Levi Strauss & Co. Announces First-Quarter 2013 Financial Results
Levi Strauss & Co. Announces First-Quarter 2013 Financial Results
Reports Higher Net Income on Improved Margins, Strong Cash Flow and Lower Net Debt
SAN FRANCISCO--(BUSINESS WIRE)-- Levi Strauss & Co. (LS&Co.) announced financial results today for the first quarter ended February 24, 2013.
Highlights include:
Three Months Ended | % Increase (Decrease) As Reported | |||||
($ millions) | February 24, | February 26, | ||||
Net revenues | $1,147 | $1,165 | (2%) | |||
Net income | $107 | $49 | 117% | |||
Net revenues decreased 2 percent on both reported and constant-currency bases, due to lower sales in Asia Pacific and the impact from licensing the Levi's® brand boys business. First quarter net income increased 117 percent to $107 million compared with $49 million in the first quarter of 2012, driven by a stronger gross margin and improved operating margin.
"In the first quarter, we generated strong cash flow and posted a higher gross margin and net income, despite slightly lower revenues," said Chip Bergh, president and chief executive officer. "We're committed to reducing debt and strengthening the balance sheet. Our cash flow and a successful debt refinancing we executed after the quarter closed have allowed us to pay down $185 million of our debt this year."
First-Quarter 2013 Highlights
Gross profit in the first quarter increased to $592 million compared with $549 million for the same period in 2012. Gross margin for the first quarter was 52 percent of revenues compared with 47 percent of revenues in the same quarter of 2012. The gross margin improvement reflected the lower cost of cotton, increased sales from the company's retail stores and a favorable currency impact.
Selling, general and administrative expenses (SG&A) for the first quarter decreased to $410 million from $439 million in the same period of 2012. The decline in SG&A was primarily driven by lower advertising reflecting shifts in the timing of the company's campaigns to a later part of the year and lower severance expenses.
Operating income of $181 million grew from $110 million the prior year due to the higher gross margin and lower SG&A.
Reported regional net revenues and operating income for the quarter were as follows:
Net Revenues | Operating Income | |||||||||||
Three Months Ended | Three Months Ended | |||||||||||
($ millions) | February 24, | February 26, | % Increase | February 24, | February 26, | % Increase | ||||||
Americas | $647 | $647 | — | $132 | $80 | 66% | ||||||
Europe | $297 | $289 | 2% | $63 | $52 | 21% | ||||||
Asia Pacific | $203 | $228 | (11%) | $49 | $41 | 19% | ||||||
Net revenues in the Americas were flat, as increased sales from company-operated Levi's® retail stores were offset by lower wholesale revenues reflecting the company's 2012 decision to license the Levi's® brand boys business. Higher operating income primarily reflected the region's higher gross margin.
Net revenues in Europe increased, reflecting continued growth from the company-operated retail network; this was partially offset by a decline in traditional wholesale channels, most notably in Southern Europe. Higher operating income primarily reflected the region's lower SG&A and improved gross margin.
Net revenues in Asia Pacific declined, reflecting lower sales at both company-operated retail network and wholesale channels, due to challenging conditions in most markets in the region, most notably China. Operating income increased, primarily reflecting lower SG&A and the decision to phase out the Denizen® brand in the region.
Cash Flow and Balance Sheet
At February 24, 2013, cash and cash equivalents of $450 million were complemented by $574 million available under the company's revolving credit facility, resulting in a total liquidity position of $1.0 billion. Cash provided by operating activities of $143 million represented a $38 million increase compared with the same period in 2012, reflecting a tax refund and lower pension plan funding. During the quarter, the company prepaid $50.0 million of its senior term loan due 2014 and paid a $25 million dividend. Net debt declined to $1.2 billion at the end of the first quarter of 2013, compared to $1.3 billion at the end of 2012.
Subsequent to quarter close, the company completed an offering of $140 million of 6.875 percent senior notes due 2022 and used the net proceeds along with cash on hand to prepay the remaining $275 million outstanding on the senior term loan due in 2014.
Investor Conference Call
The company's first-quarter 2013 investor conference call will be available through a live audio webcast at http://us.meeting-stream.com/levistraussco_041211 today, April 9, 2013, at 1 p.m. Pacific / 4 p.m. Eastern. A replay is available on the website the same day and will be archived for one month. A telephone replay also is available through April 15, 2013, at 800-642-1687.
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 2012, 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 approximately 2,300 franchised and company-operated stores. Levi Strauss & Co.'s reported fiscal 2012 net revenues were $4.6 billion. For more information, go to http://levistrauss.com.
