Levi Strauss & Co 10-Q for FY2020 Q3

Levi Strauss & Co (LEVI)

10-Q 2020-10-06 For: 2020-08-23

Added on April 12, 2026

About this 10-Q

Levi Strauss & Co filed this 10-Q on October 6, 2020, covering the quarter ended August 23, 2020 (FY2020 Q3).

Headline figures

Quarter ended August 23, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.06B; down 26.5% from $1.45B a year earlier
Net income: $27.05M; down 78.3% from net income of $124.51M a year earlier
Diluted EPS: $0.07; down 76.7% from $0.30 a year earlier

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Delaware						94-0905160
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)


Large accelerated filer ¨	Accelerated filer ¨	Emerging growth company ☐
Non-accelerated filer þ		Smaller reporting company ☐


	(Unaudited)
	August 23, 2020		November 24, 2019

	(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,353,042	$	934,237
Short-term investments in marketable securities	72,279		80,741
Trade receivables, net of allowance for doubtful accounts of $17,437 and $6,172	543,257		782,846
Inventories:
Raw materials	3,932		4,929
Work-in-process	4,091		3,319
Finished goods	936,311		875,944
Total inventories	944,334		884,192
Other current assets	169,004		188,170
Total current assets	3,081,916		2,870,186
Property, plant and equipment, net of accumulated depreciation of $1,071,260 and $1,054,267	447,869		529,558
Goodwill	263,692		235,788
Other intangible assets, net	48,624		42,782
Deferred tax assets, net	500,701		407,905
Operating lease right-of-use assets, net (Note 1)	985,497		—
Other non-current assets	218,970		146,199
Total assets	$	5,547,269	$	4,232,418

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	23,941	$	7,621

Accounts payable	461,501		360,324
Accrued salaries, wages and employee benefits	162,866		223,374
Restructuring liabilities (Note 6)	58,009		—
Accrued interest payable	23,832		5,350
Accrued income taxes	29,510		24,050
Accrued sales returns and allowances (Note 1)	172,149		171,113
Short-term operating lease liability (Note 1)	218,098		—
Other accrued liabilities (Note 1)	424,272		375,372
Total current liabilities	1,574,178		1,167,204
Long-term debt	1,543,302		1,006,745
Postretirement medical benefits	59,294		64,006
Pension liability	174,183		193,214
Long-term employee related benefits	93,783		84,957
Long-term income tax liabilities	7,049		10,486
Long-term operating lease liability (Note 1)	852,366		—
Other long-term liabilities	51,843		134,249
Total liabilities	4,355,998		2,660,861
Commitments and contingencies


Stockholders’ Equity:
Levi Strauss & Co. stockholders’ equity
Common stock — $0.001 par value; 1,200,000,000 Class A shares authorized, 65,810,175 shares and 53,079,235 shares issued and outstanding as of August 23, 2020 and November 24, 2019, respectively; and 422,000,000 Class B shares authorized, 331,312,315 shares and 340,674,741 shares issued and outstanding, as of August 23, 2020 and November 24, 2019, respectively	397		394
Additional paid-in capital	621,432		657,659
Accumulated other comprehensive loss	(487,923)		(404,986)
Retained earnings	1,057,365		1,310,464
Total Levi Strauss & Co. stockholders’ equity	1,191,271		1,563,531
Noncontrolling interest	—		8,026
Total stockholders’ equity	1,191,271		1,571,557
Total liabilities and stockholders’ equity	$	5,547,269	$	4,232,418


	Three Months Ended						Nine Months Ended
	August 23, 2020		August 25, 2019		August 23, 2020		August 25, 2019

	(Dollars in thousands, except per share amounts) (Unaudited)
Net revenues	$	1,063,085	$	1,447,081	$	3,066,753	$	4,194,479
Cost of goods sold	485,687		680,335		1,480,376		1,944,502
Gross profit	577,398		766,746		1,586,377		2,249,977
Selling, general and administrative expenses	484,002		595,528		1,695,072		1,814,949
Restructuring charges, net	1,071		—		68,442		—
Operating income (loss)	92,325		171,218		(177,137)		435,028
Interest expense	(28,437)		(15,292)		(56,337)		(47,962)
Underwriter commission paid on behalf of selling stockholders	—		—		—		(24,860)
Other expense, net	(12,274)		(4,369)		(8,269)		(2,849)
Income (loss) before income taxes	51,614		151,557		(241,743)		359,357
Income tax (benefit) expense	24,565		27,340		(57,932)		60,182
Net income (loss)	27,049		124,217		(183,811)		299,175
Net loss attributable to noncontrolling interest	—		292		—		141
Net income (loss) attributable to Levi Strauss & Co.	$	27,049	$	124,509	$	(183,811)	$	299,316
Earnings (loss) per common share attributable to common stockholders:
Basic	$	0.07	$	0.32	$	(0.46)	$	0.77
Diluted	$	0.07	$	0.30	$	(0.46)	$	0.73
Weighted-average common shares outstanding:
Basic	397,711,322		394,169,688		397,010,522		387,289,913
Diluted	407,677,385		413,639,749		397,010,522		407,844,136


