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Levi Strauss Plans to Cut Costs and Rely on Innovation Through This Crisis

By John Ballard – Apr 8, 2020 at 9:20AM

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Direct-to-consumer revenue is nearly half of its business.

Levi Strauss (LEVI -3.92%) delivered fiscal first-quarter earnings that were better than analysts' expectations. Constant-currency revenue growth was 6%, despite the company closing stores in mid-January over the spread of COVID-19 in China (note that Levi's first quarter ended Feb. 23). 

During the conference call, CEO Charles Bergh said, "Our business was humming coming into the crisis, again reaffirming the robust strategies that we are executing and the momentum we had prior to the crisis erupting globally." Bergh further outlined how the iconic jeans maker will survive the downturn and come out of this crisis stronger than before. 

A hand holding a phone with the Levi Strauss app displayed.

Image source: Levi Strauss.

Leaning on strengths

After noting the company's strong balance sheet, with $1.8 billion of liquidity to handle near-term expenses, Bergh talked about cost-cutting and ongoing investment in innovation to keep the company moving forward in the short term.

"We've aggressively cut costs before and we're on it now," Bergh said, adding, "Inventories are down and a significant majority of our inventory is core replenishment, which can be carried over to future seasons." 

Bergh then highlighted Levi's F.L.X. initiative, which allows customers to place on-demand orders for custom-made jeans. "We're focused on innovation," he said. "F.L.X. will be an advantage during this time as we'll be able to bring newness when stores reopen, regardless of when that is." 

Bergh also noted that "the innovation over the last month, leveraging digital tools through the organization, has been awesome." Levi's e-commerce business is over 40% of total revenue and has been growing well lately. 

While this top retail brand should survive a severe recession in the short term, the company warned that the impact of store closures since mid-March on revenue, earnings, and cash flows will be "materially significant" for the fiscal second-quarter. 

  

John Ballard owns shares of Levi Strauss. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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