Levi Strauss & Co.

07/09/2019 | Press release | Distributed by Public on 07/09/2019 14:20

Levi Strauss & Co. Reports Second Quarter and Year-to-Date 2019 Earnings

  • Second Quarter Reported Revenues up 5% on Growth Across All Regions; Constant-Currency up 9%
    Year-to-date Reported Revenues up 6%; Constant-Currency up 10%
  • Second Quarter Reported Net Income down 63% primarily due to costs associated with IPO
    Year-to-date Reported Net Income triples, reflecting last year's change in tax law
  • Second Quarter Reported Adjusted EBIT down 4% reflecting unfavorable currency and the planned deferral of higher advertising spend from the first quarter; Constant-Currency up 3%
    Year-to-date Reported Adjusted EBIT up 8% reflecting revenue growth and Adjusted EBIT margin expansion; Constant-Currency up 16%

SAN FRANCISCO--(BUSINESS WIRE)-- Levi Strauss & Co. (NYSE: LEVI) today announced financial results for the second quarter ended May 26, 2019, and updated annual guidance.

'Our second quarter and first half results reflect the continued strength of our diversified business model as we delivered broad-based growth across all brands, regions and key product categories despite a challenging retail and macroeconomic environment,' said Chip Bergh, president and chief executive officer of Levi Strauss & Co. 'For both periods, the Levi's brand grew in all three regions across men's, women's, tops and bottoms and maintained its position at the center of culture through iconic products and consumer experiences.'

Highlights include:

Three Months Ended

% Increase
(Decrease)
As Reported

Six Months Ended

% Increase
As Reported

($ millions)

May 26,
2019

May 27,
2018

May 26,
2019

May 27,
2018

Net revenues

$

1,313

$

1,246

5

%

$

2,747

$

2,589

6

%

Net income

$

29

$

77

(63

)%

$

175

$

58

200

%

Adjusted net income

$

69

$

83

(17

)%

$

220

$

167

32

%

Adjusted EBIT

$

82

$

85

(4

)%

$

288

$

266

8

%

Second quarter net revenues grew five percent on a reported basis and nine percent on a constant-currency basis, excluding $44 million in unfavorable currency effects.

The company's direct-to-consumer business grew reported revenues by nine percent in the second quarter, primarily due to performance and expansion of the retail network and e-commerce growth. The company had 78 more company-operated stores at the end of the second quarter of 2019 than it did a year prior. The company's wholesale business grew reported revenues by three percent, reflecting growth in all the regions.

Second quarter net income decreased $49 million, primarily due to $29 million of costs associated with the company's initial public offering (IPO), inclusive of $25 million of underwriting commissions paid on behalf of the selling stockholders. Second quarter adjusted net income decreased $14 million, primarily as a result of $10 million lower net gains on foreign exchange derivatives. Second-quarter Adjusted EBIT dropped four percent reflecting unfavorable currency, but grew three percent on a constant-currency basis, despite planned higher advertising and promotion expense. Additional information regarding adjusted net income and Adjusted EBIT, non-GAAP financial measures, is provided at the end of this press release.

Second Quarter 2019 Highlights

  • On a reported basis, gross profit for the second quarter rose four percent to $700 million from $671 million. Gross margin was 53.3 percent of net revenues compared with 53.9 percent in the same quarter of fiscal 2018, primarily due to 100 basis-points of unfavorable currency, which was partially offset by less discounted sales and the margin benefit from growth in the company's global direct-to-consumer channel.
  • Selling, general and administrative (SG&A) expenses for the second quarter were $638 million compared with $594 million in the same quarter of fiscal 2018, primarily due to higher direct-to-consumer investment and the planned deferral of advertising and promotion expense from the first quarter into the second quarter in conjunction with the launch of the company's 2019 campaign.
  • Operating income for the second quarter of $63 million was down 19 percent as higher net revenues were more than offset by higher SG&A expenses associated with higher advertising and promotion expense compared to the same quarter of fiscal 2018.
  • Diluted earnings per common share for the second quarter of 2019 was 7 cents compared to 19 cents for the same quarter of fiscal 2018 reflecting a decline in reported net income.

