Levi first half year results for 2021 include net profits up 198% over last year and revenues that are up 29% for the period ending May 30th. The second quarter (Q2) results were stronger than expected and significantly better last year when stores were closed due to COVID-19. “We generated strong momentum in the second quarter with the accelerated recovery of our revenues and delivered growth across all regions and channels. This was underscored by the strength of our brand”, said Chip Bergh, president and CEO of Levi Strauss & Co.
According to the Levi’s earnings report, net revenues of $1.3 billion were up 156% versus the Q2 of fiscal 2020 and net revenues in the U.S. and China exceeded Q2 of fiscal 2019. Bergh stated, “As we move into the second half of 2021, we are focused on emerging stronger with our strategic priorities of leading with our enduring brand, accelerating our direct-to consumer connections, and diversifying across categories, channels and geographies.”
Profits driven by high gross margins and a strong DTC business
Record Gross margin of 58.8% driven by higher Direct-to-Consumer (DTC) net revenues, price increases, sourcing savings, lower promotions and more full-price selling. “We significantly exceeded our expectations on revenue, adjusted gross margin and adjusted EBIT. Revenues in most markets are recovering faster than anticipated, and we are emerging from the pandemic with sustainable and improved structural economics.” said Harmit Singh, CFO of Levi Strauss & Co. DTC stores and e-commerce comprised 29% and 8%, respectively, of total company net revenues in the Q2.
DTC remains a focus for the company along with diversification of its business in terms of geographies, product offerings, and business model. Global wholesale strategies have been implemented and become a strong, more profitable business for Levi.
Continued investments in AI move the brand forward
Digital, data and artificial intelligence are being used to further understand the customer behaviors and improve the shopper journey. Bergh discussed the use of AI driven demand forecasting which plans out merchandise assortments and allocation for the stores and e-commerce. The use of this type of technology improves full price sell through, provides better inventory management and reduces costs. Total inventories were down 12% compared to the end of the corresponding prior-year period but the company has experienced higher margins and more regular price selling resulting in higher profits on less inventory.
Levi executives in the earning call discussed the growth of e-commerce, up 42% versus Q2 of fiscal 2020 and net revenues through all digital channels grew 75%. Digital penetration as a percentage of total sales was approximately 23%.
The Levi brand has experienced a denim resurgence
Levi continues to see growth opportunities for back-to-work and back-to-school according to a recent interview about the current consumer denim trend. The Levi brand has experienced a denim resurgence for styles that are a more comfortable fit like high waists, loose fits and 90’s nostalgia including boyfriend styles. The other trends for consumers is sustainability and durability both of which are needs met by the Levi brand. Many of Levi’s latest designs use a wide range of sustainable fabrics.
Bergh stated on the Q2 earnings call, “Strong evolving denim trends and a continued shift to casualization were factors contributing to the sales increase and high gross margin results.” The looser fits drove growth for both men’s and women’s denim. Additionally, Bergh discussed how the Buy Better and Wear Longer campaign has resonated with the target market. ‘Buy Better and Wear Longer’ is a marketing initiative around sustainability and raising awareness while speaking to Levi’s shared responsibility on the environmental impacts of apparel production and consumption.
The company is now accepting both PayPal and Venmo in its stores now to better meet the needs of the younger target markets. Contactless returns is another initiative to make returns an easier process, a typically bothersome pain point for most retailers.
Future performance is strong and expectations are higher than 2019
The company’s expectations for the second half of fiscal 2021 are now higher than 2019. Singh said, “As we look forward, we’re raising our expectations for revenues and profits. Our balance sheet remains strong and we continue to return cash to shareholders, with dividends now back to pre-pandemic levels.” The company reported net revenues to grow 28-29% for the second half of fiscal 2021 as compared to the same time last year. In comparison to 2019, pre-pandemic levels, the second half year increase is projected between 4-5%.