Levi Strauss & Co. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended February 25, 2024, Levi Strauss’s fiscal first quarter of 2024—not fiscal 2023 Q1 as stated in the request. Comparative figures are for the 13 weeks ended February 26, 2023. The company designs, markets and sells apparel and related products under Levi’s, Dockers, Signature, Denizen and Beyond Yoga brands.
Financial performance and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Net revenue | $1,557.6 million | $1,688.9 million |
| Gross profit / margin | $906.5 million / 58.2% | $942.3 million / 55.8% |
| Operating income (loss) | $(0.4) million | $157.4 million |
| Net income (loss) | $(10.6) million | $114.7 million |
| Diluted earnings (loss) per share | $(0.03) | $0.29 |
| Operating cash flow | $286.0 million | $(160.8) million |
| Capital expenditures | $71.6 million | $110.9 million |
| Adjusted free cash flow (non-GAAP) | $214.4 million | $(271.7) million |
- Revenue declined 7.8% reported and 7.7% at constant currency. Wholesale fell 18.4%, while direct-to-consumer (DTC) rose 7.1%; DTC represented 48% of revenue, versus 42% a year earlier.
- Gross margin improved 240 basis points, primarily from lower product costs and favorable channel mix. SG&A rose 2.2% to $790.7 million, or 50.8% of revenue versus 45.8%.
- The GAAP operating result included $116.2 million of restructuring charges. Adjusted EBIT, a non-GAAP measure, was $140.7 million, down 24.1%, with a 9.0% margin versus 11.0%. Adjusted net income was $102.7 million versus $134.9 million; adjusted diluted EPS was $0.26 versus $0.34.
- Operating cash flow improved substantially, primarily due to lower inventory spending and higher receivable collections, partly offset by higher SG&A spending. Inventory was $1,150.4 million at quarter-end, down 14% year over year; management said a change in supplier shipping terms contributed approximately $100 million, or 7% growth on a dollar basis, relative to what inventory otherwise would have been.
- At February 25, cash and cash equivalents were $516.7 million, versus $398.8 million at fiscal year-end. Total debt was approximately $1.01 billion, including $1.006 billion of long-term debt and $4.3 million of short-term borrowings. The company had no revolving-facility borrowings and reported $933.7 million of unused availability, for approximately $1.5 billion of cash and available credit combined. It was in compliance with debt covenants.
Material changes and management commentary
- Management attributed much of the wholesale decline to approximately $100 million of prior-year U.S. shipments brought forward ahead of an ERP implementation. Exits from Denizen and Russia also reduced wholesale revenue. DTC growth was driven by store performance, expansion and e-commerce; e-commerce revenue grew 13% reported.
- Revenue by segment was $735.8 million in Americas (down 10.6%), $423.5 million in Europe (down 7.0%) and $288.8 million in Asia (down 0.3% reported, up 5.0% constant currency). Other Brands revenue was $109.5 million, down 9.7%.
- The board approved Project Fuel, a two-year global productivity initiative expected to run through the end of 2025. Q1 included $116.2 million in restructuring charges, primarily severance and post-employment benefits, plus $10.1 million of related charges, primarily consulting fees. The company warned that further restructuring charges could be significant in a future quarter or year.
- The company recorded a $5.5 million goodwill impairment related to discontinuing its footwear category. Beyond Yoga revenue growth partly offset lower Dockers revenue within Other Brands.
- Management said it expects adequate liquidity for the next 12 months and longer term. Capital allocation priorities include investing 3.5%–4% of revenue, dividends, strategic acquisitions and share repurchases; its stated aim is to return 55%–65% of adjusted free cash flow to shareholders through dividends and repurchases. These are priorities and targets, not guaranteed payments.
- The filing provides no clear numerical full-year revenue or earnings guidance. Management highlighted persistent inflation and consumer-spending pressure, supply-chain cost and shipping disruption (including Red Sea diversions), foreign-exchange volatility, geopolitical uncertainty, competition and potential changes in trade and tax rules.
Other notable items and contingencies
- The company repurchased 1.5 million shares for approximately $24.9 million and paid $47.9 million in dividends during the quarter. A subsequent $0.12-per-share dividend was declared, payable May 23, 2024, totaling approximately $48 million.
- A purchase agreement to acquire operating assets associated with Levi’s brands in Colombia for approximately $32 million in cash plus transaction costs closed in Q2 FY2024. The assets include 40 retail stores, an e-commerce site and distribution operations.
- Ordinary-course litigation and customs-duty assessments were not believed by management to have a material financial impact; recorded customs reserves were described as not material. The filing reports no material change to previously disclosed risk factors.
- Disclosure controls were assessed as effective, and the filing reported no materially affecting change in internal control over financial reporting.
Important facts for investors to verify
- Whether Project Fuel delivers expected operating efficiencies and what additional restructuring cash costs or charges arise through 2025.
- Whether wholesale revenue recovers after the prior-year ERP-related shipment pull-forward and customer inventory rebalancing, and whether DTC growth translates into sustainable profitability.
- Whether the sharp improvement in operating cash flow is sustained, given its stated reliance on working-capital movements and inventory reduction.
- The effect of supplier shipping-term changes, Red Sea disruption, inflation and currency movements on inventory, costs and gross margin.
- The performance and integration costs of the Colombia acquisition, and any further consequences of discontinuing the footwear category.
- How shareholder returns, investment spending and debt service evolve relative to cash generation; adjusted measures are non-GAAP and should be considered alongside GAAP results.