Regional Overview

Reported regional net revenues and operating income for the quarter are set forth in the table below:

Net Revenues

Operating Income *

Three Months Ended

% Increase

Three Months Ended

% Increase

($ millions)

May 26, 2019

May 27, 2018

May 26, 2019

May 27, 2018

Americas

$

693

$

670

3%

$

102

$

97

5%

Europe

$

398

$

367

9%

$

59

$

53

10%

Asia

$

222

$

209

6%

$

17

$

16

4%

* Note: Regional operating income is equal to regional Adjusted EBIT.

  • In the Americas, net revenues grew three percent on a reported basis and four percent on a constant-currency basis, reflecting higher revenues across both wholesale and direct-to-consumer channels across the region. Operating income for the region grew five percent on both a reported and constant-currency basis as higher net revenues and a higher gross margin were partially offset by higher direct-to-consumer costs to support store growth and a planned increase in advertising and promotion expense.
  • In Europe, net revenues grew nine percent on a reported basis and 18 percent on a constant-currency basis, reflecting continued broad-based growth across both direct-to-consumer and wholesale channels across the region. The region's operating income grew ten percent on a reported basis and 22 percent on a constant-currency basis, reflecting the net revenues growth and a higher gross margin from a shift towards the direct-to-consumer channel, partially offset by an increase in advertising and promotion expense and higher direct-to-consumer and distribution costs.
  • In Asia, net revenues grew six percent on a reported basis and 12 percent on a constant-currency basis, reflecting strong performance across traditional wholesale and direct-to-consumer channels across the region. Revenue growth was broad-based across the region's markets. The region's operating income grew four percent on a reported basis and 15 percent on a constant-currency basis, reflecting higher revenues partially offset by a decline in gross margin and higher direct-to-consumer costs.

Year-to-date 2019 Highlights

  • Year-to-date, net revenues grew six percent on a reported basis and ten percent in constant-currency, excluding $92 million in unfavorable currency translation effects.
  • The company's direct-to-consumer business grew nine percent on a reported basis year to date, primarily due to performance and expansion of the retail network and e-commerce growth. Reported net revenues related to the company's wholesale business grew four percent year-to-date, reflecting growth in all regions.
  • On a reported basis, gross margin for the first six months of 2019 was 54.0 percent of net revenues compared with 54.4 percent in the same period of fiscal 2018, primarily due to 90 basis points of unfavorable currency impact, which was partially offset by the margin benefit from growth in the company's global direct-to-consumer channel.
  • SG&A expenses for the first six months of 2019 were $1,219 million compared with $1,157 million in the same period of fiscal 2018, primarily reflecting the growth and expansion of the company's direct-to-consumer business.
  • Operating income for the first six months of $264 million was up five percent compared to the same period of fiscal 2018, reflecting higher revenues partially offset by continued investments in the company's direct-to-consumer business.
  • Year-to date, net income increased to $175 million on a reported basis from $58 million in the same period of fiscal 2018, primarily due to the prior period $137 million charge from the impact of the 2017 Tax Cuts and Jobs Act in the United States (the Tax Act).
  • Year-to-date, reported adjusted net income of $220 million grew 32 percent, reflecting a $22 million increase in Adjusted EBIT, as well as the fact that last year the company recorded a $38 million tax charge on undistributed foreign earnings, in connection with the Tax Act.
  • Year-to-date, Adjusted EBIT increased eight percent on a reported basis and 16 percent in constant-currency, excluding $17 million dollars in unfavorable currency effects, as a result of higher revenues and SG&A leverage.
  • Diluted earnings per common share for the first six months of 2019 was 44 cents compared to 14 cents for the same prior year period. Lower net income in the prior period was primarily the result of a $137 million charge from the impact of the Tax Act.

Cash Flow and Balance Sheet

At May 26, 2019, cash and cash equivalents of $861 million and short-term investments of $80 million were complemented by $806 million available under the company's revolving credit facility, resulting in a total liquidity position of approximately $1.7 billion. Net debt at the end of the second quarter of 2019 was $82 million.

Cash from operations for the first six months of fiscal 2019 was $162 million, a decrease of $66 million compared to the first six months of fiscal 2018. The decrease primarily reflects higher payments for inventory and SG&A expenses to support growth, higher payments for employee incentive compensation and $25 million of underwriting commissions the company paid on behalf of the selling stockholders in its recent IPO, partially offset by an increase in cash received from customers and lower pension plan contributions.

