Levi Strauss & Co. (LEVI) is an iconic American apparel company that has a rich history dating back to 1853 when it pioneered the blue jean. Today, the company designs, markets, and sells a variety of clothing and accessories, including jeans, casual and dress pants, activewear, tops, shorts, skirts, dresses, and jackets for men, women, and children around the world.

Business Overview

Levi Strauss was founded in San Francisco, California in 1853 as a wholesale dry goods business. The company's iconic product, the blue jean, was invented 20 years later in 1873 when Levi Strauss received a U.S. patent for waist overalls with metal rivets at points of strain. Initially, Levi's work pants were primarily worn by cowboys, miners, and other working men in the western United States during the late 19th and early 20th centuries.

The company's product line expanded in 1934 with the introduction of its first jeans for women. Following World War II, Levi's jeans gained broader appeal, becoming a symbol of American culture and youth. The company's growth continued with the opening of its export business in the 1950s and the expansion of its international presence in the 1960s.

In addition to its flagship Levi's brand, the company has developed other brands to cater to different market segments. The Dockers brand, launched in 1986, played a significant role in driving the "Casual Friday" trend in the 1990s and has been a cornerstone of casual menswear for over 30 years. The company has also introduced the Levi Strauss Signature and Denizen brands, which target value-conscious consumers seeking quality and style at affordable prices.

Throughout its history, Levi Strauss & Co. has demonstrated a commitment to social responsibility and ethical business practices. The company integrated its factories prior to the Civil Rights Act of 1964, offered benefits to same-sex partners in the 1990s, and recently provided up to 12 weeks of paid family leave to employees in the U.S. and Canada in 2023. These actions reflect the company's dedication to setting higher standards for itself and the industry in areas such as civic engagement, community involvement, responsible labor practices, philanthropy, ethical conduct, environmental stewardship, and transparency.

Today, Levi Strauss operates its business through three reportable segments - Americas, Europe, and Asia, which collectively make up the company's Levi's Brands business. The Dockers and Beyond Yoga brands are reported under the Other Brands caption. Levi's products are sold in approximately 120 countries through a diverse distribution network that includes approximately 50,000 retail locations worldwide, including around 3,400 brand-dedicated stores and shop-in-shops.

In fiscal year 2024, Levi's Brands accounted for 93% of the company's $6.36 billion in total net revenues, with the Levi's brand comprising 89% of total net revenues. The company's direct-to-consumer (DTC) channel, which includes company-operated stores and e-commerce, represented 46% of total net revenues in fiscal 2024, up from 43% in the prior year. The wholesale channel, which includes third-party retailers, franchised stores, and third-party e-commerce sites, generated the remaining 54% of net revenues.

Operational and Financial Performance

Levi Strauss has demonstrated resilience and adaptability over its 170+ year history, navigating challenging macroeconomic environments and evolving consumer preferences. In fiscal 2024, the company delivered solid organic net revenue growth of 3.2%, despite ongoing global inflationary pressures, supply chain disruptions, and foreign currency headwinds.

The company's focus on its core Levi's brand, acceleration of its direct-to-consumer strategy, and expansion into lifestyle apparel categories beyond traditional denim bottoms have been key drivers of its recent performance. In fiscal 2024, Levi's brand net revenues grew 4.4% organically, led by strong momentum in women's and continued strength in men's. The company's direct-to-consumer channel delivered 11% organic growth, comprising 47% of total net revenues.

Levi Strauss has also made progress in improving its profitability, with fiscal 2024 adjusted EBIT margin expanding 120 basis points to 10.2%. This was driven by gross margin expansion of 350 basis points to a record 60.0%, as well as disciplined cost management. The company generated $670.9 million in adjusted free cash flow in fiscal 2024, allowing it to return $289 million to shareholders through dividends and share repurchases.

Financials

In fiscal year 2024, Levi Strauss reported total net revenues of $6.36 billion, representing a 3.2% organic increase from the previous year. The company's gross margin reached a record 60.0%, up 350 basis points from fiscal 2023. Adjusted EBIT for fiscal 2024 was $647 million, with an adjusted EBIT margin of 10.2%, an expansion of 120 basis points year-over-year. Net income for the year was $210.6 million, and annual operating cash flow reached $898.4 million.

For the fourth quarter of fiscal 2024, Levi Strauss reported revenue of $1.84 billion, a 12% increase on a reported basis and a 7.9% increase on an organic net revenues basis compared to the same quarter in the previous year. Net income for the quarter was $182.6 million. The growth was driven by strength across both the DTC and wholesale channels.

Performance by geographic markets shows that the Americas segment generated 50.3% of total net revenues in fiscal year 2024, while the Europe segment accounted for 25.5%, and the Asia segment contributed 17.0%. The company's operations in Canada and Latin America are included in the Americas segment.

