Levi Strauss & Co. (LS&Co.) announced financial results for the fourth quarter and fiscal year ended November 24, 2013.
In a release on February 11, the Company noted that 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.
-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.
Levi Strauss & Co. is a brand-name apparel company and a company focusing in jeanswear.
((Comments on this story may be sent to email@example.com))