	Three Months Ended						Nine Months Ended
	August 23, 2020		August 25, 2019		August 23, 2020		August 25, 2019

	(Dollars in thousands) (Unaudited)
Net income (loss)	$	27,049	$	124,217	$	(183,811)	$	299,175
Other comprehensive income (loss), before related income taxes:
Pension and postretirement benefits	3,640		3,431		13,844		10,317
Derivative instruments	(63,271)		9,215		(50,068)		23,619
Foreign currency translation gains (losses)	36,915		(6,523)		(1,974)		(11,280)
Unrealized gains on marketable securities	6,104		475		5,313		1,694
Total other comprehensive income (loss), before related income taxes	(16,612)		6,598		(32,885)		24,350
Income taxes benefit (expense) related to items of other comprehensive income (loss)	6,385		(1,568)		4,392		(5,741)
Comprehensive income (loss), net of income taxes	16,822		129,247		(212,304)		317,784
Comprehensive loss (income) attributable to noncontrolling interest	—		68		—		(334)
Comprehensive income (loss) attributable to Levi Strauss & Co.	$	16,822	$	129,315	$	(212,304)	$	317,450


☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three Months Ended August 23, 2020
	Levi Strauss & Co. Stockholders
	Class A & Class B Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity

	(Dollars in thousands) (Unaudited)
Balance at May 24, 2020	$	396	$	611,993	$	1,030,513	$	(477,696)	$	—	$	1,165,206
Net income	—		—		27,049		—		—		27,049
Other comprehensive loss, net of tax	—		—		—		(10,227)		—		(10,227)
Stock-based compensation and dividends, net	1		11,840		(197)		—		—		11,644
Employee stock purchase plan	—		1,889		—		—		—		1,889

Shares surrendered for tax withholdings on equity awards	—		(4,290)		—		—		—		(4,290)



Balance at August 23, 2020	$	397	$	621,432	$	1,057,365	$	(487,923)	$	—	$	1,191,271


	Nine Months Ended August 23, 2020
	Levi Strauss & Co. Stockholders
	Class A & Class B Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity

	(Dollars in thousands) (Unaudited)
Balance at November 24, 2019	$	394	$	657,659	$	1,310,464	$	(404,986)	$	8,026	$	1,571,557
Net loss	—		—		(183,811)		—		—		(183,811)
Other comprehensive loss, net of tax	—		—		—		(28,493)		—		(28,493)
Stock-based compensation and dividends, net	6		37,460		(224)		—		—		37,242
Employee stock purchase plan	—		6,171		—		—		—		6,171
Repurchase of common stock	(3)		—		(56,240)		—		—		(56,243)
Shares surrendered for tax withholdings on equity awards	—		(79,858)		—		—		—		(79,858)
Changes in ownership of noncontrolling interest	—		—		(8,809)		—		(8,026)		(16,835)
Cumulative effect of adoption of new accounting standards	—		—		59,624		(54,444)		—		5,180
Cash dividends declared ($0.16 per share)	—		—		(63,639)		—		—		(63,639)
Balance at August 23, 2020	$	397	$	621,432	$	1,057,365	$	(487,923)	$	—	$	1,191,271


	Three Months Ended August 25, 2019
	Levi Strauss & Co. Stockholders
	Class A & Class B Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity

	(Dollars in thousands) (Unaudited)
Balance at May 26, 2019	$	392	$	629,703	$	1,094,666	$	(411,256)	$	7,748	$	1,321,253
Net income	—		—		124,509		—		(292)		124,217
Other comprehensive income, net of tax	—		—		—		4,806		224		5,030
Stock-based compensation and dividends, net	1		17,930		(86)		—		—		17,845




Balance at August 25, 2019	$	393	$	647,633	$	1,219,089	$	(406,450)	$	7,680	$	1,468,345


	Nine Months Ended August 25, 2019
	Levi Strauss & Co. Stockholders
	Class A & Class B Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity

