, up from 42% in Q1 2023, reflecting the company's strategic shift[105] Results of Operations Q1 2024 net revenues fell 7.8% to $1.56 billion due to wholesale decline, offset by DTC growth, with gross margin expanding despite $116.2 million in restructuring charges leading to an operating loss Net Revenue Change by Segment & Channel (Constant Currency) | Segment/Channel | YoY % Change (Constant Currency) | | :--- | :--- | | Americas | -11.4% | | Europe | -8.0% | | Asia | +5.0% | | Wholesale | -18.7% | | DTC | +7.8% | | Total Net Revenues | -7.7% | - The decline in wholesale revenue was significantly impacted by prior year's accelerated shipments of approximately $100 million in advance of the U.S. ERP implementation[132] - Gross margin increased to 58.2% from 55.8% in Q1 2023, primarily due to lower product costs and a favorable channel mix. Currency exchange had an unfavorable impact of approximately 70 basis points[135][136] - Operating income was negatively impacted by $116.2 million in restructuring charges related to Project Fuel and a $5.5 million goodwill impairment charge for the footwear business[142][140] Liquidity and Capital Resources The company maintains a strong $1.5 billion liquidity position, with $516.7 million in cash and improved operating cash flow, allocating capital to reinvestment, dividends, and share repurchases - Total liquidity position as of February 25, 2024, was approximately $1.5 billion, consisting of $516.7 million in cash and cash equivalents and $933.7 million in unused availability under the credit facility[158] - Capital deployment in Q1 2024 included $24.9 million for share repurchases and $47.9 million for dividend payments[160][164] - Total debt stood at $1.0 billion as of February 25, 2024, with no required principal payments on long-term debt until 2027[165] Non-GAAP Financial Measures The company presents non-GAAP measures, with Adjusted EBIT at $140.7 million and Adjusted diluted EPS at $0.26 for Q1 2024, excluding restructuring and impairment charges Reconciliation of Net (Loss) Income to Adjusted EBIT (in millions) | Description | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net (loss) income | $(10.6) | $114.7 | | Income tax, Interest, Other expense | $10.2 | $42.7 | | Restructuring & related charges | $131.6 | $11.9 | | Impairment & other charges | $9.5 | $16.0 | | Adjusted EBIT | $140.7 | $185.3 | GAAP vs. Non-GAAP EPS | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Diluted (loss) earnings per share (GAAP) | $(0.03) | $0.29 | | Adjusted diluted earnings per share (Non-GAAP) | $0.26 | $0.34 | Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the company's primary market risk exposures or their management since the 2023 Annual Report on Form 10-K disclosures - There have been no material changes in the company's primary market risk exposures from the information disclosed in the 2023 Annual Report on Form 10-K[231] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of February 25, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of February 25, 2024, the company's disclosure controls and procedures were effective[232] - 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[233] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings but does not expect any material impact on its financial condition, results of operations, or cash flows - The company does not expect any pending claims, complaints, or legal proceedings to have a material impact on its financial condition, results of operations, or cash flows[235] Item 1A. Risk Factors No material changes have been made to the company's previously reported risk factors from its 2023 Annual Report on Form 10-K - No material changes have been made to the company's previously reported Risk Factors from its 2023 Annual Report on Form 10-K[236] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity sales, repurchasing 1.5 million shares for $24.9 million under its program, with $655.5 million remaining available Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | Jan 29, 2024 - Feb 25, 2024 | 1,451,753 | $17.15 | $655,531,315 | Item 5. Other Information Director David Friedman and CFO Harmit Singh adopted Rule 10b5-1 trading arrangements for potential company stock sales during the quarter - Director David Friedman adopted a Rule 10b5-1 trading plan on January 29, 2024, for up to 200,000 shares of Class A Common Stock[247] - Chief Financial and Growth Officer Harmit Singh adopted a Rule 10b5-1 trading plan on February 6, 2024, for up to 629,000 shares of Class A Common Stock[247]