DELAWARE | 002-90139 | 94-0905160 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
¨ | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240. 13e-4(c)) |
ITEM 2.02. | Results of Operations and Financial Condition. |
ITEM 9.01. | Financial Statements and Exhibits. |
99.1 | Press release, dated October 10, 2017, announcing Levi Strauss & Co.’s third quarter 2017 financial results. |
LEVI STRAUSS & CO. | |||
DATE: | October 10, 2017 | By: | /s/ HARMIT SINGH |
Name: | Harmit Singh | ||
Title: | Executive Vice President and Chief Financial Officer |
Exhibit Number | Description | |
99.1 |
Investor Contact: | Edelita Tichepco | Media Contact: | Amber McCasland | |||
Levi Strauss & Co. | Levi Strauss & Co. | |||||
(415) 501-1953 | (415) 501-6803 | |||||
Investor-relations@levi.com | newsmediarequests@levi.com |
• | Third quarter revenue grew 7%; |
• | Gross margin up 180 basis points to 51.8 percent; |
• | Net income declined 10 percent reflecting FX losses; |
• | Full year 2017 revenue growth guidance raised to 5 to 6 percent range in constant currency |
Three Months Ended | % Increase (Decrease) | ||||||||||
($ millions) | August 27, 2017 | August 28, 2016 | As Reported | ||||||||
Net revenues | $ | 1,268 | $ | 1,185 | 7 | % | |||||
Net income attributable to LS&Co. | $ | 88 | $ | 98 | (10 | )% | |||||
Adjusted EBIT | $ | 147 | $ | 146 | 1 | % |
▪ | Gross profit grew 11 percent and gross margin expanded 180 basis points to 51.8 percent primarily reflecting the margin benefit from revenue growth in the direct-to-consumer channel and international business. |
▪ | Selling, general and administrative expenses (SG&A) were $510 million compared with $449 million in the same quarter of fiscal 2016. SG&A as a percent of revenue was 40.2 percent compared with 37.8 percent of revenues in the same quarter of fiscal 2016. Higher SG&A primarily reflects higher selling expenses associated with the expansion of the company-operated retail network and investments in the wholesale business, as well as the recognition of a $7 million benefit from the resolution of a vendor dispute settled in the prior-year period. In addition, an $11 million non-cash stock compensation expense was recognized this quarter to correct the timing of stock compensation accruals for retirement eligible employees. |
▪ | Operating income grew one percent for the third quarter compared to the same quarter of fiscal 2016 as higher revenue and gross margins were partially offset by the stock-based compensation expense charge recorded this quarter, as well as the prior year vendor dispute resolution. |
Net Revenues | Operating Income * | |||||||||||||||||||||
Three Months Ended | % Increase (Decrease) | Three Months Ended | % Increase (Decrease) | |||||||||||||||||||
($ millions) | August 27, 2017 | August 28, 2016 | August 27, 2017 | August 28, 2016 | ||||||||||||||||||
Americas | $ | 739 | $ | 724 | 2 | % | $ | 156 | $ | 156 | — | % | ||||||||||
Europe | $ | 348 | $ | 283 | 23 | % | $ | 62 | $ | 47 | 32 | % | ||||||||||
Asia | $ | 182 | $ | 179 | 2 | % | $ | 11 | $ | 14 | (17 | )% |
• | In the Americas, excluding favorable currency effects of $3 million, net revenues grew two percent, primarily reflecting strong performance in our Signature® and Denizen® brands, as well as performance and expansion of our company-operated retail network, including ecommerce. Operating income for the Americas was flat as higher gross margins were offset by higher SG&A expense due to an increase in selling expenses and the recognition of a $7 million benefit from the resolution of a vendor dispute settled in the prior-year period. |