	(Dollars in thousands) (Unaudited)
Balance at November 25, 2018	$	376	$	—	$	1,084,321	$	(424,584)	$	7,346	$	667,459
Net income	—		—		299,316		—		(141)		299,175
Other comprehensive income, net of tax	—		—		—		18,134		475		18,609
Stock-based compensation and dividends, net	3		31,942		(86)		—		—		31,859
Reclassification to temporary equity	—		(506)		(23,339)		—		—		(23,845)
Repurchase of common stock	—		(165)		(2,923)		—		—		(3,088)
Shares surrendered for tax withholdings on equity awards	—		(25,522)		—		—		—		(25,522)
Reclassification from temporary equity in connection with initial public offering	—		351,185		(28,200)		—		—		322,985
Issuance of Class A common stock in connection with initial public offering	14		234,569		—		—		—		234,583
Cancel liability-settled awards and replace with equity-settled awards in connection with initial public offering	—		56,130		—		—		—		56,130
Cash dividends declared ($0.29 per share)	—		—		(110,000)		—		—		(110,000)
Balance at August 25, 2019	$	393	$	647,633	$	1,219,089	$	(406,450)	$	7,680	$	1,468,345


	August 23, 2020										November 24, 2019
			Fair Value Estimated Using								Fair Value Estimated Using
	Fair Value		Level 1 Inputs⁽¹⁾		Level 2 Inputs⁽²⁾		Fair Value		Level 1 Inputs⁽¹⁾		Level 2 Inputs⁽²⁾

	(Dollars in thousands)
Financial assets carried at fair value
Rabbi trust assets	$	66,596	$	66,596	$	—	$	49,207	$	49,207	$	—
Short-term investments in marketable securities	72,279				72,279		80,741		—		80,741
Derivative instruments⁽³⁾	6,266		—		6,266		16,323		—		16,323
Total	$	145,141	$	66,596	$	78,545	$	146,271	$	49,207	$	97,064
Financial liabilities carried at fair value
Derivative instruments⁽³⁾	9,981		—		9,981		8,123		—		8,123
Total	$	9,981	$	—	$	9,981	$	8,123	$	—	$	8,123


	August 23, 2020						November 24, 2019
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value

	(Dollars in thousands)
Financial liabilities carried at adjusted historical cost


5.00% senior notes due 2025⁽¹⁾	$	1,001,245	$	1,024,651	$	489,299	$	505,757
3.375% senior notes due 2027⁽¹⁾	565,603		576,759		522,524		556,266
Short-term borrowings	23,954		23,954		7,621		7,621
Total	$	1,590,802	$	1,625,364	$	1,019,444	$	1,069,644


	August 23, 2020										November 24, 2019
	Gross Amounts of Assets / (Liabilities) Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet		Net Amounts of Assets / (Liabilities)		Gross Amounts of Assets / (Liabilities) Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet		Net Amounts of Assets / (Liabilities)


	(Dollars in thousands)
Foreign exchange risk contracts and forward foreign exchange contracts
Financial assets	$	17,300	$	(3,997)	$	13,303	$	21,839	$	(10,142)	$	11,697
Financial liabilities	(21,015)		3,997		(17,018)		(16,290)		10,142		(6,148)
Total					$	(3,715)					$	5,549
Embedded derivative contracts
Financial assets	$	—	$	—	$	—	$	4,446	$	—	$	4,446
Financial liabilities	—		—		—		(1,795)		—		(1,795)
Total					$	—					$	2,651


	Amount of Gain (Loss) Recognized in OCI (Effective Portion)						Amount of Gain (Loss) Reclassified from AOCI into Net Income (Loss)⁽¹⁾
	As of August 23, 2020		As of November 24, 2019		Three Months Ended							Nine Months Ended
											August 23, 2020			August 25, 2019	August 23, 2020	August 25, 2019

	(Dollars in thousands)
Foreign exchange risk contracts	$	(9,192)	$	2,781	$	4,446	$	869	$	9,869		$	1,586
Realized forward foreign exchange swaps ⁽²⁾	4,637		4,637		—		—		—			—
Yen-denominated Eurobonds	(19,811)		(19,811)		—		—		—			—
Euro-denominated senior notes	(76,266)		(38,171)		—		—		—			—
Cumulative income taxes	28,212		25,606		—		—		—			—
Total	$	(72,420)	$	(24,958)


Item 1.			CONSOLIDATED FINANCIAL STATEMENTS


	August 23, 2020⁽¹⁾

	(Dollars in thousands)
2020	$	67,251
2021	242,695
2022	207,118
2023	166,182
2024	134,646
Thereafter	324,909
Total undiscounted future cash flows related to lease payments	1,142,801
Less: Interest	72,337
Present value of lease liabilities	$	1,070,464


	August 23, 2020
Weighted-average remaining lease term (years)	5.9
Weighted-average discount rate	2.26	%


	November 24, 2019

	(Dollars in thousands)
2020	$	234,092
2021	203,483
2022	174,536
2023	140,278
2024	111,176
Thereafter	284,114
Total undiscounted future cash flows related to lease payments	$	1,147,679