Adjusted free cash flow for the first six months of fiscal 2019 was $39 million, a decrease of $42 million compared to the first six months of fiscal 2018. The decrease was primarily due to less cash from operations, as well as higher capital expenditures and a higher dividend.

A reconciliation of net debt and adjusted free cash flow, non-GAAP financial measures, is provided at the end of this press release.

Annual Guidance

The company's expectations for fiscal 2019, as compared to fiscal 2018, are as follows:

  • Constant-currency net revenues growth at the high end of the mid-single digit range; and
  • Constant-currency Adjusted EBIT margin slightly up in the range of 10 basis points.

The company noted that due to the timing of its fiscal year ending the final Sunday of November, fiscal 2019 will not contain the benefit of a Black Friday, which normally represents about half-a-point of annual net revenues and an additional 25 basis-points of Adjusted EBIT margin.

Additionally, the company anticipates capital expenditures of approximately $190 - $200 million and nearly 100 new company-operated store openings in fiscal 2019.

Investor Conference Call

The company's second-quarter 2019 investor conference call will be available through a live audio webcast at https://engage.vevent.com/rt/levistraussao~8261329on July 9, 2019, at 2 p.m. Pacific / 5 p.m. Eastern or via the following phone numbers: 800-884-6765 in the United States and Canada or +1-973-200-3064 internationally; I.D. No. 8261329. A replay is available the same day on http://www.levistrauss.com/investors/earnings-webcastand will be archived for three months. A telephone replay is also available through July 15, 2019 via the following phone numbers: 855-859-2056 in the United States and Canada or +1-404-537-3406 internationally; I.D. No. 8261329. Please see http://www.levistrauss.com/investors/earnings-webcastfor a discussion and reconciliation of non-GAAP measures referenced on the investor conference call.

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 3,000 retail stores and shop-in-shops. Levi Strauss & Co.'s reported fiscal 2018 net revenues were $5.6 billion. For more information, go to http://levistrauss.com, and for company news and announcements go to http://investors.levistrauss.com.

Forward Looking Statement

This press release and related conference call contains, in addition to historical information, forward-looking statements, including statements related to: inventory levels; gross margin; SG&A and advertising and promotion costs; revenues growth; adjusted EBIT margin; expectations for and projected capital expenditures in fiscal 2019; store openings; and currency impacts. The company has based these forward-looking statements on its current assumptions, expectations and projections about future events. Words such as, but not limited to, 'believe,' 'will,' 'so we can,' 'when,' 'anticipate,' 'intend,' 'estimate,' 'expect,' 'project' and similar expressions are used 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 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 the company's filings with the U.S. Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K for fiscal year 2018 and its Quarterly Report on Form 10-Q for the quarter ended May 26, 2019, 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 future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this press release and related conference call 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 press release and related conference call. The company is not under any obligation and does not intend to update or revise any of the forward-looking statements contained in this press release and related conference call to reflect circumstances existing after the date of this press release and related conference call or to reflect the occurrence of future events, even if such circumstances or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

Non-GAAP Financial Measures

The company reports its financial results in accordance with generally accepted accounting principles in the United States (GAAP) and the rules of the SEC. To supplement its financial statements prepared and presented in accordance with GAAP, the company uses certain non-GAAP financial measures, such as Adjusted EBIT, adjusted net income, net debt, adjusted free cash flow, constant-currency net revenues and constant-currency Adjusted EBIT, to provide investors with additional useful information about its financial performance, to enhance the overall understanding of its past performance and future prospects and to allow for greater transparency with respect to important metrics used by management for financial and operating decision-making. The company presents these non-GAAP financial measures to assist investors in seeing its financial performance from management's view and because it believes they provide an additional tool for investors to use in computing the company's core financial performance over multiple periods with other companies in its industry. The tables found below present Adjusted EBIT, adjusted net income, net debt, adjusted free cash flow, constant-currency net revenues and constant-currency Adjusted EBIT and corresponding reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. Certain items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the company's financial position, results of operations and cash flows and should therefore be considered in assessing the company's actual financial condition and performance. Non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgment by management in determining how they are formulated. Some specific limitations include but are not limited to, the fact that such non-GAAP financial measures: (a) do not reflect cash outlays for capital expenditures, contractual commitments or liabilities including pension obligations, post-retirement health benefit obligations and income tax liabilities, (b) do not reflect changes in, or cash requirements for, working capital requirements; and (c) they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on indebtedness. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the company's financial results prepared in accordance with GAAP. The company urges investors to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate its business. See 'RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR THE SECOND QUARTER OF 2019' below for reconciliation to the most comparable GAAP financial measures.

