Profits soared 198%, Levi's strong expansion

Levi's revenue grew 29% in the first quarter ended May 30. Second -quarter (Q2) results were better than expected and significantly better than last year when stores were closed due to the COVID-19 pandemic . Levi said that as revenue recovered faster, the second quarter was also strong and achieved growth in all regions and channels.

According to Levi's earnings report, net revenue was $1.3 billion, up 156% from the second quarter of fiscal 2020, with net revenue in the United States and China exceeding the second quarter of fiscal 2019. Bergh said that in the second half of 2021 , the company will become stronger by focusing on its strategic priorities of enduring brand leadership, accelerating direct connections with consumers, and diversifying across categories, channels and geographies.

Profits driven by high gross margins and strong DTC business

Levi's gross margin reached a record 58.8% due to increased direct-to-consumer (DTC) net revenue, price increases, procurement savings, reduced promotional activities and full-price sales. Levi said its revenue, adjusted gross margin and adjusted EBIT expectations were all significantly exceeded.

Most markets are recovering faster than expected and are exiting the pandemic with sustainable and improved structural economies, " said Harmit Singh, chief financial officer of Levi Strauss & Co. DTC stores and e-commerce, which accounted for 29% and 8%, respectively, of the company's total net revenue in the second quarter.

DTC remains the company's focus while diversifying its business in terms of geography, product offerings and business models. The global wholesale strategy has been implemented and has become a strong and more profitable business for Levi's.

Continued investment in AI drives brands forward

Digital, data and AI are being used to further understand customer behavior and improve the shopping experience. Bergh discussed the use of AI-driven demand forecasting to plan merchandise assortment and allocation for stores and e-commerce. Using such technology increases full-price sell-through, provides better inventory management and reduces costs. Total inventory is down 12% year-over-year, but the company is seeing higher margins, and more normal price sales have resulted in lower inventory and higher profits.

Levi's executives discussed e-commerce growth on the earnings call, which was up 42% and net revenue from all digital channels was up 75% compared to the second quarter of fiscal 2020. Digital penetration as a percentage of total sales was approximately 23%.

Levi's brand experiences denim renaissance

According to recent interviews about current consumer denim trends, Levi's continues to see growth opportunities in the back-to-work and back-to-school era. The Levi's brand has experienced a resurgence in denim styles with more comfortable silhouettes such as high waists, loose fits and 90s nostalgic styles, including boyfriend styles. Another trend among consumers is sustainability and durability, both of which are addressed by the Levi's brand. Many of Levi's latest designs use a wide range of sustainable fabrics.

"Evolving denim trends and the continued shift toward casualization were factors contributing to the sales growth and high gross margin results," Bergh said on the second-quarter earnings call. Relaxed fits drove growth in both men's and women's denim.

Additionally, Bergh discussed how the Buy Better and Wear Longer campaign resonated with the target market. Buy Better and Wear Longer is a marketing initiative centered around sustainability and raising awareness, while expressing Levi’s shared responsibility for the environmental impact of clothing production and consumption.

The company now accepts both PayPal and Venmo in its stores to better cater to its younger target market. Contactless returns are another initiative to make the returns process simpler, which is often an annoying pain point for most retailers.

Strong future performance, expected to be higher than 2019

The company's expectations for the second half of fiscal 2021 are now higher than 2019. "Looking ahead, we are raising our expectations for both revenue and profit. Our balance sheet remains strong, we continue to return cash to shareholders and the dividend is now back to pre-pandemic levels," Singh said. The company reported a 28-29% increase in net income for the second half of fiscal 2021 compared to the same period last year. Compared to pre-pandemic 2019, the growth in the second half is expected to be between 4-5%.

Profits soar

Levi

Strong expansion