Levi Strauss & Co. Announces Third-Quarter 2013 Financial Results

Levi Strauss & Co. Announces Third-Quarter 2013 Financial Results

Net Revenues Increase Four Percent and Net Income more than Doubles

SAN FRANCISCO--(BUSINESS WIRE)-- Levi Strauss & Co. (LS&Co.) announced financial results today for the third quarter ended August 25, 2013.


Highlights include:

  
Three Months Ended% Increase
($ millions)August 25, 2013 August 26, 2012As Reported
Net revenues$1,141$1,1014%
Net income$57$28101%
 

Net revenues increased four percent on a reported basis and three percent without the effect of currency, driven by strong performance from the Levi's® and Dockers® brands, particularly in the Americas with continued growth across both wholesale and retail channels. Third quarter net income increased to $57 million as compared to $28 million in the third quarter of 2012, primarily reflecting non-recurring charges the company incurred in the third quarter of 2012 related to strategic business choices made in that period relating to operations in our Asia Pacific region; and a $14 million tax benefit related to the settlement of U.S. Federal tax audits. These improvements were partially offset by higher Selling, general and administrative expenses in 2013.

"Our positive first-half momentum continued in the third quarter, with top- and bottom-line growth," said Chip Bergh, president and chief executive officer of Levi Strauss & Co. "In a challenging consumer and economic environment, we are laser-focused on what's within our control to drive sustained profitable growth: innovative products, compelling marketing, engaging retail experiences, talent and cost management."

Third-Quarter 2013 Highlights

  • Gross profit in the third quarter increased to $573 million compared with $521 million for the same period in 2012. Gross margin for the third quarter was 50 percent of revenues compared with 47 percent of revenues in the same quarter of 2012. The gross margin improvement primarily reflected a currency benefit of $14 million and an unfavorable impact of approximately $25 million of customer support and inventory markdown taken in 2012 in conjunction with the decision to phase out the Denizen® brand in Asia Pacific.
  • Selling, general and administrative expenses (SG&A) for the third quarter increased to $455 million from $434 million in the same period in 2012. The increase in SG&A was driven by higher incentive compensation expense, related to improved achievement against the company's internally-set objectives. Advertising expenses also increased reflecting new campaigns that were launched during the quarter. The increase was partially offset by a decline in distribution expense reflecting a $19 million impairment charge the company recorded in the third quarter of 2012 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 increased to $118 million compared with $87 million for the same period in 2012.

Reported regional net revenues and operating income for the quarter were as follows:

  
Net RevenuesOperating Income
Three Months Ended 

% Increase
(Decrease)

Three Months Ended 

% Increase
(Decrease)

($ millions)

August 25,
2013

 

August 26,
2012

August 25,
2013

 

August 26,
2012

Americas$710$6795%$125$137(8)%
Europe$275$2663%$46$48(5)%
Asia Pacific$156$1560%$23$(5)580%
 
  • Net revenues increased 5 percent in the Americas primarily due to improved performance of the Levi's®, Dockers® and Signature brands at key customers in the wholesale channel, and of the Levi's® brand in the company's retail stores. Lower operating income primarily reflected higher SG&A.
  • Net revenues in Europe increased 3 percent on a reported basis, but decreased one percent without the effect of currency, as improved performance and expansion from the company-operated retail network was offset by a decline in sales to franchisees, most notably in Southern Europe. Operating income declined slightly reflecting higher SG&A.
  • Net revenues in Asia Pacific were flat on a reported basis. Excluding the impact of currency, a six percent increase in revenues reflected the company's decision in the third quarter of 2012 to phase out the Denizen® brand in Asia, which reduced revenues in that period. Sales of the Levi's® brand declined at retail and wholesale due to challenging conditions in most markets in the region. Higher operating income primarily reflected the Denizen® phase-out.

Cash Flow and Balance Sheet

At August 25, 2013, cash and cash equivalents of $382 million were complemented by $522 million available under the company's revolving credit facility, resulting in a total liquidity position of $904 million. Cash provided by operating activities of $274 million for the first nine months of 2013 were $142 million lower than the same period in 2012, reflecting the company's higher inventory levels and lower accounts receivable beginning balance.

Net debt - which the company defines as gross debt less cash and cash equivalents - was less than $1.2 billion at the end of the third quarter of 2013, compared to more than $1.3 billion at the end of 2012.