Constant-currency

The company reports operating results in accordance with GAAP, as well as on a constant-currency basis in order to facilitate period-to-period comparisons of its results without regard to the impact of fluctuating foreign currency exchange rates. The term foreign currency exchange rates refers to the exchange rates used to translate the company's operating results for all countries where the functional currency is not the U.S. Dollar into U.S. Dollars. Because the company is a global company, foreign currency exchange rates used for translation may have a significant effect on its reported results. In general, the company's financial results are affected positively by a weaker U.S. Dollar and are affected negatively by a stronger U.S. Dollar as compared to the foreign currencies in which it conducts its business. References to operating results on a constant-currency basis mean operating results without the impact of foreign currency exchange rate fluctuations.

The company believes disclosure of constant-currency results is helpful to investors because it facilitates period-to-period comparisons of its results by increasing the transparency of the underlying performance by excluding the impact of fluctuating foreign currency exchange rates. However, constant-currency results are non-GAAP financial measures and are not meant to be considered as an alternative or substitute for comparable measures prepared in accordance with GAAP. Constant-currency results have no standardized meaning prescribed by GAAP, are not prepared under any comprehensive set of accounting rules or principles and should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. Constant-currency results have limitations in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies.

The company calculates constant-currency amounts by translating local currency amounts in the prior-year period at actual foreign exchange rates for the current period. The company's constant-currency results do not eliminate the transaction currency impact of purchases and sales of products in a currency other than the functional currency.

Source: Levi Strauss & Co. Investor Relations

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

May 26,
2019

November 25,
2018

(Dollars in thousands)

ASSETS

Current Assets:

Cash and cash equivalents

$

860,933

$

713,120

Short-term investments in marketable securities

79,736

-

Trade receivables, net of allowance for doubtful accounts of $9,876 and $10,037

574,389

534,164

Inventories:

Raw materials

5,275

3,681

Work-in-process

2,933

2,977

Finished goods

887,111

877,115

Total inventories

895,319

883,773

Other current assets

196,769

157,002

Total current assets

2,607,146

2,288,059

Property, plant and equipment, net of accumulated depreciation of $1,014,365 and $974,206

480,515

460,613

Goodwill

235,688

236,246

Other intangible assets, net

42,808

42,835

Deferred tax assets, net

414,620

397,791

Other non-current assets

128,616

117,116

Total assets

$

3,909,393

$

3,542,660

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term debt

$

11,481

$

31,935

Accounts payable

339,497

351,329

Accrued salaries, wages and employee benefits

164,788

298,990

Accrued interest payable

5,787

6,089

Accrued income taxes

34,579

15,466

Accrued sales allowances

116,282

-

Other accrued liabilities

435,300

348,390

Total current liabilities

1,107,714

1,052,199

Long-term debt

1,011,119

1,020,219

Postretirement medical benefits

70,147

74,181

Pension liability

190,588

195,639

Long-term employee related benefits

79,517

107,556

Long-term income tax liabilities

11,339

9,805

Other long-term liabilities

117,716

116,462

Total liabilities

2,588,140

2,576,061

Commitments and contingencies

Temporary equity

-

299,140

Stockholders' Equity:

Levi Strauss & Co. stockholders' equity

Common stock - $.001 par value; 1,200,000,000 Class A shares authorized, 42,166,667 shares and no shares issued and outstanding as of May 26, 2019 and November 25, 2018, respectively; and 422,000,000 Class B shares authorized, 350,332,920 shares and 376,028,430 shares issued and outstanding, as of May 26, 2019 and November 25, 2018, respectively

392

376

Additional paid-in capital

629,703

-

Accumulated other comprehensive loss

(411,256

)

(424,584

)

