As of Thursday, July 11, 2019
Levi Strauss & Co. reported that second-quarter revenues were up across all brands, regions and key product categories with sales rising 5 percent to $1.3 billion.
However, because of costs associated with the company going public earlier this year and being listed on the New York Stock Exchange, net income declined 63 percent to $29 million. This was due primarily to $29 million in costs associated with the company’s initial public offering in March and $25 million in underwriting commissions paid on behalf of selling stockholders.
The San Francisco denim company known for its Levi’s 501 jeans has been on a diversification plan to expand its product categories and offerings for its various brands, which include Dockers, Denizen and Signature for Levi Strauss. One of those initiatives has been to expand the women’s apparel business.
While the men’s business grew 6 percent, sales in women’s merchandise rose 16 percent for the second quarter ending May 26. “The high-rise jean has fueled growth [in women’s] and fueled the tops business,” said Chip Bergh, president and chief executive officer during the company’s earnings conference July 9.
He noted that Levi’s 501 cut-off shorts did well at the recent Coachella Valley Music and Arts Festival. “We dominated Coachella with the 501 cut-off shorts, with sales up 50 percent during the quarter,” Bergh said.
Sales during the second quarter were up in all geographic regions. The Americas, which accounts for about half of the company’s revenues, saw its sales inch up 3 percent to $693 million. Europe’s sales were up 9 percent to $398 million. Asia saw its sales move up 6 percent to $222 million.
International sales now make up 58 percent of business, said Levi’s Executive Vice President and Chief Financial Officer Harmit Singh, while direct-to-consumer sales account for 39 percent of revenues. The company had 78 more stores in the second quarter than during the same time last year.
China is still proving to be a challenge, although sales were up 3 percent during the second quarter. Levi Strauss has been closing some underperforming franchise stores while sales at company-owned outposts have been doing well. “We have been growing there in the last couple of years, but it is a bit of a heavy lift,” Bergh said, noting that Levi’s should see accelerated growth in the next 12 months after executives met in Hong Kong and strategized about boosting sales. “We have to optimize our franchise partners, and we have some doors to clean up, but we are focused on building the right kind of doors,” Bergh said.
The CEO added that he has seen no Chinese consumer backlash against American brands even though trade issues between the U.S. and China are tense as the Trump administration threatens to impose tariffs on almost all Chinese goods imported into the United States.
This year, Levi’s has become much more sustainable by finishing its blue jeans with laser technology instead of manually and using fewer chemicals. This new technique cuts finishing design and development time in half, from months to weeks. It is part of the company’s Project F.L.X., or future-led execution, launched last year.
“Today, about 25 percent of Levi’s denim bottoms on a global basis are finished with F.L.X.,” Bergh said. “We should ramp it up to its full potential in two years.”
The company also will soon be offering personalized services to customers who can create their own blue jeans using the Project F.L.X. method, with the finished product landing on consumers’ doorsteps possibly in a matter of days. “This will roll out soon in the United States, and it will be premium priced,” Bergh said.
Data collection is another area the company is planning to expand. “We collect a ton of data, and we have not done a lot with it,” Bergh said.
The company recently hired Katia Walsh as the company’s senior vice president and chief strategy and artificial intelligence officer, who came on board at the end of April. She will be translating Levi’s data analytics into decisions that will drive business and promote better decision-making.
“The opportunity to leverage data is getting better and smarter in how we operate,” Bergh observed.
Data can be used to dictate pricing, forecasting and determining what kind of merchandise is carried in each store and even figure out new store locations. “The opportunities,” Bergh said, “are endless.”