Powered by Business Wire
Search Results for Topix.net

Levi Strauss & Co. Announces Second-Quarter 2014 Financial Results

SAN FRANCISCO--(BUSINESS WIRE)--Levi Strauss & Co. (LS&Co.) announced financial results today for the second quarter ended May 25, 2014.

“While we are encouraged by business improvements in Europe and Asia, ongoing traffic declines and an increasingly promotional environment continue to pressure our Americas region”

Highlights include:

  Three Months Ended   % Increase (Decrease)
($ millions) May 25, 2014   May 26, 2013 As Reported
Net revenues $ 1,082 $ 1,099 (2)%
Net income $ 11 $ 48 (76)%
Adjusted EBIT $ 93 $ 99 (6)%

Net revenues declined two percent on a reported basis and one percent on a constant-currency basis, reflecting lower sales at wholesale in the Americas, partially offset by improved performance in Europe and Asia. Second quarter net income declined to $11 million, primarily reflecting $28 million in restructuring and other charges related to the company's global productivity initiative, and a debt extinguishment charge of $11 million associated with the partial redemption of its 7.75% Euro Senior Notes due 2018. Excluding the global productivity initiative charges, adjusted EBIT declined six percent to $93 million due to a lower gross margin and the net revenues decline.

“While we are encouraged by business improvements in Europe and Asia, ongoing traffic declines and an increasingly promotional environment continue to pressure our Americas region,” said Chip Bergh, president and chief executive officer. “We will continue to focus on what’s within our control - from cost structure, to conversion in our stores, to engaging consumers with great product and innovation - in order to drive long-term profitable growth. We have a strong second half plan in place, including the launch of the new Levi’s® advertising campaign that brings to life the consumer insight that ‘you wear jeans, you “Live in Levi’s®”’.”

Second-Quarter 2014 Highlights

  • Gross profit in the second quarter declined to $530 million compared with $549 million for the same quarter of 2013. Gross margin for the second quarter declined to 49.0 percent of revenues compared with 49.9 percent of revenues in the same quarter of 2013. The gross margin decline reflected an unfavorable sales mix and product investment costs.
  • Selling, general and administrative expenses (SG&A) for the second quarter decreased to $446 million from $449 million in the same quarter of 2013. SG&A declined slightly, as savings associated with the company's global productivity initiative were partially offset by $9 million in related charges, primarily consulting fees for centrally-led cost-savings and procurement projects.
  • Restructuring charges of $19 million were recorded in the second quarter of 2014 associated with the company's global productivity initiative, primarily reflecting severance benefit costs and pension plan curtailment losses associated with staffing reductions. Aggregate first- and second-quarter restructuring and related charges of $93 million associated with the company’s global productivity initiative are anticipated to drive annualized savings of $100-125 million.
  • Operating income of $65 million in the second quarter was down from $100 million in the same quarter of 2013 due to the restructuring charges, lower gross margin and net revenues decline.

Reported regional net revenues and operating income for the quarter were as follows:

  Net Revenues   Operating Income *
Three Months Ended  

% Increase

(Decrease)

Three Months Ended  

% Increase

(Decrease)

($ millions) May 25, 2014   May 26, 2013 May 25, 2014   May 26, 2013
Americas $645 $666 (3)% $109 $119 (8)%
Europe $261 $253 3% $38 $37 4%
Asia $176 $180 (2)% $24 $33 (26)%

* Note: regional operating income is equal to regional adjusted EBIT.

  • Net revenues in the Americas declined primarily due to lower sales of women’s products at wholesale. Operating income declined due to the region’s lower gross margin and net revenues.
  • In Europe, net revenues growth from performance and expansion of the company-operated retail network was partially offset by lower net revenues in the wholesale channel. Higher operating income reflected lower SG&A.
  • In Asia, net revenues grew 2% on a constant-currency basis, reflecting growth in the company-operated retail network driven by price-promotional activity. Operating income declined due to the region's lower gross margin, reflecting the highly-promotional environment.

Cash Flow and Balance Sheet

At May 25, 2014, cash and cash equivalents of $386 million were complemented by $625 million available under the company's revolving credit facility, resulting in a total liquidity position of $1.0 billion. Free cash flow for the first half of 2014 was $14 million.

During the quarter, the company amended and restated its asset-based, senior secured revolving credit facility, extending the term, improving availability and obtaining more favorable interest rates and terms. Subsequent to the amendment and restatement, the company redeemed €150.0 million in aggregate principal amount of its 7.75% Euro Senior Notes due 2018, funding the redemption through cash on hand and borrowings of $100.0 million from the amended and restated credit facility. Net debt at the end of the second quarter remained less than $1.1 billion.