Retained earnings

1,094,666

1,084,321

Total Levi Strauss & Co. stockholders' equity

1,313,505

660,113

Noncontrolling interest

7,748

7,346

Total stockholders' equity

1,321,253

667,459

Total liabilities, temporary equity and stockholders' equity

$

3,909,393

$

3,542,660

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

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

Six Months Ended

May 26,
2019

May 27,
2018

May 26,
2019

May 27,
2018

(Dollars in thousands, except per share amounts)
(Unaudited)

Net revenues

$

1,312,940

$

1,245,742

$

2,747,398

$

2,589,427

Cost of goods sold

612,517

574,865

1,264,167

1,180,426

Gross profit

700,423

670,877

1,483,231

1,409,001

Selling, general and administrative expenses

637,525

593,595

1,219,421

1,156,797

Operating income

62,898

77,282

263,810

252,204

Interest expense

(15,126

)

(14,465

)

(32,670

)

(29,962

)

Underwriter commission paid on behalf of selling stockholders

(24,860

)

-

(24,860

)

-

Other income, net

3,166

12,895

1,520

2,495

Income before income taxes

26,078

75,712

207,800

224,737

Income tax (benefit) expense

(2,429

)

(1,320

)

32,842

166,334

Net income

28,507

77,032

174,958

58,403

Net income attributable to noncontrolling interest

(277

)

(2,100

)

(151

)

(2,483

)

Net income attributable to Levi Strauss & Co.

$

28,230

$

74,932

$

174,807

$

55,920

Earnings per common share attributable to common stockholders:

Basic

$

0.07

$

0.20

$

0.46

$

0.15

Diluted

$

0.07

$

0.19

$

0.44

$

0.14

Weighted-average common shares outstanding:

Basic

389,518,461

377,132,162

383,278,398

376,384,657

Diluted

409,332,997

387,764,580

401,405,411

387,130,124

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

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

Six Months Ended

May 26,
2019

May 27,
2018

May 26,
2019

May 27,
2018

(Dollars in thousands)
(Unaudited)

Net income

$

28,507

$

77,032

$

174,958

$

58,403

Other comprehensive income (loss), before related income taxes:

Pension and postretirement benefits

3,464

3,157

6,886

6,517

Derivative instruments

12,667

28,975

14,404

6,127

Foreign currency translation losses

(8,843

)

(34,353

)

(4,757

)

(14,572

)

Unrealized gains (losses) on marketable securities

329

(116

)

1,219

174

Total other comprehensive income (loss), before related income taxes

7,617

(2,337

)

17,752

(1,754

)

Income taxes expense related to items of other comprehensive income

(2,432

)

(7,229

)

(4,173

)

(2,383

)

Comprehensive income, net of income taxes

33,692

67,466

188,537

54,266

Comprehensive income attributable to noncontrolling interest

(348

)

(1,939

)

(402

)

(2,583

)

Comprehensive income attributable to Levi Strauss & Co.

$

33,344

$

65,527

$

188,135

$

51,683

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

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Levi Strauss & Co. Stockholders

Class A &
Class B
Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other Comprehensive
(Loss)/Income

Noncontrolling
Interest

Total
Stockholders'
Equity

(Dollars in thousands)

Balance at November 26, 2017

$

375

$

-

$

1,100,916

$

(404,381

)

$

5,478

$

702,388

Net (loss) income

-

-

(19,012

)

-

383

(18,629

)

Other comprehensive income, net of tax

-

-

-

5,167

261

5,428

Stock-based compensation and dividends, net

2

5,254

-

-

-

5,256

Reclassification to temporary equity

-

9,590

(42,589

)

-

-

(32,999

)

Repurchase of common stock

-

(14,844

)

-

-

-

(14,844

)

Cash dividends declared ($0.24 per share)

-

-

(90,000

)

-

-

(90,000

)

Balance at February 25, 2018

377

-

949,315

(399,214

)

6,122

556,600

Net income

-

-

74,932

-

2,100

77,032

Other comprehensive loss, net of tax

-

-

-

(9,405

)

(161

)

(9,566

)

Stock-based compensation and dividends, net

-

5,566

-

-

-

5,566

Reclassification to temporary equity

-

(2,438

)

(27,796

)

-

-

(30,234

)

Repurchase of common stock

-

(3,128

)

(4,055

)

-

-

(7,183

)