Liquidity

As of the end of fiscal 2024, Levi Strauss maintained a strong liquidity position with $626 million in cash and cash equivalents and short-term investments. The company's total available liquidity, including its $850 million revolving credit facility, stood at approximately $1.5 billion. This robust liquidity position provides Levi Strauss with financial flexibility to invest in growth initiatives and navigate potential economic uncertainties.

The company's debt-to-equity ratio was 0.5 as of the end of fiscal year 2024. Levi Strauss had $690 million in cash and cash equivalents and $803 million of available borrowing capacity under its $1 billion senior secured revolving credit facility. The company's current ratio was 1.42, and its quick ratio was 0.80 as of the end of fiscal year 2024.

Looking ahead, Levi Strauss expects to build on this momentum, guiding for fiscal 2025 organic net revenue growth of 3.5% to 4.5% and adjusted EBIT margin expansion of nearly 100 basis points to approximately 10.9-11.1%. This outlook reflects the company's confidence in its ability to drive further brand momentum, capitalize on growth opportunities in direct-to-consumer and international markets, and enhance its operational efficiency.

For fiscal year 2025, Levi Strauss expects reported net revenues to be down 1% to 2%, factoring in an approximately 250 basis point headwind from foreign exchange, and a 300 basis point headwind from the exit of the Denizen and footwear businesses, and the impact of the 53rd week. Gross margin is expected to expand by 100 basis points to approximately 61% for the full year. The company anticipates the full-year SG&A rate to be approximately 50%, about flat to 2024. Adjusted diluted EPS is expected to be in the range of $1.20 to $1.25, including an approximate $0.20 headwind from a higher tax rate and foreign exchange.

For the first quarter of fiscal 2025, Levi Strauss projects organic net revenue growth of 3.5% to 4.5%, excluding 3.5 points of FX headwind and 2 points from the exit of Denizen and footwear. Gross margin is expected to be up 150 to 200 basis points, with EBIT margin between 10.2% to 10.5%, expanding 120 to 150 basis points versus the prior year. EPS is anticipated to be approximately $0.26 to $0.28, including a $0.02 to $0.03 headwind from foreign exchange.

Key Risks and Challenges

While Levi Strauss has demonstrated its resilience, the company faces several key risks and challenges that investors should consider:

1. Macroeconomic Volatility: As a global apparel company, Levi Strauss is exposed to fluctuations in foreign exchange rates, commodity prices, and consumer spending patterns, all of which can impact its financial performance.

2. Competitive Landscape: The apparel industry is highly competitive, with Levi Strauss facing rivalry from vertically-integrated specialty stores, other denim brands, private label offerings, and e-commerce pure-play retailers.

3. Changing Consumer Preferences: Levi Strauss must continuously innovate and adapt its product offerings to stay aligned with evolving fashion trends and consumer demands, particularly in the women's and lifestyle categories.

4. Supply Chain Disruptions: Disruptions to the company's global supply chain, including factory closures, transportation delays, and raw material shortages, can disrupt its ability to meet customer demand.

5. Regulatory and Compliance Risks: As a multinational corporation, Levi Strauss must navigate an evolving landscape of trade policies, customs regulations, and environmental, social, and governance (ESG) standards, which can increase costs and operational complexity.

Despite these challenges, Levi Strauss' strong brand recognition, diversified business model, and focus on strategic initiatives position the company well to continue its growth trajectory and capture market share in the years ahead.

Conclusion

Levi Strauss & Co. has demonstrated its ability to adapt and thrive as an iconic American apparel brand over the course of its 170+ year history. The company's focus on strengthening its core Levi's brand, expanding its direct-to-consumer presence, and diversifying into lifestyle apparel categories have been key drivers of its recent performance.

The company operates through three reportable segments - Americas, Europe, and Asia - which collectively comprise the Levi's Brands business. The Levi's brand remains the foundation of the company's business, representing approximately 89% of total net revenues in fiscal year 2024. The company's product portfolio also includes the Dockers brand, which offers a wide range of apparel and accessories, and the Beyond Yoga brand, a premium athleisure apparel brand.

Levi Strauss has shown resilience in the face of macroeconomic challenges, delivering organic net revenue growth and margin expansion in fiscal 2024. The company's strategic focus on expanding its DTC channel and driving operational excellence has contributed to its solid financial performance.

While Levi Strauss faces various macroeconomic and industry-specific risks, the company's strong brand recognition, diversified business model, and strategic initiatives position it well to continue delivering sustainable growth and shareholder value. As Levi Strauss navigates the evolving retail landscape, investors will be closely watching the company's ability to capitalize on emerging trends, enhance its operational efficiency, and maintain its position as a leader in the global apparel market.

The global denim market is expected to grow at a CAGR of mid-single digits over the next few years, and Levi Strauss aims to grow organic net revenues by 3.5-4.5% annually, ahead of the broader market. With its iconic brands, strong financial position, and strategic focus on DTC and international expansion, Levi Strauss is well-positioned to capture opportunities in the growing global apparel market.