Levi Strauss' (LEVI) Q4 Earnings Beat Mark, Revenues Down Y/Y
Levi Strauss & Co. LEVI reported better-than-expected results in fourth-quarter fiscal 2022, wherein earnings and revenues beat the Zacks Consensus Estimate. LEVI’s adjusted earnings of 34 cents a share outpaced the Zacks Consensus Estimate of 30 cents. However, quarterly earnings decreased 17.1% from the year-ago fiscal quarter’s level. The bottom line includes an adverse currency impact of 4 cents a share.
Shares of this San Francisco, CA-based player have decreased 5.3% in the past six months, compared to the industry’s 16.7% growth.
Net revenues of $1,589 million came above the Zacks Consensus Estimate of $1,577 million. However, the metric inched down 6% on a reported basis and was flat on a constant-currency basis year over year.
Direct-to-consumer (DTC) net revenues dipped 2% year over year while rose 6% on a constant-currency basis, buoyed by robust growth across the company-operated stores in the Americas and Asia, offsetting a decrease in Europe mainly owing to store closures in Russia. DTC net revenues excluding Russia grew 10% on a constant-currency basis, backed by growth in the Americas, Asia and Europe. As a rate of fourth-quarter net revenues, sales from DTC stores and e-commerce accounted for 31% and 8% respectively.
Further, wholesale net revenues fell 8% and 4% on a constant-currency basis. Excluding the currency impacts, solid growth in Asia and Latin America was more than offset by the Wholesale declines across the U.S. and Europe.
LEVI’s global digital net revenues fell 7% year over year, however, increased approximately 29% versus the pre-pandemic, as customers returned to in-store shopping. Digital sales accounted for nearly 20% of the fourth-quarter fiscal 2022 net revenues, up from 16% in fourth-quarter fiscal 2019 net revenues.
Segment-wise, net revenues in the Americas fell 5% year over year to $840 million and Europe decreased 18% to $370 million while the metric in Asia edged up 1% to $251 million. LEVI’s Other Brands segment, consisting of Dockers and Beyond Yoga, reported revenues of $127 million, increasing 28% year over year.
Margins & Costs
Adjusted gross profit came in at $887.3 million, down from $978.2 million recorded in the year-ago fiscal quarter. Adjusted gross margin of 55.8% contracted 230 basis points (bps) year over year. Adverse currency exchange accounted for about 100 basis points decline, while the rest was hurt by the impacts of increased product costs and lower full-priced sales. The decline was partly offset by higher prices and a favorable channel mix.
Adjusted SG&A was $745 million, down from $776 million recorded in the year-earlier quarter. As a rate of net revenues, adjusted SG&A was 47%, up 90 basis points on elevated distribution expenses and strategic investments in IT and the company’s DTC business.
Adjusted EBIT came in at $142 million, down from $203 million seen in the year-earlier fiscal quarter. Also, the adjusted EBIT margin of 9% fell 300 bps year over year on a lower gross margin.
Levi Strauss ended the quarter with cash and cash equivalents of $429.6 million and short-term investments in marketable securities of $70.6 million, plus total liquidity of $1.45 billion. Total inventories jumped 58% year over year to $1,416.8 million.
As of Nov 27, 2022, long-term debt and total shareholders’ equity were $984.5 million and $1,903.7 million, respectively. During fiscal 2022, cash from operations was $228.1 million. This current Zacks Rank #5 (Strong Sell) company’s adjusted free cash flow was a negative $52.5 million during the same period.
During fiscal 2022, management returned $350 million to shareholders, up 84% year over year. This comprised dividends of $174 million and share repurchases of $176 million with 8.7 million shares retired.
As of Nov 27, 2022, Levi Strauss had $689 million left under its present share-repurchase authorization with no expiration date. Management declared a dividend of 12 cents per share totaling about $47 million, payable in cash on Feb 23, 2023.
For fiscal 2023, net revenues are expected between $6.3 billion and $6.4 billion, reflecting growth of 1.5-3% year over year. This is inclusive of 200 basis points of headwinds from foreign exchange and the suspension of the company’s business operations in Russia.
It envisions adjusted earnings per share of $1.30-$1.40 for the fiscal year. The outlook assumes no major worsening of the pandemic, inflationary pressures, supply-chain bottlenecks or greater worsening of currency impacts.
Solid Picks in Retail
We highlighted three better-ranked stocks, namely Tecnoglass TGLS, Chico's FAS CHS and Boot Barn BOOT.
Tecnoglass manufactures and sells architectural glass, windows and aluminum products for residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average.
Chico's FAS, an omnichannel specialty retailer, currently sports a Zacks Rank of 1. CHS has a trailing four-quarter earnings surprise of 87.5%, on average.
The Zacks Consensus Estimate for Chico's FAS’s current financial-year sales and EPS suggests growth of 19.6% and 127.5%, respectively, from the year-ago reported figures.
Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank of 2 (Buy). The company has a trailing four-quarter earnings surprise of 11.7%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 11.8% from the year-ago reported figure.
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