Levi Strauss (LEVI 1.72%) reported better-than-expected results for its second quarter of fiscal 2021 (which ended on May 30) after the market close on Thursday.
Shares of the denim and casual clothing retailer immediately rose 5% in Thursday's after-hours trading, but gave back some of that gain by the session's end, closing up 1.4%.
Levi stock (which went public in March 2019) has been on a tear since last fall, when it first appeared the end of the COVID-19 pandemic may be within reach. Investors have been optimistic that consumers would begin opening their wallets en masse to buy apparel as the broad economy reopened.
Below is an overview of Levi's quarter, along with its outlook.
Image source: Getty Images.
1. Revenue soared 156%
Levi's quarterly sales soared 156% year over year (and 148% in constant currency) to $1.28 billion. This result beat the $1.21 billion Wall Street consensus estimate. Growth was driven by strength in the U.S. and China, with revenue in these countries also exceeding revenue in the same quarter two years ago, or before the pandemic.
While Europe's quarterly revenue wasn't higher than in fiscal Q2 2019, the region exited the quarter with strength, as its sales in May surpassed those for the same month in 2019.
Of course, Levi was facing an easy year-over-year comparable due to the pandemic. For context, its total revenue in the reported period fell short of its revenue in the two-year-ago period by just 3% (4% in constant currency).
Here's a look at regional results:
| Region | Fiscal Q2 2021 Revenue | Change YOY |
|---|---|---|
| Americas | $715 million | 153% |
| Europe | $365 million | 183% |
| Asia | $196 million | 128% |
| Total | $1.28 billion | 156% |
Data source: Levi Strauss. YOY = year over year.
Levi's wholesale channel's net sales rose 167% year over year while its direct-to-consumer (DTC) channel's net sales increased 141%.
Within its DTC channel, the company-operated e-commerce business grew 42% year over year, which is a robust result given the quarter lapped a period of pandemic-driven strength. Stores and e-commerce comprised 29% and 8%, respectively, of total net revenue for the channel in the quarter.
The company said that all its brands (Levi's, Dockers, Signature, and Denizen) performed well.
2. Operating income flipped to positive from negative
Income from operations under generally accepted accounting principles (GAAP) was $107 million, up from an operating loss of $448 million in the year-ago period.
Levi attributed the increase to higher net revenue and gross margin, and $242 million in charges in the year-ago period associated with the pandemic.
3. GAAP and adjusted EPS flipped to positive
GAAP net income was $65 million, or $0.16 per share, up from a net loss of $364 million, or $0.91 per share, in the year-ago period. Adjusted net income landed at $93 million, or $0.23 per share, up from a net loss of $192 million, or $0.48 per share, in the second quarter of last fiscal year.
Wall Street had been looking for adjusted earnings per share (EPS) of $0.09, so the company sped by the profit expectation.
4. Operating cash flow rocketed 505% in the first six months of fiscal 2021
For the first six months of fiscal 2021, cash generated from operations increased about sixfold year over year to $248 million. Adjusted free cash flow for this period was $60 million, compared to a negative $334 million in the year-ago period.
Levi ended the period with $1.22 billion of cash and cash equivalents and $95 million in short-term investments, and $1.26 billion in long-term debt.
5. Dividend increased to $0.08
Levi raised its quarterly dividend to $0.08 per share for the third quarter, up from $0.06 per share. The dividend is now back up to its pre-pandemic level.
6. Fiscal 2021 adjusted EPS is expected to surge 514% to 533% year over year
On the earnings call, CFO Harmit Singh said the company now expects a "much stronger full year in both revenue and [adjusted] EPS than previously anticipated" due to "the structural and sustainable improvement in the business and the momentum heading into the second half."
For the second half of fiscal 2021, management guided for revenue growth of 28% to 29% year over year. This revenue level represents growth of 4% to 5% compared to the second half of fiscal 2019.
Adjusted EPS for the second half of the current fiscal year is expected to be $0.72 to $0.76, which brings management's outlook for the full year to between $1.29 and $1.33. This compares to fiscal 2020 and fiscal 2019 adjusted EPS of $0.21 and $1.12, respectively. Going into the report, Wall Street had been modeling for full-year adjusted EPS of $1.15.
In short, Levi has bounced back nicely from the pandemic's hit to its business. In the next couple of quarters, it should continue to benefit from pent-up consumer demand for apparel, so the real test for its business will likely come next fiscal year.