• | In Europe, excluding favorable currency effects of $8 million, revenues grew twenty percent reflecting broad-based growth across all markets and channels. Operating income growth of 32 percent reflects higher revenue and SG&A leverage. |
• | In Asia, revenues grew two percent on both a reported and constant currency basis, reflecting direct-to-consumer expansion, partially offset by lower franchise revenue due to continued pressures in the China franchise channel. Operating income declined $2 million due to lower China revenues and franchise support. |
(Unaudited) | |||||||
August 27, 2017 | November 27, 2016 | ||||||
(Dollars in thousands) | |||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 491,289 | $ | 375,563 | |||
Trade receivables, net of allowance for doubtful accounts of $12,766 and $11,974 | 446,701 | 479,018 | |||||
Inventories: | |||||||
Raw materials | 4,708 | 2,454 | |||||
Work-in-process | 3,094 | 3,074 | |||||
Finished goods | 818,329 | 710,653 | |||||
Total inventories | 826,131 | 716,181 | |||||
Other current assets | 122,754 | 115,385 | |||||
Total current assets | 1,886,875 | 1,686,147 | |||||
Property, plant and equipment, net of accumulated depreciation of $936,260 and $856,588 | 388,652 | 393,605 | |||||
Goodwill | 237,198 | 234,280 | |||||
Other intangible assets, net | 42,912 | 42,946 | |||||
Deferred tax assets, net | 553,092 | 523,101 | |||||
Other non-current assets | 113,221 | 107,017 | |||||
Total assets | $ | 3,221,950 | $ | 2,987,096 | |||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 33,430 | $ | 38,922 | |||
Accounts payable | 300,331 | 270,293 | |||||
Accrued salaries, wages and employee benefits | 186,002 | 180,740 | |||||
Restructuring liabilities | 1,508 | 4,878 | |||||
Accrued interest payable | 17,846 | 5,098 | |||||
Accrued income taxes | 36,059 | 9,652 | |||||
Other accrued liabilities | 288,072 | 252,160 | |||||
Total current liabilities | 863,248 | 761,743 | |||||
Long-term debt | 1,035,845 | 1,006,256 | |||||
Long-term capital leases | 15,360 | 15,360 | |||||
Postretirement medical benefits | 93,403 | 100,966 | |||||
Pension liability | 329,891 | 354,461 | |||||
Long-term employee related benefits | 78,683 | 73,243 | |||||
Long-term income tax liabilities | 17,634 | 20,150 | |||||
Other long-term liabilities | 72,792 | 63,796 | |||||
Total liabilities | 2,506,856 | 2,395,975 | |||||
Commitments and contingencies | |||||||
Temporary equity | 90,844 | 79,346 | |||||
Stockholders’ Equity: | |||||||
Levi Strauss & Co. stockholders’ equity | |||||||
Common stock — $.01 par value; 270,000,000 shares authorized; 37,656,434 shares and 37,470,158 shares issued and outstanding | 377 | 375 | |||||
Additional paid-in capital | — | 1,445 | |||||
Retained earnings | 1,029,264 | 935,049 | |||||
Accumulated other comprehensive loss | (409,382 | ) | (427,314 | ) | |||
Total Levi Strauss & Co. stockholders’ equity | 620,259 | 509,555 | |||||
Noncontrolling interest | 3,991 | 2,220 | |||||
Total stockholders’ equity | 624,250 | 511,775 | |||||
Total liabilities, temporary equity and stockholders’ equity | $ | 3,221,950 | $ | 2,987,096 |
Three Months Ended | Nine Months Ended | ||||||||||||||
August 27, 2017 | August 28, 2016 | August 27, 2017 | August 28, 2016 | ||||||||||||
(Dollars in thousands) (Unaudited) | |||||||||||||||
Net revenues | $ | 1,268,391 | $ | 1,185,111 | $ | 3,438,237 | $ | 3,253,198 | |||||||
Cost of goods sold | 611,762 | 592,305 | 1,658,663 | 1,583,596 | |||||||||||
Gross profit | 656,629 | 592,806 | 1,779,574 | 1,669,602 | |||||||||||
Selling, general and administrative expenses | 510,309 | 448,525 | 1,462,263 | 1,349,039 | |||||||||||