LEVI STRAUSS & CO. AND SUBSIDIARIES | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(Unaudited) | ||||||||
February 24, | November 25, | |||||||
2013 | 2012 | |||||||
ASSETS | (Dollars in thousands) | |||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 449,596 | $ | 406,134 | ||||
Trade receivables, net of allowance for doubtful accounts of $21,939 and $20,738 | 398,990 | 500,672 | ||||||
Inventories: | ||||||||
Raw materials | 4,677 | 5,312 | ||||||
Work-in-process | 5,788 | 9,558 | ||||||
Finished goods | 561,583 | 503,990 | ||||||
Total inventories | 572,048 | 518,860 | ||||||
Deferred tax assets, net | 114,341 | 116,224 | ||||||
Other current assets | 125,557 | 136,483 | ||||||
Total current assets | 1,660,532 | 1,678,373 | ||||||
Property, plant and equipment, net of accumulated depreciation of $785,626 and $782,766 | 451,027 | 458,807 | ||||||
Goodwill | 240,499 | 239,971 | ||||||
Other intangible assets, net | 57,126 | 59,909 | ||||||
Non-current deferred tax assets, net | 615,075 | 612,916 | ||||||
Other non-current assets | 122,570 | 120,101 | ||||||
Total assets | $ | 3,146,829 | $ | 3,170,077 | ||||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities: | ||||||||
Short-term debt | $ | 81,424 | $ | 59,759 | ||||
Current maturities of capital leases | 1,395 | 1,760 | ||||||
Accounts payable | 246,277 | 225,726 | ||||||
Other accrued liabilities | 219,398 | 263,575 | ||||||
Accrued salaries, wages and employee benefits | 165,126 | 223,850 | ||||||
Accrued interest payable | 30,068 | 5,471 | ||||||
Accrued income taxes | 50,378 | 16,739 | ||||||
Total current liabilities | 794,066 | 796,880 | ||||||
Long-term debt | 1,598,270 | 1,669,452 | ||||||
Long-term capital leases | 210 | 262 | ||||||
Postretirement medical benefits | 138,316 | 140,958 | ||||||
Pension liability | 471,030 | 492,396 | ||||||
Long-term employee related benefits | 63,874 | 62,529 | ||||||
Long-term income tax liabilities | 35,764 | 40,356 | ||||||
Other long-term liabilities | 59,477 | 60,869 | ||||||
Total liabilities | 3,161,007 | 3,263,702 | ||||||
Commitments and contingencies | ||||||||
Temporary equity | 10,102 | 7,883 | ||||||
Stockholders' Deficit: | ||||||||
Levi Strauss & Co. stockholders' deficit | ||||||||
Common stock—$.01 par value; 270,000,000 shares authorized; 37,398,181 shares and 37,392,343 shares issued and outstanding | 374 | 374 | ||||||
Additional paid-in capital | 32,582 | 33,365 | ||||||
Retained earnings | 355,919 | 273,975 | ||||||
Accumulated other comprehensive loss | (417,762 | ) | (414,635 | ) | ||||
Total Levi Strauss & Co. stockholders' deficit | (28,887 | ) | (106,921 | ) | ||||
Noncontrolling interest | 4,607 | 5,413 | ||||||
Total stockholders' deficit | (24,280 | ) | (101,508 | ) | ||||
Total liabilities, temporary equity and stockholders' deficit | $ | 3,146,829 | $ | 3,170,077 | ||||
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 | ||||||||
February 24, | February 26, | |||||||
2013 | 2012 | |||||||
(Dollars in thousands) | ||||||||
(Unaudited) | ||||||||
Net revenues | $ | 1,146,678 | $ | 1,164,961 | ||||
Cost of goods sold | 554,800 | 616,167 | ||||||
Gross profit | 591,878 | 548,794 | ||||||
Selling, general and administrative expenses | 410,423 | 438,583 | ||||||
Operating income | 181,455 | 110,211 | ||||||
Interest expense | (32,157 | ) | (38,573 | ) | ||||
Loss on early extinguishment of debt | (114 | ) | - | |||||
Other income, net | 6,066 | 1,172 | ||||||
Income before income taxes | 155,250 | 72,810 | ||||||
Income tax expense | 48,375 | 23,513 | ||||||
Net income | 106,875 | 49,297 | ||||||
Net loss (income) attributable to noncontrolling interest | 145 | (79 | ) | |||||
Net income attributable to Levi Strauss & Co. | $ | 107,020 | $ | 49,218 | ||||
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 COMPREHENSIVE INCOME | ||||||||
Three Months Ended | ||||||||
February 24, | February 26, | |||||||
2013 | 2012 | |||||||
(Dollars in thousands) | ||||||||
(Unaudited) | ||||||||
Net Income | $ | 106,875 | $ | 49,297 | ||||
Other comprehensive income (loss), net of related taxes: | ||||||||
Pension and postretirement benefits | 3,909 | 296 | ||||||
Net investment hedge (losses) gains | (3,638 | ) | 525 | |||||
Foreign currency translation (losses) gains | (3,097 | ) | 7,424 | |||||
Unrealized (loss) gain on marketable securities | (962 | ) | 1,268 | |||||
Total other comprehensive (loss) income | (3,788 | ) | 9,513 | |||||
Comprehensive income | 103,087 | 58,810 | ||||||
Comprehensive loss attributable to noncontrolling interest | (806 | ) | (254 | ) | ||||
Comprehensive income attributable to Levi Strauss & Co. | $ | 103,893 | $ | 59,064 | ||||
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 | ||||||||
Three Months Ended | ||||||||
February 24, | February 26, | |||||||
2013 | 2012 | |||||||
(Dollars in thousands) | ||||||||
(Unaudited) | ||||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 106,875 | $ | 49,297 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 28,368 | 31,218 | ||||||
Asset impairments | 835 | 58 | ||||||
Gain on disposal of property, plant and equipment | (149 | ) | (88 | ) | ||||
Unrealized foreign exchange gains | (6,189 | ) | (1,639 | ) | ||||
Realized loss on settlement of forward foreign exchange contracts not designated for hedge accounting | 2,710 | 3,485 | ||||||
Employee benefit plans' amortization from accumulated other comprehensive loss | 5,767 | 373 | ||||||
Employee benefit plans' curtailment gain, net | - | (773 | ) | |||||
