Levi Strauss (LEVI +0.00%) reported better-than-expected results for its fourth quarter of fiscal 2021 (which ended on Nov. 28) after the market close on Wednesday, Jan. 26. The denim and casual clothing retailer's results were driven by consumers continuing to refresh their wardrobes after cutting back on apparel spending during the earlier stages of the pandemic, along with higher product pricing.
Levi stock gained 8.6% in Wednesday's after-hours trading session. The market's reaction is attributable to fourth-quarter revenue and earnings both slightly beating Wall Street's consensus estimate, and top-line guidance for 2022 coming in higher than analysts had been expecting.
In 2022, shares (which became publicly traded in March 2019) are down 19% through Wednesday's regular trading session, compared to the S&P 500's 8.7% loss over this period.
Below is an overview of Levi's fourth quarter, along with its outlook.
Image source: Getty Images.
1. Revenue jumped 22%
Levi's quarterly sales jumped 22% year over year to $1.69 billion. This result exceeded the $1.68 billion Wall Street consensus estimate, as outlined in my earnings preview. Revenue was 7% higher than in the same period two years ago, pre-pandemic.
Below are the segment results. Levi changed its reporting structure starting in the fourth quarter of fiscal 2021. The new "other brands" category includes Dockers and Beyond Yoga, the latter of which Levi acquired in August 2021.
| Segment | Fiscal Q4 2021 Revenue | Change YOY |
|---|---|---|
| Americas | $885 million | 23% |
| Europe | $453 million | 16% |
| Asia | $248 million | 16% |
| Other brands | $99 million | 60% |
| Total | $1.69 billion | 22% |
Data source: Levi Strauss. YOY = year over year.
Fourth-quarter revenue in the Americas and Europe regions exceeded that in the pre-pandemic period two years ago by 11% (12% in constant currency) and 6% (3% in constant currency), respectively. Asia's quarterly revenue was flat (down 2% in constant currency) from the same period two years ago.
In the quarter, Levi's wholesale channel's sales rose 20% and its direct-to-consumer (DTC) channel's sales increased 25% year over year.
Within the DTC channel, company-operated store revenue jumped 28% year over year. And company-operated e-commerce revenue grew 22% year over year, which is impressive since the quarter lapped a period of pandemic-driven strength in online shopping. Sales from DTC stores and e-commerce accounted for 30% and 8%, respectively, of Levi's total revenue in the quarter.
The company's global digital revenue edged up 2% year over year, and comprised 21% of the quarter's total revenue.
Supply chain constraints resulted in an estimated $50 million in lost sales in the quarter.
2. Operating income soared 102%
The fourth quarter's income from operations under generally accepted accounting principles (GAAP) was $186.3 million, slightly more than double the $92.4 million in the year-ago period. The company attributed this increase primarily to higher revenue and gross margin.
3. Adjusted EPS rocketed 105%
In the fourth quarter, GAAP net income was $153 million, or $0.37 per share, up 164% from the year-ago period. Adjusted net income landed at $170 million, or $0.41 per share, up 105% from $0.20 per share in the fourth quarter of last fiscal year.
Wall Street had been looking for adjusted earnings per share (EPS) of $0.40, so the company edged by the profit expectation.
4. Operating cash flow surged 57% in fiscal 2021
In fiscal 2021, cash generated from operations increased 57% year over year to $737 million. Adjusted free cash flow for the year was $230 million, up 62% from 2020.
Levi ended the period with $810 million of cash and cash equivalents and $92 million in short-term investments, and $1.02 billion in long-term debt.
5. Management increased the dividend by 25%
Levi raised its quarterly cash dividend to $0.10 per share, up from $0.08 per share. The $0.10 dividend will be payable on Feb. 24 to shareholders of record on Feb. 9.
6. Fiscal 2022 revenue is expected to grow 11% to 13% year over year
For fiscal year 2022, management guided for the following:
- Revenue of $6.4 billion to $6.5 billion, representing annual growth of 11% to 13%.
- Adjusted EPS of $1.50 to $1.56, representing annual growth of about 2% to 6%.
Going into the report, Wall Street had been expecting fiscal 2022 adjusted EPS of $1.53 on revenue of $6.38 billion. So the top-line outlook surpassed the Street's expectation, while the bottom-line guidance was in line with the consensus estimate.
In the earnings release, CEO Chip Bergh said the company's "momentum continues to accelerate into 2022," and it's "well positioned for long-term, sustainable growth -- our strong brand equity is driving pricing power, we're boldly diversifying our business and continuing to expand our high margin DTC business."
