News Column

Levi Strauss & Co. Announces Fourth-Quarter & Fiscal-Year 2013 Financial Results

February 11, 2014

Full-year Net Income Grows in 2013 on Strong Margin Improvement and Revenue Increase

Balance Sheet Strengthens Again



SAN FRANCISCO--(BUSINESS WIRE)-- Levi Strauss & Co. (LS&Co.) today announced financial results for the fourth quarter and fiscal year ended November 24, 2013.

Highlights include:

 
($ millions)   Three Months Ended   Three Months Ended   Fiscal Year Ended   Fiscal Year Ended
    Nov. 24, 2013   Nov. 25, 2012   Nov. 24, 2013   Nov. 25, 2012
Net revenues   $1,295   $1,297   $4,682   $4,610
Net income   $17   $53   $229   $144
 


Fourth-quarter revenues were flat to prior year on a reported basis, and excluding the impact of currency, fourth-quarter net revenues increased slightly. Due to the timing of the company’s fiscal year-end, the Black Friday sales week occurred after the fourth quarter closed. Fourth-quarter net income declined due to a slightly lower gross margin, higher seasonal advertising spend and a 2012 tax benefit.

Full-year net revenues increased two percent on a reported and constant currency basis due to continued growth in the Americas region and the strength of the Levi’s® Men’s business. Despite the lower net income in the fourth quarter, full-year net income increased 59 percent reflecting gross margin improvement.

"Overall, we are pleased with the progress we made in 2013. We grew the top- and bottom-line, generated significant cash from operations and further strengthened the balance sheet by reducing our debt," said Chip Bergh, president and chief executive officer. "These results were despite a challenging fourth quarter, in part due to the calendar shift; but also a soft fourth-quarter environment and clearly some challenges in certain key international markets and in our U.S. women's business. In 2014 we will continue to focus on growing the business over the long term by driving our profitable core business, addressing key opportunities to build a more balanced portfolio, and improving our retail operations, while at the same time reducing our controllable costs."

Fourth Quarter 2013 Highlights

  • Gross profit in the fourth quarter was $637 million compared with $649 million for the same period in 2012. Gross margin for the fourth quarter was 49 percent of net revenues compared with 50 percent of net revenues in the fourth quarter of 2012. The decline in gross margin reflected an increase in price promotion and markdown activity, reflecting the slower holiday season and a decline in the Levi’s® Junior’s and Misses’ businesses at wholesale in the Americas.
  • Selling, general and administrative (SG&A) expenses for the fourth quarter increased to $571 million compared with $558 million in the same period of 2012, primarily reflecting increased advertising activities across all markets such as in support of the continued international roll out of our shaping jean for women, Revel, as well as the global Levi’s® Modern Frontier campaign.
  • Operating income for the fourth quarter declined to $66 million from $91 million for the same period in 2012, reflecting the lower gross margin and higher advertising.

    Regional Overview

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

     
        Net Revenues       Operating Income    
        Three Months Ended       Three Months Ended    

    ($ millions)

      November 24,   November 25,   % Increase   November 24,   November 25,   % Increase
        2013   2012   (Decrease)   2013   2012   (Decrease)
    Americas   $828   $818   1%   $134   $144   (7)%
    Europe   $279   $294   (5)%   $22   $49   (55)%
    Asia Pacific   $188   $186   2%   $20   $12   67%
     
  • In the Americas, the net revenues increase was driven by higher Levi’s® brand and Dockers® brand men’s wholesale revenues, partially offset by the decline in wholesale revenues from the Levi’s® brand women’s business. Retail sales were down compared to the prior year due to the timing of the Black Friday week in 2013. The decrease in the region’s operating income reflected the lower gross margin.
  • Net revenues in Europe reflected declining sales to traditional wholesale channels and franchisees, this was partially offset by improved performance and expansion of the company-operated store network. The decrease in operating income reflected the region’s lower revenues as well as higher expenses related to advertising and the expanded store network.
  • The net revenues increase in Asia Pacific primarily reflected promotional activity and the launch of the Levi’s® brand Revel collection. Underlying retail conditions in most markets in the region remain challenging. The increase in operating income reflected the phase-out of Denizen® in the region.

