Levi Strauss & Co. Announces Third-Quarter 2012 Financial Results
Levi Strauss & Co.Announces Third-Quarter 2012 Financial Results
Net Revenue Decline Reflects Global Environment and Strategic Actions
Company Reports Significantly Improved Cash Flow and Lower Net Debt
SAN FRANCISCO--(BUSINESS WIRE)-- Levi Strauss & Co. (LS&Co.) today announced financial results for the third quarter ended August 26, 2012, and filed its third-quarter 2012 results on Form 10-Q with the Securities and Exchange Commission.
Three Months Ended | ||||
($ millions) | August 26, | August 28, | ||
Net revenues | $1,101 | $1,204 | ||
Net income | $28 | $32 | ||
Third quarter 2012 net revenues declined 9 percent on a reported basis and 4 percent on a constant currency basis. These results reflect the ongoing global economic challenges and actions the company took to drive improvements in its future performance, including the decisions to license the Levi's® brand boys business in the Americas and phase out the Denizen® brand in Asia. Despite the notable revenue decline, net income dropped only $4 million, reflecting an improved operating margin.
"While the third quarter was impacted by the continuing difficult global macro-economic environment, we are very focused on what we can control: our product innovation and marketing programs, the key strategic choices we make and addressing our underlying cost structure," said Chip Bergh, president and chief executive officer of Levi Strauss & Co. "Our goal is to prioritize efforts behind our core business to drive sustainable, profitable growth and drive shareholder value. During the third quarter, we began to execute several initiatives against our goals, including exiting the Denizen® brand from Asia and licensing the U.S. Levi's® boys business."
Third Quarter 2012 Financial Highlights
Gross profit in the third quarter declined to $521 million compared with $569 million for the same period in 2011, reflecting unfavorable impacts of $45 million of currency effects and $25 million associated with the company's decision to phase out its Denizen® brand in Asia. Third quarter gross margin of 47.3 percent was flat to prior year. Excluding the currency and Denizen® impacts, gross margin improved, reflecting increased sales from the company's retail stores, a decline in sales to lower-margin channels and lower cotton costs.
Selling, general and administrative (SG&A) expenses for the third quarter declined to $434 million from $489 million in the same period of 2011, inclusive of favorable currency effects of $22 million. The decline in SG&A was primarily driven by a reduction in advertising activities in some markets and a difference in timing of campaigns; organization and distribution expenses also declined during the quarter. Partially offsetting these declines, the company recorded a $19 million impairment charge on its owned distribution center in Japan due to a decision to outsource to a third-party in that market.
Operating income for the third quarter was $87 million compared with $81 million for the same period of 2011, reflecting the lower SG&A.
Regional Overview
Regional net revenues for the quarter were as follows:
% Increase (Decrease) | ||||||||
Net Revenues ($ millions) | August 26, | August 28, | As Reported | Constant | ||||
Americas | $679 | $718 | (5)% | (4)% | ||||
Europe | $266 | $275 | (3)% | 12% | ||||
Asia Pacific | $156 | $211 | (26)% | (21)% | ||||
Net revenues in the Americas included higher sales from company's Levi's® brand retail stores, but declined overall primarily reflecting the company's decision to license the Levi's® brand boys business.
In Europe, economic challenges continue in most markets. The year-over-year constant-currency trend reflects the order fulfillment issues tied to the July 2011 implementation of an enterprise resource planning system in the region. Net revenues from company-operated retail grew, reflecting price increases and an expanded network of stores.
Revenues declined in Asia Pacific on both a reported and constant currency basis, reflecting a decline in wholesale revenues, including franchisee revenues, due to the economic slowdown in the region, particularly in India. Additionally, the company's decision to phase out the Denizen® brand in Asia further reduced revenues.
Cash Flow and Balance Sheet
As of August 26, 2012, cash and cash equivalents were approximately $315 million, and $478 million was available under the company's revolving credit facility. Cash provided by operating activities during the nine-month period in 2012 was $416 million, compared with $17 million for the same period in 2011, reflecting the company's lower purchases and lower cost of inventory, as well as lower operating expenses. Net debt was $1.4 billion as compared to $1.8 billion at the end of 2011.
