Levi Strauss & Co. (NYSE:LEVI) is an iconic American apparel company with a rich heritage dating back to 1853. Founded in San Francisco, the company is renowned for creating the first riveted blue jeans and has since evolved into a global leader in denim, casual, and lifestyle products. Despite navigating a dynamic retail landscape, Levi Strauss has demonstrated resilience, adapting its business model to capitalize on emerging trends and cement its position as a trusted brand.
Business Overview and Storied History
Levi Strauss & Co. has a storied history spanning over 170 years. The company was founded in 1853 as a wholesale dry goods business by Levi Strauss, an immigrant from Bavaria. In 1873, the company revolutionized the apparel industry by creating the first riveted blue jeans, a product that would become a cultural icon. Over the decades, Levi's expanded its portfolio, introducing iconic brands such as Dockers, Levi Strauss Signature, and Denizen, while cementing its position as a global leader in denim, casual, and lifestyle apparel.
In the early 2000s, Levi's faced significant challenges as it struggled to keep up with changing consumer preferences and increasing competition from fast fashion retailers. The company responded by focusing on product innovation, expanding its women's business, and strengthening its direct-to-consumer channels. These efforts helped Levi's regain its footing and return to growth in the latter part of the decade.
A significant milestone in the company's recent history was its return to the public market in 2019 after being privately held for over 30 years. The initial public offering (IPO) raised $623 million, providing the company with additional resources to invest in its business. This move allowed Levi's to further focus on product innovation, grow its women's and non-denim categories, and expand its global footprint, particularly in Europe and Asia.
The COVID-19 pandemic in 2020 presented a major challenge for Levi's, as it did for many retailers. Store closures and reduced consumer demand led to a sharp decline in sales. However, the company demonstrated its adaptability by implementing cost-cutting measures, streamlining its operations, and significantly enhancing its digital capabilities to better serve customers during this difficult period.
Today, Levi Strauss & Co. designs, markets, and sells products that include jeans, casual and dress pants, activewear, tops, shorts, skirts, dresses, jackets, footwear, and related accessories for men, women, and children around the world under its Levi's, Dockers, Levi Strauss Signature, Denizen, and Beyond Yoga brands. The company's products are sold through a global infrastructure, with a presence in over 45,000 retail locations across more than 110 countries, including approximately 3,400 brand-dedicated stores and shop-in-shops.
Financial Performance and Resilience
Levi Strauss & Co. has demonstrated financial resilience, navigating the challenges of the retail industry with discipline and agility. In the fiscal year 2023, the company reported net revenues of $6.18 billion, a 0.2% increase from the previous year. Net income for the year stood at $249.6 million, reflecting a solid profitability profile. Operating cash flow was $435.5 million, while free cash flow reached $120.0 million.
In the third quarter of fiscal 2024, Levi's reported revenue of $1.52 billion, representing a 0.4% increase year-over-year. This growth was driven by a 12% increase in the direct-to-consumer channel, partially offset by a 3% decline in the wholesale channel. Net income for the quarter rose significantly to $20.7 million, a 115.6% increase compared to the same period last year, primarily due to higher gross margins. Operating cash flow for the quarter was $52.3 million, with free cash flow of $2.3 million.
The company's operational efficiency is evident in its financial ratios. As of August 25, 2024, Levi Strauss had a current ratio of 1.41 and a quick ratio of 0.76, indicating a healthy ability to meet short-term obligations. The debt-to-equity ratio stood at 0.55, suggesting a balanced capital structure. Additionally, the company's return on equity of 7.90% in 2023 showcases its ability to generate strong returns for its shareholders.
Levi Strauss maintains a strong liquidity position with $577.1 million in cash and cash equivalents as of August 25, 2024. The company also has access to a $1.0 billion senior revolving credit facility, of which $705.8 million was available at the end of the third quarter.
Transformation and Strategic Initiatives
Levi Strauss & Co. has been proactively transforming its business model to adapt to the changing retail landscape. In 2024, the company launched a multi-year global productivity initiative, Project Fuel, designed to accelerate the execution of its "Brand Led" and "DTC First" strategies while driving long-term profitable growth.