Investor Conference Call

The company’s second-quarter 2014 investor conference call will be available through a live audio webcast at http://levistrauss.com/investors/#earnings-webcast today, July 8, 2014, at 1 p.m. Pacific / 4 p.m. Eastern. A replay is available on the website the same day and will be archived for one month. A telephone replay also is available through July 14, 2014, at 800-642-1687.

Forward Looking Statement

This news release contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the statement related to anticipated annualized savings of $100-125 million associated with the company’s global productivity initiative. We have based these forward-looking statements on our current assumptions, expectations and projections about future events. We use words like “believe,” “will,” “so we can,” “when,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Investors should consider the information contained in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year 2013 and our Quarterly Reports on Form 10-Q for the quarters ended February 23, 2014, and May 25, 2014, especially in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this news release may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this news release. We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this news release to reflect circumstances existing after the date of this news release or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

Non-GAAP Financial Measures

The company reports its financial results in conformity with generally accepted accounting principles in the United States (“GAAP”) and the rules of the SEC. However, management believes that certain non-GAAP financial measures, such as Free Cash Flow, Net Debt and Adjusted EBIT, provide users of the company’s financial information with additional useful information. The tables found below include Free Cash Flow, Net Debt and Adjusted EBIT and corresponding reconciliations to the most comparable GAAP financial measures. These non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the company’s financial results prepared in accordance with GAAP. Certain of these items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the company’s financial position, results of operations and cash flows and should therefore be considered in assessing the company’s actual financial condition and performance. Non-GAAP financial measures are subject to inherent limitation as they reflect the exercise of judgment by management in determining how they are formulated. Some specific limitations, include but are not limited to, the fact that such non-GAAP financial measures: (a) do not reflect cash outlays for capital expenditures, contractual commitments or liabilities including pension obligations, post-retirement health benefit obligations and income tax liabilities, (b) do not reflect changes in, or cash requirements for, working capital requirements; and (c) they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on indebtedness. Additionally, the methods used by the company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies, limiting the usefulness of these measures. The company urges investors to review the reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate its business.

The company presents non-GAAP financial measures, such as Free Cash Flow, Net Debt and Adjusted EBIT, because it believes they provide investors, financial analysts and the public with additional information to measure performance and evaluate the company’s ability to service its debt and may be useful for comparing its operating performance with the performance of other companies that have different financing and capital structures and tax rates. The company further believes these measures may be useful for period-over-period comparisons of underlying business trends and its ongoing operations.

See “RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR THE SECOND QUARTER OF 2014” below for reconciliation to the most comparable GAAP financial measures.

About Levi Strauss & Co.

Levi Strauss & Co. is one of the world's largest brand-name apparel companies and a global leader in jeanswear. The company designs and markets jeans, casual wear and related accessories for men, women and children under the Levi's®, Dockers®, Signature by Levi Strauss & Co.™, and Denizen® brands. Its products are sold in more than 110 countries worldwide through a combination of chain retailers, department stores, online sites, and a global footprint of approximately 2,600 retail stores and shop-in-shops. Levi Strauss & Co.'s reported fiscal 2013 net revenues were $4.7 billion. For more information, go to http://levistrauss.com.

 

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

   
(Unaudited)
May 25,
2014
November 24,
2013
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 386,074 $ 489,258
Trade receivables, net of allowance for doubtful accounts of $18,228 and $18,264 341,544 446,671
Inventories:
Raw materials 3,817 3,361
Work-in-process 6,541 6,597
Finished goods 676,610   593,909  
Total inventories 686,968 603,867
Deferred tax assets, net 201,771 187,836
Other current assets 122,910   112,082  
Total current assets 1,739,267 1,839,714
Property, plant and equipment, net of accumulated depreciation of $805,923 and $775,933 410,204 439,861
Goodwill 241,784 241,228
Other intangible assets, net 47,684 49,149
Non-current deferred tax assets, net 445,226 448,839
Other non-current assets 102,103   108,627  
Total assets $ 2,986,268   $ 3,127,418  
 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt $ 137,927 $ 41,861
Accounts payable 239,087 254,516
Accrued salaries, wages and employee benefits 157,417 209,966
Restructuring liabilities 49,749
Accrued interest payable 5,054 5,346
Accrued income taxes 18,752 11,301
Other accrued liabilities 211,201   262,488  
Total current liabilities 819,187 785,478
Long-term debt 1,303,412 1,504,016
Long-term capital leases 10,533 10,243
Postretirement medical benefits 119,036 122,248
Pension liability 330,550 326,767
Long-term employee related benefits 72,149 73,386
Long-term income tax liabilities 24,985 30,683
Other long-term liabilities 59,820   61,097  
Total liabilities 2,739,672   2,913,918  
Commitments and contingencies
Temporary equity 44,056   38,524  
 