Investor Conference Call
The company's third-quarter 2012 investor conference call will be available through a live audio Webcast at www.levistrauss.com/Financials/EarningsWebcasts.aspx today, October 9, 2012, at 1 p.m. Pacific/4 p.m. Eastern. Participants may dial-into the call in listen-only mode as well at 800-891-4735 or 973-200-3066 internationally ID - 33420397. A replay is available on the website the same day and will be archived for one month. In addition, a telephone replay also is available through October 15, 2012, at 800-585-8367; I.D. No.33420397.
Forward Looking Statement
This news release contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.We have based these forward-looking statements on our current assumptions, expectations and projections about future events.We use words like "believe," "will," "so we can," "when," "anticipate," "intend," "estimate," "expect," "project" and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words.These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.Investors should consider the information contained in our filings with the U.S.Securities and Exchange Commission (the "SEC"), including our Annual Report on Form 10-K for the fiscal year ended 2011, especially in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections.Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements.In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this news release may not occur.You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this news release.We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this news release to reflect circumstances existing after the date of this news release or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.
About Levi Strauss & Co.
Levi Strauss & Co. is one of the world's largest brand-name apparel companies and a global leader in jeanswear. The company designs and markets jeans, casual wear and related accessories for men, women and children under the Levi's®, Dockers®, Signature by Levi Strauss & Co.™, and Denizen® brands. Its products are sold in more than 110 countries worldwide through a combination of chain retailers, department stores, online sites, and a global footprint of more than 2,300 franchised and company-operated stores. Levi Strauss & Co.'s reported fiscal 2011 net revenues were $4.8 billion. For more information, go to http://levistrauss.com.
LEVI STRAUSS & CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS | ||||||||
(Unaudited) | ||||||||
August 26, | November 27, | |||||||
2012 | 2011 | |||||||
ASSETS | (Dollars in thousands) | |||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 314,768 | $ | 204,542 | ||||
Trade receivables, net of allowance for doubtful accounts of $23,309 and $22,684 | 438,776 | 654,903 | ||||||
Inventories: | ||||||||
Raw materials | 6,246 | 7,086 | ||||||
Work-in-process | 9,487 | 9,833 | ||||||
Finished goods | 543,911 | 594,483 | ||||||
Total inventories | 559,644 | 611,402 | ||||||
Deferred tax assets, net | 142,972 | 99,544 | ||||||
Other current assets | 120,856 | 172,830 | ||||||
Total current assets | 1,577,016 | 1,743,221 | ||||||
Property, plant and equipment, net of accumulated depreciation of $766,789 and $731,859 | 458,227 | 502,388 | ||||||
Goodwill | 239,417 | 240,970 | ||||||
Other intangible assets, net | 62,718 | 71,818 | ||||||
Non-current deferred tax assets, net | 551,560 | 613,161 | ||||||
Other non-current assets | 118,498 | 107,997 | ||||||
Total assets | $ | 3,007,436 | $ | 3,279,555 | ||||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities: | ||||||||
Short-term debt | $ | 62,549 | $ | 154,747 | ||||
Current maturities of capital leases | 532 | 1,714 | ||||||
Accounts payable | 231,332 | 204,897 | ||||||
Other accrued liabilities | 221,510 | 256,316 | ||||||
Accrued salaries, wages and employee benefits | 169,142 | 235,530 | ||||||
Accrued interest payable | 30,055 | 9,679 | ||||||
Accrued income taxes | 14,655 | 9,378 | ||||||
Total current liabilities | 729,775 | 872,261 | ||||||
Long-term debt | 1,662,205 | 1,817,625 | ||||||
