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,
2013

February 26,
2012

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,
2013

February 26,
2012

% Increase
(Decrease)

February 24,
2013

February 26,
2012

% Increase
(Decrease)

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

)