Balance at May 27, 2018

$

377

$

-

$

992,396

$

(408,619

)

$

8,061

$

592,215

Balance at November 25, 2018

$

376

$

-

$

1,084,321

$

(424,584

)

$

7,346

$

667,459

Net income (loss)

-

-

146,577

-

(126

)

146,451

Other comprehensive income, net of tax

-

-

-

8,214

180

8,394

Stock-based compensation and dividends, net

-

1,497

-

-

-

1,497

Reclassification to temporary equity

-

(506

)

(23,339

)

-

-

(23,845

)

Repurchase of common stock

-

(991

)

(2,923

)

-

-

(3,914

)

Cash dividends declared ($0.29 per share)

-

-

(110,000

)

-

-

(110,000

)

Balance at February 24, 2019

376

-

1,094,636

(416,370

)

7,400

686,042

Net income

-

-

28,230

-

277

28,507

Other comprehensive income, net of tax

-

-

-

5,114

71

5,185

Stock-based compensation and dividends, net

2

12,515

-

-

-

12,517

Repurchase of common stock

-

(24,696

)

-

-

-

(24,696

)

Reclassification from temporary equity in connection with initial public offering (Note 1)

-

351,185

(28,200

)

-

-

322,985

Issuance of Class A common stock in connection with initial public offering (Note 1)

14

234,569

-

-

-

234,583

Cancel liability-settled awards and replace with equity-settled awards in connection with initial public offering (Note 1)

$

-

$

56,130

$

-

$

-

$

-

$

56,130

Balance at May 26, 2019

$

392

$

629,703

$

1,094,666

$

(411,256

)

$

7,748

$

1,321,253

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

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

May 26,
2019

May 27,
2018

(Dollars in thousands)
(Unaudited)

Cash Flows from Operating Activities:

Net income

$

174,958

$

58,403

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

58,745

64,695

Unrealized foreign exchange losses (gains)

14,899

(10,678

)

Realized (gain) loss on settlement of forward foreign exchange contracts not designated for hedge accounting

(7,134

)

18,148

Employee benefit plans' amortization from accumulated other comprehensive loss and settlement loss

6,886

6,517

Stock-based compensation

14,014

10,822

Other, net

1,813

3,767

(Benefit from) provision for deferred income taxes

(19,937

)

135,168

Change in operating assets and liabilities:

Trade receivables

119,916

135,739

Inventories

(32,628

)

(95,690

)

Other current assets

(22,546

)

(1,580

)

Other non-current assets

(5,198

)

(7,435

)

Accounts payable and other accrued liabilities

(47,137

)

38,284

Restructuring liabilities

(126

)

(254

)

Income tax liabilities

20,675

(980

)

Accrued salaries, wages and employee benefits and long-term employee related benefits

(115,443

)

(127,321

)

Other long-term liabilities

56

(47

)

Net cash provided by operating activities

161,813

227,558

Cash Flows from Investing Activities:

Purchases of property, plant and equipment

(76,961

)

(61,153

)

Proceeds (Payments) on settlement of forward foreign exchange contracts not designated for hedge accounting

13,125

(18,148

)

Payments to acquire short-term investments

(84,829

)

-

Proceeds from sale, maturity and collection of short-term investments

5,481

-

Net cash used for investing activities

(143,184

)

(79,301

)

Cash Flows from Financing Activities:

Proceeds from short-term credit facilities

17,929

22,689

Repayments of short-term credit facilities

(27,866

)

(20,673

)

Other short-term borrowings, net

(9,422

)

(14,537

)

Proceeds from issuance of Class A common stock

254,329

-

Payments for underwriter commission and other offering costs

(19,746

)

-

Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises

(28,610

)

(22,027

)

Dividend to stockholders

(55,000

)

(45,000

)

Other financing, net

(565

)

(644

)

Net cash provided by (used for) financing activities

131,049

(80,192

)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

(1,913

)

(3,424

)

Net increase in cash and cash equivalents and restricted cash

147,765

64,641

Beginning cash and cash equivalents, and restricted cash

713,698

634,691

Ending cash and cash equivalents, and restricted cash

861,463

699,332

Less: Ending restricted cash

(530

)

(608

)

Ending cash and cash equivalents

$

860,933

$

698,724

Noncash Investing Activity:

