DELAWARE | 001-06631 | 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. |
LEVI STRAUSS & CO. | |||
DATE: | April 9, 2019 | By: | /s/ GAVIN BROCKETT |
Name: | Gavin Brockett | ||
Title: | Senior Vice President and Global Controller | ||
(Principal Accounting Officer and Duly Authorized Officer) |
Investor Contact: | Aida Orphan | Media Contact: | Amber McCasland | |||
Levi Strauss & Co. | Levi Strauss & Co. | |||||
(415) 501-6194 | (415) 501-7777 | |||||
Investor-relations@levi.com | newsmediarequests@levi.com |
• | First Quarter Reported Revenues up 7% on Growth Across All Regions; Constant-Currency up 11% |
• | Reported Net Income of $147 Million Compared to Net Loss in Prior Year; Adjusted Net Income up 81% |
• | Adjusted EBIT up 14% on Higher Revenues and Margin Expansion; Constant-Currency up 21% |
Three Months Ended | % Increase | ||||||||||
($ millions) | February 24, 2019 | February 25, 2018 | As Reported | ||||||||
Net revenues | $ | 1,435 | $ | 1,344 | 7 | % | |||||
Net income (loss) attributable to Levi Strauss & Co. | $ | 147 | $ | (19 | ) | * | |||||
Adjusted net income | $ | 151 | $ | 83 | 81 | % | |||||
Adjusted EBIT | $ | 206 | $ | 180 | 14 | % |
• | On a reported basis, gross margin for the first quarter was 54.6 percent of net revenues compared with 54.9 percent in the same quarter of fiscal 2018, primarily due to 90 basis-points of unfavorable transactional currency impact, which was partially offset by the margin benefit from growth in the company's global direct-to-consumer channel. |
• | SG&A expenses for the first quarter were $582 million compared with $563 million in the same quarter of fiscal 2018 primarily reflecting the growth and expansion of the company's direct-to-consumer business, partially offset by the favorable impact of currency. SG&A expenses as a percent of net revenues declined 130 basis-points compared to the same quarter of fiscal 2018, as leverage on base costs and lower advertising due to the timing of the company's advertising campaigns were only partially offset by the higher direct-to-consumer-related costs. |
• | Operating income for the first quarter of $201 million was up 15 percent compared to the same quarter of fiscal 2018 reflecting higher revenues and a 100 basis-point increase in operating margin. |
• | Diluted earnings per common share attributable to common stockholders for the first quarter of 2019 was 37 cents, as compared with a five-cent loss per common share for the same quarter of fiscal 2018. The loss in 2018 was due to the charges from the transitional impact of the 2017 Tax Cuts and Jobs Act. |
Net Revenues | Operating Income * | |||||||||||||||||||||
Three Months Ended | % Increase | Three Months Ended | % Increase | |||||||||||||||||||
($ millions) | February 24, 2019 | February 25, 2018 | February 24, 2019 | February 25, 2018 | ||||||||||||||||||
Americas | $ | 717 | $ | 657 | 9 | % | $ | 124 | $ | 111 | 11 | % | ||||||||||
Europe | $ | 465 | $ | 453 | 3 | % | $ | 122 | $ | 115 | 6 | % | ||||||||||
Asia | $ | 253 | $ | 234 | 8 | % | $ | 43 | $ | 41 | 6 | % |
• | In the Americas, net revenues grew 9 percent on a reported basis and 10 percent on a constant-currency basis, reflecting higher revenues across both wholesale and direct-to-consumer channels across the region. Operating income for the region grew 11 percent on a reported basis and 12 percent on a constant-currency basis on the higher net revenues and lower advertising costs, which were partially offset by higher direct-to-consumer costs and increased distribution costs to support higher volume. |
• | In Europe, net revenues grew 3 percent on a reported basis and 10 percent on a constant-currency basis, reflecting continued broad-based growth across direct-to-consumer and wholesale channels. The region's operating income grew 6 percent on a reported basis and 13 percent on a constant-currency basis reflecting the net revenues growth and a higher gross margin from a shift towards the direct-to-consumer channel, partially offset by higher direct-to-consumer and distribution costs. |