Restructuring, net | — | (627 | ) | — | 1,030 | ||||||||||
Operating income | 146,320 | 144,908 | 317,311 | 319,533 | |||||||||||
Interest expense | (14,476 | ) | (19,170 | ) | (52,305 | ) | (54,483 | ) | |||||||
Loss on early extinguishment of debt | — | — | (22,793 | ) | — | ||||||||||
Other (expense) income, net | (14,734 | ) | 4,679 | (32,413 | ) | 6,755 | |||||||||
Income before income taxes | 117,110 | 130,417 | 209,800 | 271,805 | |||||||||||
Income tax expense | 27,631 | 32,713 | 42,477 | 76,750 | |||||||||||
Net income | 89,479 | 97,704 | 167,323 | 195,055 | |||||||||||
Net (income) loss attributable to noncontrolling interest | (1,487 | ) | 614 | (1,672 | ) | (176 | ) | ||||||||
Net income attributable to Levi Strauss & Co. | $ | 87,992 | $ | 98,318 | $ | 165,651 | $ | 194,879 |
Three Months Ended | Nine Months Ended | ||||||||||||||
August 27, 2017 | August 28, 2016 | August 27, 2017 | August 28, 2016 | ||||||||||||
(Dollars in thousands) (Unaudited) | |||||||||||||||
Net income | $ | 89,479 | $ | 97,704 | $ | 167,323 | $ | 195,055 | |||||||
Other comprehensive income (loss), before related income taxes: | |||||||||||||||
Pension and postretirement benefits | 3,693 | 3,356 | 11,153 | 10,673 | |||||||||||
Net investment hedge losses | (27,930 | ) | (804 | ) | (57,570 | ) | (1,718 | ) | |||||||
Foreign currency translation gains (losses) | 18,051 | (33 | ) | 46,638 | (1,731 | ) | |||||||||
Unrealized gains on marketable securities | 276 | 675 | 2,151 | 356 | |||||||||||
Total other comprehensive (loss) income, before related income taxes | (5,910 | ) | 3,194 | 2,372 | 7,580 | ||||||||||
Income taxes benefit (expense) related to items of other comprehensive income | 9,287 | (1,356 | ) | 15,460 | (4,994 | ) | |||||||||
Comprehensive income, net of income taxes | 92,856 | 99,542 | 185,155 | 197,641 | |||||||||||
Comprehensive (income) loss attributable to noncontrolling interest | (1,561 | ) | 333 | (1,573 | ) | (788 | ) | ||||||||
Comprehensive income attributable to Levi Strauss & Co. | $ | 91,295 | $ | 99,875 | $ | 183,582 | $ | 196,853 |
Nine Months Ended | |||||||
August 27, 2017 | August 28, 2016 | ||||||
(Dollars in thousands) (Unaudited) | |||||||
Cash Flows from Operating Activities: | |||||||
Net income | 167,323 | 195,055 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 85,618 | 75,966 | |||||
Unrealized foreign exchange losses | 36,717 | 17,702 | |||||
Realized gain on settlement of forward foreign exchange contracts not designated for hedge accounting | (184 | ) | (21,419 | ) | |||
Employee benefit plans’ amortization from accumulated other comprehensive loss and settlement loss | 11,153 | 11,240 | |||||
Loss on early extinguishment of debt | 22,793 | — | |||||
Stock-based compensation | 21,910 | 6,045 | |||||
Other, net | 4,146 | (595 | ) | ||||
Change in operating assets and liabilities: | |||||||
Trade receivables | 45,642 | 40,334 | |||||
Inventories | (77,758 | ) | (255,460 | ) | |||
Other current assets | (4,947 | ) | 248 | ||||
Other non-current assets | (3,747 | ) | (12,504 | ) | |||
Accounts payable and other accrued liabilities | 23,022 | 77,355 | |||||
Restructuring liabilities | (3,559 | ) | (13,618 | ) | |||
Income tax liabilities | 8,595 | 34,309 | |||||
Accrued salaries, wages and employee benefits and long-term employee related benefits | (42,599 | ) | (55,595 | ) | |||
Other long-term liabilities | 326 | 3,756 | |||||
Net cash provided by operating activities | 294,451 | 102,819 | |||||
Cash Flows from Investing Activities: | |||||||
Purchases of property, plant and equipment | (75,793 | ) | (74,844 | ) | |||