	Three Months Ended August 23, 2020
	Liabilities⁽¹⁾		Charges			Payments		Foreign Currency Fluctuations and Other Adjustments		Liabilities⁽¹⁾
					May 24, 2020							August 23, 2020

	(Dollars in thousands)
Severance and employee-related benefits	$	65,878	$	550		$	(5,138)	$	182	$	61,472


	Nine Months Ended August 23, 2020
	Liabilities		Charges			Payments		Foreign Currency Fluctuations and Other Adjustments		Liabilities⁽¹⁾
					November 24, 2019							August 23, 2020

	(Dollars in thousands)
Severance and employee-related benefits	$	—	$	66,428		$	(5,138)	$	182	$	61,472


	August 23, 2020

	(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	176,744
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities⁽¹⁾	$	111,151


	Three Months Ended August 23, 2020 ⁽¹⁾
	Americas		Europe		Asia		Total

	(Dollars in thousands)
Net revenues by channel:
Wholesale	$	404,529	$	222,777	$	41,484	$	668,790
Direct-to-consumer	145,269		167,596		81,430		394,295
Total net revenues	$	549,798	$	390,373	$	122,914	$	1,063,085


	Nine Months Ended August 23, 2020 ⁽¹⁾
	Americas		Europe		Asia		Total

	(Dollars in thousands)
Net revenues by channel:
Wholesale	$	1,071,835	$	569,918	$	204,087	$	1,845,840
Direct-to-consumer	506,271		462,421		252,221		1,220,913
Total net revenues	$	1,578,106	$	1,032,339	$	456,308	$	3,066,753


Item 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	Three Months Ended														Nine Months Ended
					% Increase (Decrease)										% Increase (Decrease)
	August 23, 2020		August 25, 2019		As Reported		Constant Currency		August 23, 2020		August 25, 2019		As Reported		Constant Currency

	(Dollars in millions)
Net revenues:
Americas	$	549.8	$	770.8	(28.7)	%	(27.2)	%	$	1,578.1	$	2,180.8	(27.6)	%	(26.5)	%
Europe	390.4		463.3		(15.7)	%	(16.6)	%	1,032.4		1,326.3		(22.2)	%	(21.0)	%
Asia	122.9		213.0		(42.3)	%	(40.9)	%	456.3		687.4		(33.6)	%	(32.1)	%
Total net revenues	$	1,063.1	$	1,447.1	(26.5)	%	(25.7)	%	$	3,066.8	$	4,194.5	(26.9)	%	(25.7)	%


	Three Months Ended									Nine Months Ended							Twelve Months Ended
	August 23, 2020			August 25, 2019			August 23, 2020			August 25, 2019			August 23, 2020		August 25, 2019

	(Dollars in millions)
	(Unaudited)
Most comparable GAAP measure:
Net income (loss)	$	27.0		$	124.2		$	(183.8)		$	299.2		$	(88.0)	$	396.5

Non-GAAP measure:
Net income (loss)	$	27.0		$	124.2		$	(183.8)		$	299.2		$	(88.0)	$	396.5
Income tax (benefit) expense	24.6			27.4			(57.9)			60.2			(35.5)		98.4
Interest expense	28.4			15.3			56.3			48.0			74.5		57.7
Other (income) expense, net	12.3			4.4			8.3			2.8			3.5		(13.5)
Underwriter commission paid on behalf of selling stockholders	—			—			—			24.9			—		24.9
Impact of changes in fair value on cash-settled stock-based compensation⁽¹⁾	1.8			5.1			6.0			25.4			14.7		46.2
COVID-19 related inventory costs and other charges ⁽²⁾	(12.0)			—			162.6			—			162.6		—
Restructuring and restructuring related charges, severance and other, net⁽³⁾	2.1			—			76.2			3.8			82.2		5.0
Adjusted EBIT	$	84.2		$	176.4		$	67.7		$	464.3		$	214.0	$	615.2
Depreciation and amortization⁽⁴⁾	32.6			31.6			101.0			90.3			134.6		118.4
Adjusted EBITDA	$	116.8		$	208.0		$	168.7		$	554.6		$	348.6	$	733.6
Adjusted EBIT margin	7.9		%	12.2		%	2.2		%	11.1		%


Item 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Item 2.			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Date:	October 6, 2020		LEVI STRAUSS & CO.
			(Registrant)


		By:	/s/ GAVIN BROCKETT
			Gavin Brockett Senior Vice President and Global Controller
			(Principal Accounting Officer and Duly Authorized Officer)


						/s/ CHARLES V. BERGH
						Charles V. Bergh
						President and Chief Executive Officer


						/s/ HARMIT SINGH
						Harmit Singh
						Executive Vice President and Chief Financial Officer