• | In Asia, net revenues grew 8 percent on a reported basis and 14 percent on a constant-currency basis, reflecting strong performance across traditional wholesale, franchisee and direct-to-consumer channels. Revenue growth was broad-based across the region's markets, including China. The region's operating income grew 6 percent on a reported basis and 13 percent on a constant-currency basis, reflecting higher revenues partially offset by a decline in gross margin driven by product cost investment. |
• | Constant-currency net revenues growth of mid-single digits; and |
• | Constant-currency Adjusted EBIT margin flat-to-slightly up. |
(Unaudited) | |||||||
February 24, 2019 | November 25, 2018 | ||||||
(Dollars in thousands) | |||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 621,934 | $ | 713,120 | |||
Short-term investments in marketable securities | 100,017 | — | |||||
Trade receivables, net of allowance for doubtful accounts of $8,332 and $10,037 | 633,534 | 534,164 | |||||
Inventories: | |||||||
Raw materials | 5,900 | 3,681 | |||||
Work-in-process | 2,889 | 2,977 | |||||
Finished goods | 905,488 | 877,115 | |||||
Total inventories | 914,277 | 883,773 | |||||
Other current assets | 177,540 | 157,002 | |||||
Total current assets | 2,447,302 | 2,288,059 | |||||
Property, plant and equipment, net of accumulated depreciation of $998,131 and $974,206 | 463,840 | 460,613 | |||||
Goodwill | 236,127 | 236,246 | |||||
Other intangible assets, net | 42,822 | 42,835 | |||||
Deferred tax assets, net | 398,008 | 397,791 | |||||
Other non-current assets | 120,269 | 117,116 | |||||
Total assets | $ | 3,708,368 | $ | 3,542,660 | |||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 23,477 | $ | 31,935 | |||
Accounts payable | 329,913 | 351,329 | |||||
Accrued salaries, wages and employee benefits | 215,811 | 298,990 | |||||
Accrued interest payable | 16,648 | 6,089 | |||||
Accrued income taxes | 34,624 | 15,466 | |||||
Accrued sales allowances | 109,663 | — | |||||
Other accrued liabilities | 474,256 | 348,390 | |||||
Total current liabilities | 1,204,392 | 1,052,199 | |||||
Long-term debt | 1,017,660 | 1,020,219 | |||||
Postretirement medical benefits | 72,752 | 74,181 | |||||
Pension liability | 193,297 | 195,639 | |||||
Long-term employee related benefits | 84,607 | 107,556 | |||||
Long-term income tax liabilities | 10,281 | 9,805 | |||||
Other long-term liabilities | 116,353 | 116,462 | |||||
Total liabilities | 2,699,342 | 2,576,061 | |||||
Commitments and contingencies | |||||||
Temporary equity | 322,984 | 299,140 | |||||
Stockholders’ Equity: | |||||||
Levi Strauss & Co. stockholders’ equity | |||||||
Common stock — $.001 par value; 1,200,000,000 shares authorized; 375,874,600 shares and 376,028,430 shares issued and outstanding | 376 | 376 | |||||
Additional paid-in capital | — | — | |||||
Accumulated other comprehensive loss | (416,370 | ) | (424,584 | ) | |||
Retained earnings | 1,094,636 | 1,084,321 | |||||
Total Levi Strauss & Co. stockholders’ equity | 678,642 | 660,113 | |||||
Noncontrolling interest | 7,400 | 7,346 | |||||
Total stockholders’ equity | 686,042 | 667,459 | |||||
Total liabilities, temporary equity and stockholders’ equity | $ | 3,708,368 | $ | 3,542,660 |
Three Months Ended | |||||||
February 24, 2019 | February 25, 2018 | ||||||
(Dollars in thousands, except per share amounts) (Unaudited) | |||||||
Net revenues | $ | 1,434,458 | $ | 1,343,685 | |||
Cost of goods sold | 651,650 | 605,561 | |||||
Gross profit | 782,808 | 738,124 | |||||
Selling, general and administrative expenses | 581,896 | 563,202 | |||||
Operating income | 200,912 | 174,922 | |||||
Interest expense | (17,544 | ) | (15,497 | ) | |||
Other income (expense), net | (1,646 | ) | (10,400 | ) | |||
Income before income taxes | 181,722 | 149,025 | |||||
Income tax expense | 35,271 | 167,654 | |||||
Net income (loss) | 146,451 | (18,629 | ) | ||||
Net loss (income) attributable to noncontrolling interest | 126 | (383 | ) | ||||
Net income (loss) attributable to Levi Strauss & Co. | $ | 146,577 | $ | (19,012 | ) | ||
Earnings (loss) per common share attributable to common stockholders: | |||||||
Basic | $ | 0.39 | $ | (0.05 | ) | ||
Diluted | $ | 0.37 | $ | (0.05 | ) | ||
Weighted-average common shares outstanding: | |||||||
Basic | 377,077,111 | 376,165,783 | |||||
Diluted | 393,234,825 | 376,165,783 |
Three Months Ended | |||||||