    Fiscal Year 2013 Highlights

  • Gross profit for the fiscal year was $2,351 million compared with $2,199 million in 2012. Gross margin improved to 50 percent of revenues in 2013 compared to 48 percent in 2012. Gross margin improved primarily due to the benefit of the lower cost of cotton in the products we sold in the first half of 2013. Gross margin also improved due to favorable currency effects of approximately $25 million, and an unfavorable impact of approximately $32 million in customer support and markdown charges taken in 2012 to exit the Denizen® brand in Asia Pacific.
  • SG&A expenses increased to $1,885 million for 2013 compared with $1,865 million in the prior year. The increase in SG&A was driven by higher incentive compensation expense, primarily related to improved achievement against the company's internally-set objectives. Advertising expenses also increased, reflecting new campaigns. Retail expenses also increased as we opened new stores. The increase was partially offset by a decline in distribution expense, reflecting a $19 million facility impairment charge the company recorded in 2012.
  • Operating income for 2013 was $466 million compared to $334 million the prior year, primarily due to higher gross margin in the Americas and Asia Pacific as described above, as well as favorable currency impact.

    Cash Flow and Balance Sheet

    The company strengthened the balance sheet by reducing net debt – which the company defines as gross debt less cash and cash equivalents – to less than $1.1 billion at the end of 2013, compared to more than $1.3 billion at the end of 2012, reflecting the company’s second-quarter 2013 refinancing activities which paid down nearly $200 million in debt. Cash provided by operating activities for 2013 were $411 million. At November 24, 2013, cash and cash equivalents of $489 million were complemented by $635 million available under the company's revolving credit facility, resulting in a total liquidity position of $1.1 billion.

    Investor Conference Call

    The company’s fourth-quarter and full-year 2013 investor conference call will be available through a live audio webcast at http://www.levistrauss.com/investors today, February 11, 2014, at 1 p.m. PST/4 p.m. EST or via the following phone numbers: 800-891-4735 in the United States and Canada, or 973-200-3066 internationally; I.D. No. 54175329. A replay is available on the website and will be archived for one month. A telephone replay also is available through February 17, 2014, at 800-585-8367 in the United States and Canada, or 404-537-3406 internationally; I.D. No. 54175329. Please see http://www.levistrauss.com/investors/earnings-webcast for a discussion and reconciliation of non-GAAP measures referenced on the investor conference call.

    Forward Looking Statements

    This news release contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.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, 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.

    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 2,800 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

       
    November 24,November 25,

     

    20132012
    (Dollars in thousands)
    ASSETS
    Current Assets:
    Cash and cash equivalents $ 489,258 $ 406,134
    Trade receivables, net of allowance for doubtful accounts of $18,264 and $20,738 446,671 500,672
    Inventories:
    Raw materials 3,361 5,312
    Work-in-process 6,597 9,558
    Finished goods 593,909   503,990  
    Total inventories 603,867 518,860
    Deferred tax assets, net 187,836 116,224
    Other current assets 112,082   136,483  
    Total current assets 1,839,714 1,678,373
    Property, plant and equipment, net of accumulated depreciation of $775,933 and $782,766 439,861 458,807
    Goodwill 241,228 239,971
    Other intangible assets, net 49,149 59,909
    Non-current deferred tax assets, net 448,839 612,916
    Other non-current assets 108,627   120,101  
    Total assets $ 3,127,418   $ 3,170,077  
     
    LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)
    Current Liabilities:
    Short-term debt $ 41,861 $ 59,759
    Current maturities of capital leases 590 1,760
    Accounts payable 254,516 225,726
    Accrued salaries, wages and employee benefits 209,966 223,850
    Accrued interest payable 5,346 5,471
    Accrued income taxes 11,301 16,739
    Other accrued liabilities 261,898   263,575  
    Total current liabilities 785,478 796,880
    Long-term debt 1,504,016 1,669,452
    Long-term capital leases 10,243 262
    Postretirement medical benefits 122,248 140,958
    Pension liability 326,767 492,396
    Long-term employee related benefits 73,386 62,529
    Long-term income tax liabilities 30,683 40,356
    Other long-term liabilities 61,097   60,869  
    Total liabilities 2,913,918   3,263,702  
     