Investor Conference Call

The third-quarter 2013 investor conference call will be available through a live audio webcast today, October 4, 2013, at 1 p.m. Pacific/4 p.m. Eastern, at http://www.levistrauss.com/investors/earnings-webcast or dial-in to listen to the live call at: 800-954-1053 in the United States, or 1-212-231-2939 internationally. A replay is available on the website the same day and will be archived for one month. A telephone replay also is available through October 11, 2013, at 800-633-8284 in the United States or 1-402-977-9140 internationally; Reservation No. 21673675. Please see http://www.levistrauss.com/investors/earnings-webcast for a discussion and reconciliation of non-GAAP measures referenced on the investor conference call.

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 and our Quarterly Reports on Form 10-Q for the quarters ended February 24, 2013, May 26, 2013, and August 25, 2013, 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 2,800 retail stores and shop-in-shops. 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)

August 25,
2013

November 25,
2012

(Dollars in thousands)

ASSETS
Current Assets:
Cash and cash equivalents$382,328$406,134
Trade receivables, net of allowance for doubtful accounts of $20,471 and $20,738419,788500,672
Inventories:
Raw materials4,6895,312
Work-in-process6,5839,558
Finished goods613,359 503,990 
Total inventories624,631518,860
Deferred tax assets, net126,398116,224
Other current assets128,821 136,483 
Total current assets1,681,9661,678,373
Property, plant and equipment, net of accumulated depreciation of $771,344 and $782,766436,394458,807
Goodwill240,658239,971
Other intangible assets, net51,32959,909
Non-current deferred tax assets, net618,747612,916
Other non-current assets116,113 120,101 
Total assets$3,145,207 $3,170,077 
 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt$38,153$59,759
Current maturities of capital leases8431,760
Accounts payable249,643225,726
Other accrued liabilities186,700263,575
Accrued salaries, wages and employee benefits186,883223,850
Accrued interest payable32,8865,471
Accrued income taxes72,700 16,739 
Total current liabilities767,808796,880
Long-term debt1,501,9121,669,452
Long-term capital leases10,274262
Postretirement medical benefits134,825140,958
Pension liability465,737492,396
Long-term employee related benefits67,80462,529
Long-term income tax liabilities34,25240,356
Other long-term liabilities58,390 60,869 
Total liabilities3,041,002 3,263,702 
Commitments and contingencies
Temporary equity29,429 7,883 
 
Stockholders' Equity (Deficit):
Levi Strauss & Co. stockholders' equity (deficit)
Common stock — $.01 par value; 270,000,000 shares authorized; 37,467,935 shares and 37,392,343 shares issued and outstanding375374
Additional paid-in capital17,56633,365
Retained earnings460,765273,975
Accumulated other comprehensive loss(407,699)(414,635)
Total Levi Strauss & Co. stockholders' equity (deficit)71,007(106,921)
Noncontrolling interest3,769 5,413 
Total stockholders' equity (deficit)74,776 (101,508)
Total liabilities, temporary equity and stockholders' equity (deficit)$3,145,207 $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 EndedNine Months Ended

August 25,
2013

 

August 26,
2012

August 25,
2013

 

August 26,
2012

(Dollars in thousands)

(Unaudited)

Net revenues$1,141,284$1,100,856$3,386,860$3,312,974
Cost of goods sold568,448 580,108 1,673,435 1,762,746 
Gross profit572,836520,7481,713,4251,550,228
Selling, general and administrative expenses454,750 433,961 1,314,247 1,307,600 
Operating income118,08686,787399,178242,628
Interest expense(30,903)(32,160)(95,943)(103,144)
Loss on early extinguishment of debt(689)(8,206)
Other income (expense), net(10,661)(5,747)(5,425)6,122 
Income before income taxes76,52248,880297,121137,400
Income tax expense20,077 23,802 85,592 49,782 
Net income56,44525,078211,52987,618
Net loss attributable to noncontrolling interest630 3,273 715 3,184 
Net income attributable to Levi Strauss & Co.$57,075 $28,351 $212,244 $90,802 

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 EndedNine Months Ended

 

August 25,
2013

 

August 26,
2012

August 25,
2013

 

August 26,
2012

(Dollars in thousands)

(Unaudited)

Net income$56,445 $25,078 $211,529 $87,618 
Other comprehensive income, net of related income taxes:
Pension and postretirement benefits3,71847410,8261,091
Net investment hedge (losses) gains(8,329)(1,006)(5,928)14,839
Foreign currency translation gains (losses)9,8234,0401,650(13,604)
Unrealized (loss) gain on marketable securities(171)677 (541)1,496 
Total other comprehensive income5,041 4,185 6,007 3,822 
Comprehensive income61,48629,263217,53691,440
Comprehensive loss attributable to noncontrolling interest(451)(3,152)(1,644)(3,353)
Comprehensive income attributable to Levi Strauss & Co.$61,937 $32,415 $219,180 $94,793 

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
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