February 24, 2019 | February 25, 2018 | ||||||
(Dollars in thousands) (Unaudited) | |||||||
Net income (loss) | $ | 146,451 | $ | (18,629 | ) | ||
Other comprehensive income (loss), before related income taxes: | |||||||
Pension and postretirement benefits | 3,422 | 3,360 | |||||
Derivative instruments | 1,737 | (22,848 | ) | ||||
Foreign currency translation gains | 4,086 | 19,781 | |||||
Unrealized gains on marketable securities | 890 | 290 | |||||
Total other comprehensive income, before related income taxes | 10,135 | 583 | |||||
Income taxes (expense) benefit related to items of other comprehensive income | (1,741 | ) | 4,846 | ||||
Comprehensive income, net of income taxes | 154,845 | (13,200 | ) | ||||
Comprehensive income attributable to noncontrolling interest | (54 | ) | (644 | ) | |||
Comprehensive income (loss) attributable to Levi Strauss & Co. | $ | 154,791 | $ | (13,844 | ) |
Three Months Ended | |||||||
February 24, 2019 | February 25, 2018 | ||||||
(Dollars in thousands) (Unaudited) | |||||||
Cash Flows from Operating Activities: | |||||||
Net income (loss) | $ | 146,451 | $ | (18,629 | ) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 28,559 | 32,821 | |||||
Unrealized foreign exchange losses | 9,046 | 10,022 | |||||
Realized (gain) loss on settlement of forward foreign exchange contracts not designated for hedge accounting | (4,618 | ) | 10,303 | ||||
Employee benefit plans’ amortization from accumulated other comprehensive loss and settlement loss | 3,422 | 3,360 | |||||
Stock-based compensation | 1,497 | 5,256 | |||||
Other, net | (413 | ) | 1,624 | ||||
(Benefit from) provision for deferred income taxes | (795 | ) | 129,542 | ||||
Change in operating assets and liabilities: | |||||||
Trade receivables | 69,672 | 59,497 | |||||
Inventories | (48,120 | ) | (61,867 | ) | |||
Other current assets | (6,162 | ) | (16,100 | ) | |||
Other non-current assets | (2,251 | ) | (3,405 | ) | |||
Accounts payable and other accrued liabilities | (48,041 | ) | 14,659 | ||||
Restructuring liabilities | (4 | ) | (44 | ) | |||
Income tax liabilities | 19,496 | 26,194 | |||||
Accrued salaries, wages and employee benefits and long-term employee related benefits | (110,338 | ) | (126,939 | ) | |||
Other long-term liabilities | (1,579 | ) | (124 | ) | |||
Net cash provided by operating activities | 55,822 | 66,170 | |||||
Cash Flows from Investing Activities: | |||||||
Purchases of property, plant and equipment | (36,149 | ) | (30,996 | ) | |||
Proceeds (Payments) on settlement of forward foreign exchange contracts not designated for hedge accounting | 55,818 | (10,303 | ) | ||||
Payments to acquire short-term investments | (99,880 | ) | — | ||||
Net cash used for investing activities | (80,211 | ) | (41,299 | ) | |||
Cash Flows from Financing Activities: | |||||||
Proceeds from short-term credit facilities | 13,442 | 17,511 | |||||
Repayments of short-term credit facilities | (12,556 | ) | (16,944 | ) | |||
Other short-term borrowings, net | (9,422 | ) | (14,537 | ) | |||
Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises | (3,914 | ) | (14,844 | ) | |||
Dividend to stockholders | (55,000 | ) | (45,000 | ) | |||
Other financing, net | (296 | ) | (386 | ) | |||
Net cash used for financing activities | (67,746 | ) | (74,200 | ) | |||
Effect of exchange rate changes on cash and cash equivalents and restricted cash | 952 | 5,597 | |||||
Net decrease in cash and cash equivalents and restricted cash | (91,183 | ) | (43,732 | ) | |||
Beginning cash and cash equivalents, and restricted cash | 713,698 | 634,691 | |||||
Ending cash and cash equivalents, and restricted cash | $ | 622,515 | $ | 590,959 | |||
Less: Ending restricted cash | (581 | ) | (729 | ) | |||
Ending cash and cash equivalents | 621,934 | 590,230 | |||||
Noncash Investing Activity: | |||||||
Property, plant and equipment acquired and not yet paid at end of period | $ | 10,513 | $ | 10,574 | |||
Property, plant and equipment additions due to build-to-suit lease transactions | 7,842 | 723 | |||||
Realized loss on foreign currency contracts not yet paid at end of period | 51,200 | — | |||||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest during the period | $ | 2,778 | $ | 1,628 | |||