Property, plant and equipment acquired and not yet paid at end of period

$

14,775

$

14,454

Property, plant and equipment additions due to build-to-suit lease transactions

10,861

1,822

Realized loss on foreign currency contracts not yet paid at end of period

5,990

-

Supplemental disclosure of cash flow information:

Cash paid for interest during the period

$

26,849

$

25,824

Cash paid for income taxes during the period, net of refunds

52,800

35,066

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

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
FOR THE SECOND QUARTER OF 2019

The following information relates to non-GAAP financial measures, and should be read in conjunction with the investor call held on July 9, 2019, discussing the company's financial condition and results of operations as of and for the quarter ended May 26, 2019. Adjusted EBIT, adjusted net income, net debt, adjusted free cash flow, constant-currency net revenues and constant-currency Adjusted EBIT are not financial measures prepared in accordance with GAAP. As used in this press release: (1) Adjusted EBIT represents net income plus income tax (benefit) expense, interest expense, other income, net, underwriter commission paid on behalf of selling stockholders, other costs associated with the initial public offering, impact of changes in fair value on cash-settled stock based compensation, and restructuring and related charges, severance and other, net; (2) adjusted net income represents net income excluding impact of underwriter commission paid on behalf of selling stockholders, other costs associated with the initial public offering impact of changes in fair value on cash-settled stock-based compensation, restructuring and related charges, severance and other, net, remeasurement of deferred tax assets and liabilities, and tax impact of adjustments; (3) net debt represents total debt, excluding capital leases, less cash and cash equivalents and short-term investments in marketable securities; (4) Adjusted free cash flow represents cash from operating activities plus underwriter commission paid on behalf of selling stockholders, less purchases of property, plant and equipment, plus proceeds (less payments) on settlement of forward foreign exchange contracts not designated for hedge accounting, less repurchase of common stock including shares surrendered for tax withholdings on equity award exercises, and cash dividends to stockholders; (5) constant-currency net revenues represents net revenues without the impact of foreign currency exchange rate fluctuations; and (6) constant-currency Adjusted EBIT represents Adjusted EBIT without the impact of foreign currency exchange rate fluctuations.

Adjusted EBIT:

Three Months Ended

Six Months Ended

May 26, 2019

May 27, 2018

May 26, 2019

May 27, 2018

(Dollars in millions)

(Unaudited)

Most comparable GAAP measure:

Net income

$

28.5

$

77.0

$

175.0

$

58.4

Non-GAAP measure:

Net income

28.5

77.0

175.0

58.4

Income tax (benefit) expense

(2.5

)

(1.3

)

32.8

166.3

Interest expense

15.2

14.5

32.7

30.0

Other income, net

(3.2

)

(12.9

)

(1.6

)

(2.5

)

Underwriter commission paid on behalf of selling stockholders

24.9

-

24.9

-

Other costs associated with the initial public offering

3.5

-

3.5

-

Impact of changes in fair value on cash-settled stock-based compensation

15.0

7.2

20.3

12.2

Restructuring and related charges, severance and other, net

0.2

0.8

0.3

1.1

Adjusted EBIT

$

81.6

$

85.3

$

287.9

$

265.5

Adjusted EBIT margin

6.2

%

6.8

%

10.5

%

10.3

%

Depreciation and amortization

30.1

31.9

58.7

64.7

Adjusted EBITDA

$

111.7

$

117.2

$

346.6

$

330.2

Adjusted net income:

Three Months Ended

Six Months Ended

May 26, 2019

May 27, 2018

May 26, 2019

May 27, 2018

(Dollars in millions)

(Unaudited)

Most comparable GAAP measure:

Net income

$

28.5

$

77.0

$

175.0

$

58.4

Non-GAAP measure:

Net income

28.5

77.0

175.0

58.4

Underwriter commission paid on behalf of selling stockholders

24.9

-

24.9

-

Other costs associated with the initial public offering

3.5

-

3.5

-

Impact of changes in fair value on cash-settled stock-based compensation

15.0

7.2

20.3

12.2

Restructuring and related charges, severance and other, net

0.2

0.8

0.3

1.1

Remeasurement of deferred tax assets and liabilities

-

-

-

99.1

Tax impact of adjustments

(2.8

)

(1.6

)

(3.8

)