    Commitments and contingencies
    Temporary equity 38,524   7,883  
     
    Stockholders’ Equity (Deficit):
    Levi Strauss & Co. stockholders’ equity (deficit)
    Common stock — $.01 par value; 270,000,000 shares authorized; 37,446,087 shares and 37,392,343 shares issued and outstanding 374 374
    Additional paid-in capital 7,361 33,365
    Retained earnings 475,960 273,975
    Accumulated other comprehensive loss (312,029 ) (414,635 )
    Total Levi Strauss & Co. stockholders’ equity (deficit) 171,666 (106,921 )
    Noncontrolling interest 3,310   5,413  
    Total stockholders’ equity (deficit) 174,976   (101,508 )
    Total liabilities, temporary equity and stockholders’ equity (deficit) $ 3,127,418   $ 3,170,077  
     

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

     
     
    LEVI STRAUSS & CO. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF INCOME
     
    Year Ended

    November 24,

     

    November 25,

     

    November 27,

    201320122011
    (Dollars in thousands)
    Net revenues $ 4,681,691 $ 4,610,193 $ 4,761,566
    Cost of goods sold 2,331,219   2,410,862   2,469,327  
    Gross profit 2,350,472 2,199,331 2,292,239
    Selling, general and administrative expenses 1,884,965   1,865,352   1,955,846  
    Operating income 465,507 333,979 336,393
    Interest expense (129,024 ) (134,694 ) (132,043 )
    Loss on early extinguishment of debt (689 ) (8,206 ) (248 )
    Other income (expense), net (13,181 ) 4,802   (1,275 )
    Income before income taxes 322,613 195,881 202,827
    Income tax expense 94,477   54,922   67,715  
    Net income 228,136 140,959 135,112
    Net loss attributable to noncontrolling interest 1,057   2,891   2,841  
    Net income attributable to Levi Strauss & Co. $ 229,193   $ 143,850   $ 137,953  
     

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

     
     
    LEVI STRAUSS & CO. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
     
      Year Ended

    November 24,

     

    November 25,

     

    November 27,

    201320122011
    (Dollars in thousands)
    Net income $ 228,136   $ 140,959   $ 135,112  
    Other comprehensive income (loss), net of related income taxes:
    Pension and postretirement benefits 104,189 (75,277 ) (56,877 )
    Net investment hedge (losses) gains (7,846 ) 9,840 (2,304 )
    Foreign currency translation gains (losses) 4,965 (5,214 ) (13,155 )
    Unrealized gain (loss) on marketable securities 252   1,561   (704 )
    Total other comprehensive income (loss) 101,560   (69,090 ) (73,040 )
    Comprehensive income 329,696 71,869 62,072
    Comprehensive (loss) income attributable to noncontrolling interest (2,103 ) (3,348 ) (2,047 )
    Comprehensive income attributable to Levi Strauss & Co. $ 331,799   $ 75,217   $ 64,119  
     

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

     
     
    LEVI STRAUSS & CO. AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

     

     

       
     
    Levi Strauss & Co. Stockholders

     

          Accumulated

     

    AdditionalOther

    Total

    CommonPaid-InAccumulatedComprehensiveNoncontrolling

    Stockholders'

    Stock   Capital   Earnings   Loss   Interest  

    Equity (Deficit)

    (Dollars in thousands)
    Balance at November 28, 2010 $ 373   $ 18,840   $ 33,346   $ (272,168 ) $ 10,808   $

    (208,801

    )
    Net income (loss) 137,953 (2,841 ) 135,112
    Other comprehensive (loss) income (net of tax) (73,834 ) 794 (73,040 )
    Stock-based compensation and dividends, net 1 10,436 (27 ) 10,410
    Repurchase of common stock (10 ) (479 ) (489 )
    Cash dividends paid     (20,023 )     (20,023 )
    Balance at November 27, 2011 374   29,266   150,770   (346,002 ) 8,761   (156,831 )
    Net income (loss) 143,850 (2,891 ) 140,959
    Other comprehensive loss (net of tax) (68,633 ) (457 ) (69,090 )
    Stock-based compensation and dividends, net 4,118 (25 ) 4,093
    Repurchase of common stock (19 ) (584 ) (603 )
    Cash dividends paid     (20,036 )     (20,036 )
    Balance at November 25, 2012 374   33,365   273,975   (414,635 ) 5,413   (101,508 )
    Net income (loss) 229,193 (1,057 ) 228,136
    Other comprehensive income (loss) (net of tax) 102,606 (1,046 ) 101,560
    Stock-based compensation and dividends, net 8,272 (23 ) 8,249
    Reclassification to temporary equity (30,641 ) (30,641 )
    Repurchase of common stock (3,635 ) (2,109 ) (5,744 )
    Cash dividends paid     (25,076 )     (25,076 )
    Balance at November 24, 2013 $ 374   $ 7,361   $ 475,960   $ (312,029 ) $ 3,310   $ 174,976  
     