Cash paid for income taxes during the period, net of refunds | 17,157 | 11,939 |
Three Months Ended | |||||||
February 24, 2019 | February 25, 2018 | ||||||
(Dollars in millions) | |||||||
(Unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Net income (loss) | $ | 146.5 | $ | (18.6 | ) | ||
Non-GAAP measure: | |||||||
Net income (loss) | 146.5 | (18.6 | ) | ||||
Income tax expense | 35.3 | 167.7 | |||||
Interest expense | 17.5 | 15.5 | |||||
Other expense, net | 1.6 | 10.4 | |||||
Impact of changes in fair value on cash-settled stock based compensation | 5.3 | 5.0 | |||||
Restructuring and related charges, severance and other, net | 0.1 | 0.3 | |||||
Adjusted EBIT | $ | 206.3 | $ | 180.3 | |||
Adjusted EBIT margin | 14.4 | % | 13.4 | % | |||
Depreciation and amortization | 28.6 | 32.8 | |||||
Adjusted EBITDA | $ | 234.9 | $ | 213.1 |
Three Months Ended | |||||||
February 24, 2019 | February 25, 2018 | ||||||
(Dollars in millions) | |||||||
(Unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Net income (loss) | $ | 146.5 | $ | (18.6 | ) | ||
Non-GAAP measure: | |||||||
Net income (loss) | 146.5 | (18.6 | ) | ||||
Impact of changes in fair value on cash-settled stock based compensation | 5.3 | 5.0 | |||||
Restructuring and related charges, severance and other, net | 0.1 | 0.3 | |||||
Remeasurement of deferred tax assets and liabilities | — | 99.1 | |||||
Tax impact of adjustments | (1.0 | ) | (2.4 | ) | |||
Adjusted net income | $ | 150.9 | $ | 83.4 | |||
Adjusted net income margin | 10.5 | % | 6.2 | % |
February 24, 2019 | November 25, 2018 | ||||||
(Dollars in millions) | |||||||
(Unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Total debt, excluding capital leases | $ | 1,041.1 | $ | 1,052.2 | |||
Non-GAAP measure: | |||||||
Total debt, excluding capital leases | $ | 1,041.1 | $ | 1,052.2 | |||
Cash and cash equivalents | (621.9 | ) | (713.1 | ) | |||
Short-term investments in marketable securities | (100.0 | ) | — | ||||
Net debt | $ | 319.2 | $ | 339.1 |
Three Months Ended | |||||||
February 24, 2019 | February 25, 2018 | ||||||
(Dollars in millions) | |||||||
(Unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Net cash provided by operating activities | $ | 55.8 | $ | 66.2 | |||
Non-GAAP measure: | |||||||
Net cash provided by operating activities | $ | 55.8 | $ | 66.2 | |||
Purchases of property, plant and equipment | (36.1 | ) | (31.0 | ) | |||
Proceeds (Payments) on settlement of forward foreign exchange contracts not designated for hedge accounting | 55.8 | (10.3 | ) | ||||
Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises | (3.9 | ) | (14.8 | ) | |||
Dividend to stockholders | (55.0 | ) | (45.0 | ) | |||
Adjusted free cash flow | $ | 16.6 | $ | (34.9 | ) |
Three Months Ended | ||||||||||
February 24, 2019 | February 25, 2018 | % Increase | ||||||||
(Dollars in millions) | ||||||||||
(Unaudited) | ||||||||||
Total revenues | ||||||||||
As reported | $ | 1,434.5 | $ | 1,343.7 | 6.8 | % | ||||
Impact of foreign currency exchange rates | — | (47.8 | ) | * | ||||||
Constant-currency net revenues | $ | 1,434.5 | $ | 1,295.9 | 10.7 | % | ||||
Americas | ||||||||||
As reported | $ | 717.3 | $ | 657.2 | 9.1 | % | ||||
Impact of foreign currency exchange rates | — | (5.5 | ) | * | ||||||
Constant-currency net revenues - Americas | $ | 717.3 | $ | 651.7 | 10.1 | % | ||||
Europe | ||||||||||
As reported | $ | 464.7 | $ | 452.7 | 2.7 | % | ||||
Impact of foreign currency exchange rates | — | (30.3 | ) | * | ||||||
Constant-currency net revenues - Europe | $ | 464.7 | $ | 422.4 | 10.0 | % | ||||
Asia | ||||||||||
As reported | $ | 252.5 | $ | 233.8 | 8.0 | % | ||||
Impact of foreign currency exchange rates | — | (12.0 | ) | * | ||||||
Constant-currency net revenues - Asia | $ | 252.5 | $ | 221.8 | 13.8 | % |
Three Months Ended | ||||||||||
February 24, 2019 | February 25, 2018 | % Increase | ||||||||
(Dollars in millions) | ||||||||||
(Unaudited) | ||||||||||
Adjusted EBIT | $ | 206.3 | $ | 180.3 | 14.4 | % | ||||
Impact of foreign currency exchange rates | — | (10.1 | ) | * | ||||||
Constant-currency Adjusted EBIT | $ | 206.3 | $ | 170.2 | 21.2 | % | ||||
Constant-currency Adjusted EBIT margin (1) | 14.4 | % | 13.1 | % |
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