(4.0

)

Adjusted net income

$

69.3

$

83.4

$

220.2

$

166.8

Adjusted net income margin

5.3

%

6.7

%

8.0

%

6.4

%

Net debt:

May 26, 2019

November 25,
2018

(Dollars in millions)

(Unaudited)

Most comparable GAAP measure:

Total debt, excluding capital leases

$

1,022.6

$

1,052.2

Non-GAAP measure:

Total debt, excluding capital leases

$

1,022.6

$

1,052.2

Cash and cash equivalents

(860.9

)

(713.1

)

Short-term investments in marketable securities

(79.7

)

-

Net debt

$

82.0

$

339.1

Adjusted free cash flow:

Six Months Ended

May 26, 2019

May 27, 2018

(Dollars in millions)

(Unaudited)

Most comparable GAAP measure:

Net cash provided by operating activities

$

161.8

$

227.6

Non-GAAP measure:

Net cash provided by operating activities

$

161.8

$

227.6

Underwriter commission paid on behalf of selling stockholders

24.9

-

Purchases of property, plant and equipment

(77.0

)

(61.2

)

Proceeds (Payments) on settlement of forward foreign exchange contracts not designated for hedge accounting

13.1

(18.1

)

Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises

(28.6

)

(22.0

)

Dividend to stockholders

(55.0

)

(45.0

)

Adjusted free cash flow

$

39.2

$

81.3

Constant-currency net revenues:

Three Months Ended

Six Months Ended

May 26,
2019

May 27,
2018

%
Increase

May 26,
2019

May 27,
2018

%
Increase

(Dollars in millions)

(Unaudited)

Total revenues

As reported

$

1,312.9

$

1,245.7

5.4

%

$

2,747.4

$

2,589.4

6.1

%

Impact of foreign currency exchange rates

-

(43.7

)

*

-

(91.5

)

*

Constant-currency net revenues

$

1,312.9

$

1,202.0

9.2

%

$

2,747.4

$

2,497.9

10.0

%

Americas

As reported

$

692.7

$

669.7

3.4

%

$

1,410.0

$

1,326.9

6.3

%

Impact of foreign currency exchange rates

-

(3.7

)

*

-

(9.2

)

*

Constant-currency net revenues - Americas

$

692.7

$

666.0

4.0

%

$

1,410.0

$

1,317.7

7.0

%

Europe

As reported

$

398.3

$

366.9

8.6

%

$

863.0

$

819.6

5.3

%

Impact of foreign currency exchange rates

-

(28.7

)

*

-

(59.0

)

*

Constant-currency net revenues - Europe

$

398.3

$

338.2

17.8

%

$

863.0

$

760.6

13.5

%

Asia

As reported

$

221.9

$

209.1

6.1

%

$

474.4

$

442.9

7.1

%

Impact of foreign currency exchange rates

-

(11.3

)

*

-

(23.3

)

*

Constant-currency net revenues - Asia

$

221.9

$

197.8

12.2

%

$

474.4

$

419.6

13.1

%

_____________
* Not meaningful

Constant-currency Adjusted EBIT:

Three Months Ended

Six Months Ended

May 26,
2019

May 27,
2018

%
Increase
(Decrease)

May 26,
2019

May 27,
2018

%
Increase

(Dollars in millions)

(Unaudited)

Adjusted EBIT

$

81.6

$

85.3

(4.3)%

$

287.9

$

265.5

8.4

%

Impact of foreign currency exchange rates

-

(6.0

)

*

-

(17.0

)

*

Constant-currency Adjusted EBIT

$

81.6

$

79.3

2.9 %

$

287.9

$

248.5

15.9

%

Constant-currency Adjusted EBIT margin (1)

6.2

%

6.6

%

10.5

%

9.9

%

_____________
(1) We define constant-currency Adjusted EBIT margin as constant-currency Adjusted EBIT as a percentage of constant-currency net revenues.

* Not meaningful

View source version on businesswire.com : https://www.businesswire.com/news/home/20190709005870/en/

Investor Contact:
Aida Orphan
Levi Strauss & Co.
(415) 501-6194
[email protected]

Media Contact:
Amber McCasland
Levi Strauss & Co.
(415) 501-7777
[email protected]

Source: Levi Strauss & Co.