Stockholders’ Equity:
Levi Strauss & Co. stockholders’ equity
Common stock — $.01 par value; 270,000,000 shares authorized; 37,401,518 shares and 37,446,087 shares issued and outstanding 374 374
Additional paid-in capital 6,777 7,361
Retained earnings 503,424 475,960
Accumulated other comprehensive loss (310,505 ) (312,029 )
Total Levi Strauss & Co. stockholders’ equity 200,070 171,666
Noncontrolling interest 2,470   3,310  
Total stockholders’ equity 202,540   174,976  
Total liabilities, temporary equity and stockholders’ equity $ 2,986,268   $ 3,127,418  

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

 

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

   
Three Months Ended Six Months Ended
May 25,
2014
  May 26,
2013
May 25,
2014
  May 26,
2013
(Dollars in thousands)
(Unaudited)
Net revenues $ 1,081,847 $ 1,098,898 $ 2,211,837 $ 2,245,576
Cost of goods sold 551,542   550,187   1,105,179   1,104,987  
Gross profit 530,305 548,711 1,106,658 1,140,589
Selling, general and administrative expenses 446,072 449,074 870,834 859,497
Restructuring 19,105     77,040    
Operating income 65,128 99,637 158,784 281,092
Interest expense (31,310 ) (32,883 ) (63,139 ) (65,040 )
Loss on early extinguishment of debt (11,151 ) (575 ) (11,151 ) (689 )
Other income (expense), net (6,122 ) (830 ) (1,939 ) 5,236  
Income before income taxes 16,545 65,349 82,555 220,599
Income tax expense 5,556   17,140   21,943   65,515  
Net income 10,989 48,209 60,612 155,084
Net loss (income) attributable to noncontrolling interest 469   (60 ) 817   85  
Net income attributable to Levi Strauss & Co. $ 11,458   $ 48,149   $ 61,429   $ 155,169  

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

   

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Three Months Ended Six Months Ended
May 25,
2014
  May 26,
2013
May 25,
2014
  May 26,
2013
(Dollars in thousands)
(Unaudited)
Net income $ 10,989   $ 48,209   $ 60,612   $ 155,084  
Other comprehensive income, net of related income taxes:
Pension and postretirement benefits 2,216 3,199 4,518 7,108
Net investment hedge gains (losses) 658 6,039 (3,570 ) 2,401
Foreign currency translation gains (losses) 4,175 (5,076 ) 61 (8,173 )
Unrealized gain (loss) on marketable securities 453   592   492   (370 )
Total other comprehensive income 7,502   4,754   1,501   966  
Comprehensive income 18,491 52,963 62,113 156,050
Comprehensive loss attributable to noncontrolling interest 451   387   840   1,193  
Comprehensive income attributable to Levi Strauss & Co. $ 18,942   $ 53,350   $ 62,953   $ 157,243  

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

 