Proceeds from sales of assets | — | 17,279 | |||||
Proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting | 184 | 21,419 | |||||
Net cash used for investing activities | (75,609 | ) | (36,146 | ) | |||
Cash Flows from Financing Activities: | |||||||
Proceeds from issuance of long-term debt | 502,835 | — | |||||
Repayments of long-term debt | (525,000 | ) | — | ||||
Proceeds from senior revolving credit facility | — | 180,000 | |||||
Repayments of senior revolving credit facility | — | (249,000 | ) | ||||
Proceeds from short-term credit facilities | 23,898 | 24,905 | |||||
Repayments of short-term credit facilities | (20,382 | ) | (14,216 | ) | |||
Other short-term borrowings, net | (10,255 | ) | 3,274 | ||||
Payment of debt extinguishment costs | (21,902 | ) | — | ||||
Payment of debt issuance costs | (10,110 | ) | — | ||||
Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises | (13,292 | ) | (1,402 | ) | |||
Dividend to stockholders | (35,000 | ) | (60,000 | ) | |||
Other financing, net | (3,196 | ) | 782 | ||||
Net cash used for financing activities | (112,404 | ) | (115,657 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 9,288 | 2,053 | |||||
Net increase in cash and cash equivalents | 115,726 | (46,931 | ) | ||||
Beginning cash and cash equivalents | 375,563 | 318,571 | |||||
Ending cash and cash equivalents | $ | 491,289 | $ | 271,640 | |||
Noncash Investing Activity: | |||||||
Property, plant and equipment acquired and not yet paid at end of period | $ | 10,951 | $ | 19,401 | |||
Property, plant and equipment additions due to build-to-suit lease transactions | 4,459 | — | |||||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest during the period | $ | 29,570 | $ | 34,667 | |||
Cash paid for income taxes during the period, net of refunds | 32,944 | 41,090 |
Nine Months Ended | |||||||
August 27, 2017 | August 28, 2016 | ||||||
(Dollars in millions) | |||||||
(Unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Net cash provided by operating activities | $ | 294.5 | $ | 102.8 | |||
Non-GAAP measure: | |||||||
Net cash provided by operating activities | $ | 294.5 | $ | 102.8 | |||
Purchases of property, plant and equipment | (75.8 | ) | (74.8 | ) | |||
Proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting | 0.2 | 21.4 | |||||
Payment of debt extinguishment costs | (21.9 | ) | — | ||||
Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises | (13.3 | ) | (1.4 | ) | |||
Dividend to stockholders | (35.0 | ) | (60.0 | ) | |||
Free cash flow | $ | 148.7 | $ | (12.0 | ) |
August 27, 2017 | August 28, 2016 | ||||||
(Dollars in millions) | |||||||
(Unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Total debt | $ | 1,069.3 | $ | 1,106.9 | |||
Non-GAAP measure: | |||||||
Total debt | $ | 1,069.3 | $ | 1,106.9 | |||
Cash and cash equivalents | (491.3 | ) | (271.6 | ) | |||
Net debt | $ | 578.0 | $ | 835.3 |
Three Months Ended | |||||||
August 27, 2017 | August 28, 2016 | ||||||
(Dollars in millions) | |||||||
(unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Net income | $ | 89.5 | $ | 97.7 | |||
Non-GAAP measure: | |||||||
Net income | 89.5 | 97.7 | |||||
Income tax expense | 27.6 | 32.7 | |||||
Interest expense | 14.5 | 19.2 | |||||
Loss on early extinguishment of debt | — | — | |||||
Other (income) expense, net | 14.7 | (4.7 | ) | ||||
Restructuring and related charges, severance and other, net | 0.9 | 1.8 | |||||
Pension and postretirement benefit plan curtailment and net settlement losses, net | 0.1 | (0.4 | ) | ||||
Adjusted EBIT | $ | 147.3 | $ | 146.3 |
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