As part of this transformation, Levi Strauss has been narrowing its focus to realize the full potential of its core Levi's brand and accelerate the growth of its Beyond Yoga brand. In 2024, the company announced that it is exploring strategic alternatives for its Dockers brand, including a potential sale or other strategic transaction, to further concentrate on its most promising growth opportunities.
Levi Strauss has also been investing in its direct-to-consumer (DTC) channel, which now accounts for 46% of its total net revenues in the first nine months of 2024, up from 43% in the same period of the prior year. This strategic shift has enabled the company to enhance its customer engagement, improve profitability, and better respond to evolving consumer preferences.
Product Segments and Geographic Performance
Levi Strauss & Co. operates through two main product segments: Levi's Brands and Other Brands. The Levi's Brands segment, which includes the Levi's, Levi Strauss Signature, and Denizen brands, is the company's core business, representing 89% of total net sales in the first nine months of fiscal year 2024. This segment primarily offers jeans, casual and dress pants, activewear, tops, shorts, skirts, dresses, jackets, and related accessories for men, women, and children.
The Other Brands segment, comprising Dockers and Beyond Yoga, accounted for 11% of total net revenues in the same period. Dockers focuses on casual and dress pants, shorts, and related accessories, while Beyond Yoga specializes in activewear and athleisure products.
Geographically, Levi Strauss operates in three main regions:
1. Americas: Including the United States, Canada, and Latin America, this region generated 53% of total net revenues in the first nine months of 2024, with sales of $2.21 billion, up 0.3% year-over-year.
2. Europe: This region accounted for 28% of total net revenues, with sales of $1.18 billion, down 1.4% year-over-year.
3. Asia: Representing 19% of total net revenues, this region generated $795.9 million in sales, down 0.2% year-over-year.
Navigating Headwinds and Uncertainties
While Levi Strauss & Co. has demonstrated resilience, the company is not immune to the challenges faced by the broader retail industry. In the third quarter of 2024, the company reported that its net revenues came in at the low end of its guidance, primarily due to headwinds in China, Dockers, and Mexico wholesale.
The company has been proactively addressing these issues. In China, Levi Strauss has replaced its China Managing Director and appointed a 15-year veteran of the company with a strong track record in Asia as the interim leader. In Mexico, the company is working closely with its wholesale partners to stabilize the business and has made changes to improve its performance in this channel.
Additionally, Levi Strauss has been navigating supply chain disruptions, inflationary pressures, and macroeconomic uncertainties that have impacted the industry as a whole. The company has implemented mitigation strategies, such as diversifying its sourcing and logistics networks, to minimize the impact on its operations and remain agile in the face of these challenges.
Outlook and Future Prospects
Despite the near-term headwinds, Levi Strauss & Co. remains optimistic about its long-term prospects. For the full fiscal year 2024, the company has adjusted its reported revenue guidance to 1% growth, with constant currency revenue growth expected to be between 1.5% to 2%. Levi's has also increased its full-year gross margin expectation to 270 basis points of expansion versus the prior year.
Looking ahead to the fourth quarter of fiscal 2024, Levi's anticipates mid-single-digit revenue growth. The company expects Q4 EBIT margin to be in the low-teens and full-year EBIT margin to be slightly above 10%, leveraging approximately 100 to 130 basis points versus the prior year. Levi's also expects full-year adjusted EPS to be at the midpoint of their $1.17 to $1.27 guidance range.
The company remains committed to expanding its retail presence, with plans to open 100 net new system doors for the full fiscal year 2024. This expansion, coupled with the continued growth of its direct-to-consumer channel and focus on product innovation, is expected to drive future growth.
Levi Strauss is confident in its ability to drive profitable growth by leveraging its strong brand portfolio, expanding its DTC presence, and continuing to innovate its product offerings. The company's recent partnership with global icon Beyoncé, the Reimagined campaign, is expected to further enhance the Levi's brand's cultural relevance and connect with consumers worldwide.
As Levi Strauss & Co. navigates the evolving retail landscape, the company's focus on operational excellence, financial discipline, and strategic transformation positions it well to capitalize on emerging opportunities and maintain its position as a leading global apparel brand. With the global apparel market expected to grow at a CAGR of 4-6% over the next 5 years, driven by increasing consumer demand for sustainable and innovative products, Levi's is well-positioned to benefit from these industry trends and continue its legacy of iconic denim and lifestyle products.