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Six Months Ended
May 25,
2014
  May 26,
2013
(Dollars in thousands)
(Unaudited)
Cash Flows from Operating Activities:
Net income $ 60,612 $ 155,084
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 53,399 57,263
Asset impairments 620 1,091
Gain on disposal of assets (47 ) (144 )
Unrealized foreign exchange losses (gains) 3,866 (11,048 )
Realized (gain) loss on settlement of forward foreign exchange contracts not designated for hedge accounting (6,769 ) 6,197
Employee benefit plans’ amortization from accumulated other comprehensive loss 7,438 11,717
Employee benefit plans’ curtailment gain, net (510 )
Noncash restructuring charges 5,176
Noncash loss on extinguishment of debt 3,170 689
Amortization of deferred debt issuance costs 2,092 2,143
Stock-based compensation 5,301 3,246
Allowance for doubtful accounts 927 2,367
Change in operating assets and liabilities:
Trade receivables 103,394 156,324
Inventories (82,387 ) (20,949 )
Other current assets (11,415 ) 7,767
Other non-current assets (4,389 ) (289 )
Accounts payable and other accrued liabilities (56,529 ) (84,347 )
Restructuring liabilities 50,599
Income tax liabilities (1,732 ) 30,196
Accrued salaries, wages and employee benefits and long-term employee related benefits (59,574 ) (72,422 )
Other long-term liabilities (588 ) 10,004
Other, net (741 ) (180 )
Net cash provided by operating activities 72,423   254,199  
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (35,320 ) (41,891 )
Proceeds from sale of assets 1,402 147
Proceeds (payments) on settlement of forward foreign exchange contracts not designated for hedge accounting 6,769 (6,197 )
Acquisitions, net of cash acquired (75 )  
Net cash used for investing activities (27,224 ) (47,941 )
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 140,000
Repayments of long-term debt and capital leases (207,074 ) (325,820 )
Proceeds from senior revolving credit facility 100,000
Proceeds from short-term credit facilities 8,386 36,760
Repayments of short-term credit facilities (6,417 ) (37,227 )
Other short-term borrowings, net (8,535 ) (4,307 )
Debt issuance costs (2,684 ) (2,412 )
Restricted cash 596 (65 )
Repurchase of common stock (4,676 ) (365 )
Excess tax benefits from stock-based compensation 359
Dividend to stockholders (30,003 ) (25,076 )
Net cash used for financing activities (150,048 ) (218,512 )
Effect of exchange rate changes on cash and cash equivalents 1,665   (4,095 )
Net decrease in cash and cash equivalents (103,184 ) (16,349 )
Beginning cash and cash equivalents 489,258   406,134  
Ending cash and cash equivalents $ 386,074   $ 389,785  
 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 59,759 $ 58,520
Income taxes 30,639 13,948

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
FOR THE SECOND QUARTER OF 2014

The following information relates to non-GAAP financial measures, and should be read in conjunction with the investor call held on July 8, 2014, discussing the company’s financial condition and results of operations as of and for the quarter ended May 25, 2014. Free cash flow, Net debt and Adjusted EBIT are not financial measures prepared in accordance with U.S. generally accepted accounting principles, or GAAP. As used in this press release: (1) Free cash flow represents cash from operating activities less purchases of property, plant and equipment, payments (proceeds) on settlement of forward foreign exchange contracts not designated for hedge accounting, and cash dividends to stockholders; (2) Net debt represents total long-term and short-term debt less cash and cash equivalents; and (3) Adjusted EBIT represents net income plus income tax expense, interest expense, loss on early extinguishment of debt, other expense (income), net, restructuring and related charges, severance and asset impairment charges, net, and pension and postretirement benefit plan curtailment and net settlement losses (gains), net.

Free cash flow:

 
Six Months Ended
($ millions) May 25, 2014   May 26, 2013
(unaudited)
Most comparable GAAP measure:
Net cash provided by operating activities $ 72.4   $ 254.2  
 
Non-GAAP measure:
Net cash provided by operating activities $ 72.4 $ 254.2
Purchases of property, plant and equipment (35.3 ) (41.9 )
Proceeds (payments) on settlement of forward foreign exchange contracts not designated for hedge accounting 6.8 (6.2 )
Dividend to stockholders (30.0 ) (25.1 )
Free cash flow $ 13.9   $ 181.0  
 
 

Net debt:

 
($ millions) May 25, 2014 November 24, 2013
(unaudited)
Most comparable GAAP measure:
Total long-term and short-term debt $ 1,441   $ 1,546  
 
Non-GAAP measure:
Total long-term and short-term debt $ 1,441 $ 1,546
Cash and cash equivalents (386 ) (489 )
Net debt $ 1,055   $ 1,057  
 
 

Adjusted EBIT:

Three Months Ended
($ millions) May 25, 2014 May 26, 2013
(unaudited)
Most comparable GAAP measure:
Operating income $ 65.1   $ 99.6  
 
Non-GAAP measure:
Net income $ 11.0 $ 48.2
Income tax expense 5.5 17.1
Interest expense 31.3 32.9
Loss on early extinguishment of debt 11.2 0.6
Other (income) expense, net 6.1 0.8
Restructuring and related charges, severance and asset impairment charges, net 23.4 (0.7 )
Pension and postretirement benefit plan curtailment and net settlement losses, net 4.1   0.1  
Adjusted EBIT $ 92.6   $ 99.0  

Contacts

Levi Strauss & Co.
Investor Contact:
Chris Ogle, 800-438-0349
Investor-relations@levi.com
or
Media Contact:
Amber Rensen, 415-501-4960
ARensen@levi.com