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

     
     
    LEVI STRAUSS & CO. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF CASH FLOWS
     
      Year Ended

    November 24,

     

    November 25,

     

    November 27,

    201320122011
    (Dollars in thousands)
    Cash Flows from Operating Activities:
    Net income $ 228,136 $ 140,959 $ 135,112
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization 115,720 122,608 117,793
    Asset impairments 8,330 27,031 5,777
    Gain on disposal of property, plant and equipment (2,112 ) (351 ) (2 )
    Unrealized foreign exchange losses (gains) 4,573 (3,146 ) (5,932 )
    Realized loss (gain) on settlement of forward foreign exchange contracts not designated for hedge accounting 2,904 (8,508 ) 9,548
    Employee benefit plans’ amortization from accumulated other comprehensive loss 22,686 1,412 (8,627 )
    Employee benefit plans’ curtailment (gain) loss, net (564 ) (2,391 ) 129
    Noncash loss (gain) on extinguishment of debt, net of write-off of unamortized debt issuance costs 689 (3,643 ) 226
    Amortization of deferred debt issuance costs 4,331 4,323 4,345
    Stock-based compensation 8,249 5,965 8,439
    Allowance for doubtful accounts 1,158 5,024 4,634
    Deferred income taxes 37,520 19,853 16,153
    Change in operating assets and liabilities:
    Trade receivables 65,955 145,717 (116,003 )
    Inventories (63,920 ) 87,547 (6,848 )
    Other current assets 32,808 34,384 (39,231 )
    Other non-current assets 10,081 1,019 4,780
    Accounts payable and other accrued liabilities 3,107 46,578 (55,300 )
    Income tax liabilities (24,042 ) (27,811 ) (15,242 )
    Accrued salaries, wages and employee benefits and long-term employee related benefits (51,974 ) (74,140 ) (55,846 )
    Other long-term liabilities 8,618 7,995 (2,358 )
    Other, net (985 ) 551   301  
    Net cash provided by operating activities 411,268   530,976   1,848  
    Cash Flows from Investing Activities:
    Purchases of property, plant and equipment (91,771 ) (83,855 ) (130,580 )
    Proceeds from sale of assets 2,277 640 171
    (Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting (2,904 ) 8,508 (9,548 )
    Acquisitions, net of cash acquired (400 ) (491 )
    Other     (1,000 )
    Net cash used for investing activities (92,798 ) (75,198 ) (140,957 )
    Cash Flows from Financing Activities:
    Proceeds from issuance of long-term debt 140,000 385,000
    Repayments of long-term debt and capital leases (327,281 ) (407,963 ) (1,848 )
    Proceeds from senior revolving credit facility 50,000 305,000
    Repayments of senior revolving credit facility (250,000 ) (213,250 )
    Proceeds from short-term credit facilities 46,187 121,200 78,137
    Repayments of short-term credit facilities (53,726 ) (124,517 ) (67,402 )
    Other short-term borrowings, net (3,711 ) 2,623 8,692
    Debt issuance costs (2,557 ) (7,376 ) (7,307 )
    Restricted cash (139 ) 565 (3,803 )
    Repurchase of common stock (5,744 ) (603 ) (489 )
    Excess tax benefits from stock-based compensation 1,538 168
    Dividend to stockholders (25,076 ) (20,036 ) (20,023 )
    Net cash (used for) provided by financing activities (230,509 ) (250,939 ) 77,707  
    Effect of exchange rate changes on cash and cash equivalents (4,837 ) (3,247 ) (3,782 )
    Net increase (decrease) in cash and cash equivalents 83,124 201,592 (65,184 )
    Beginning cash and cash equivalents 406,134   204,542   269,726  
    Ending cash and cash equivalents $ 489,258   $ 406,134   204,542  
     
    Supplemental disclosure of cash flow information:
    Cash paid during the period for:
    Interest $ 121,827 $ 128,718 $ 129,079
    Income taxes 47,350 49,346 56,229
     

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

     





    Levi Strauss & Co.

    Chris Ogle, 800-438-0349 (Investor Contact)

    cogle@levi.com

    or

    Kris Marubio, 415-501-6709 (Media Contact)

    kmarubio@levi.com

    Source: Levi Strauss & Co.


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