Long-term capital leases | 1,694 | 1,999 | ||||||
Postretirement medical benefits | 131,895 | 140,108 | ||||||
Pension liability | 387,077 | 427,422 | ||||||
Long-term employee related benefits | 72,862 | 75,520 | ||||||
Long-term income tax liabilities | 38,132 | 42,991 | ||||||
Other long-term liabilities | 57,886 | 51,458 | ||||||
Total liabilities | 3,081,526 | 3,429,384 | ||||||
Commitments and contingencies | ||||||||
Temporary equity | 7,997 | 7,002 | ||||||
Stockholders' Deficit: | ||||||||
Levi Strauss & Co. stockholders' deficit | ||||||||
Common stock—$.01 par value; 270,000,000 shares authorized; 37,372,113 shares and 37,354,021 shares issued and outstanding | 374 | 374 | ||||||
Additional paid-in capital | 33,098 | 29,266 | ||||||
Retained earnings | 221,046 | 150,770 | ||||||
Accumulated other comprehensive loss | (342,011 | ) | (346,002 | ) | ||||
Total Levi Strauss & Co. stockholders' deficit | (87,493 | ) | (165,592 | ) | ||||
Noncontrolling interest | 5,406 | 8,761 | ||||||
Total stockholders' deficit | (82,087 | ) | (156,831 | ) | ||||
Total liabilities, temporary equity and stockholders' deficit | $ | 3,007,436 | $ | 3,279,555 | ||||
The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements. | ||||||||
LEVI STRAUSS & CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
August 26, | August 28, | August 26, | August 28, | |||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Net revenues | $ | 1,100,856 | $ | 1,204,017 | $ | 3,312,974 | $ | 3,417,632 | ||||||||
Cost of goods sold | 580,108 | 634,573 | 1,762,746 | 1,749,525 | ||||||||||||
Gross profit | 520,748 | 569,444 | 1,550,228 | 1,668,107 | ||||||||||||
Selling, general and administrative expenses | 433,961 | 488,545 | 1,307,600 | 1,423,358 | ||||||||||||
Operating income | 86,787 | 80,899 | 242,628 | 244,749 | ||||||||||||
Interest expense | (32,160 | ) | (30,208 | ) | (103,144 | ) | (98,589 | ) | ||||||||
Loss on early extinguishment of debt | - | - | (8,206 | ) | - | |||||||||||
Other income (expense), net | (5,747 | ) | (5,779 | ) | 6,122 | (12,744 | ) | |||||||||
Income before income taxes | 48,880 | 44,912 | 137,400 | 133,416 | ||||||||||||
Income tax expense | 23,802 | 13,612 | 49,782 | 42,437 | ||||||||||||
Net income | 25,078 | 31,300 | 87,618 | 90,979 | ||||||||||||
Net loss attributable to noncontrolling interest | 3,273 | 893 | 3,184 | 2,860 | ||||||||||||
Net income attributable to Levi Strauss & Co. | $ | 28,351 | $ | 32,193 | $ | 90,802 | $ | 93,839 | ||||||||
The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements. | ||||||||||||||||
LEVI STRAUSS & CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
Nine Months Ended | ||||||||
August 26, | August 28, | |||||||
2012 | 2011 | |||||||
(Dollars in thousands) | ||||||||
(Unaudited) | ||||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 87,618 | $ | 90,979 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 91,577 | 87,420 | ||||||
Asset impairments | 19,413 | 2,957 | ||||||
Gain on disposal of property, plant and equipment | (303 | ) | - | |||||
Unrealized foreign exchange (gains) losses | (14,666 | ) | 11,262 | |||||
Realized (gain) loss on settlement of forward foreign exchange contracts not designated for hedge accounting | (3,559 | ) | 8,252 | |||||
Employee benefit plans' amortization from accumulated other comprehensive loss | 1,175 | (4,555 | ) | |||||
Employee benefit plans' curtailment (gain) loss, net | (1,730 | ) | 1,629 | |||||
Noncash gain on extinguishment of debt, net of write-off of unamortized debt issuance costs | (3,643 | ) | - | |||||
Amortization of deferred debt issuance costs | 3,268 | 3,241 | ||||||
Stock-based compensation | 4,815 | 7,741 | ||||||
Allowance for doubtful accounts | 5,243 | 4,957 | ||||||
Change in operating assets and liabilities: | ||||||||
Trade receivables | 187,520 | 22,260 | ||||||
Inventories | 16,919 | (115,169 | ) | |||||
Other current assets | 28,056 | (28,823 | ) | |||||
Other non-current assets | (3,554 | ) | 1,124 | |||||
Accounts payable and other accrued liabilities | 83,469 | 1,309 | ||||||
Income tax liabilities | 11,287 | |||||||
