Yahoo Movies Levi’s Chip Bergh Optimistic on 2022 After Posting Big Gains
It was full speed ahead at Levi Strauss & Co. last year.
And with the consumer strong, a denim trend in full swing, the world becoming more casual and the brand growing in high-margin categories like women’s, chief executive officer Chip Bergh told WWD the growth would only continue this year.
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The world is, of course, still fighting off COVID-19 and the related supply chain issues, which took a $50 million bite out of Levi’s fourth-quarter sales.
But all in all, 2021 turned out not to just be a remarkable year, but remarkable in the ways that tend to make the accountants happy.
Levi’s closed its fiscal year on Nov. 28, about two months ahead of most other retailers, and Bergh said business continued to grow through the holiday season.
So good news from the denim maker could be a welcome sign for the rest of the industry, especially since many of the changes that have supported Levi’s — from a cost restructuring to more full-price sales — will also help other big fashion companies.
Levi’s logged net profits of $554 million last year, reversing the losses of $127 million in 2020. Sales rose 29.5 percent to $5.8 billion.
That means that even though sales last year were flat compared with before the pandemic, in 2019, profits were up $159 million.
“The company today is as strong as it has been in decades,” Bergh said. “We feel really, really good about the results.”
Investors gave the numbers the thumbs-up, trading shares of Levi’s up 2.8 percent to $20.88 in after-hours trading on Wednesday.
The higher profits last year were driven by gross margins, which tallied 57.9 percent of sales, up 410 basis points from 2019.
“What drove the gross margins are largely price increases and also lower promotions,” he said. “We’ve maintained inventory really well. It was a much less promotional year, much less promotional holiday and that’s dropping to the bottom line.”
Levi’s is also growing in higher-margin businesses, such as direct-to-consumer, international and women’s, where it still sees itself as under-penetrated.
While there are still some big question marks going forward for Levi’s and everyone else — including the pandemic, inflation and the supply chain — Bergh is looking at it all and feeling very bullish.
The company projected that revenues this year would grow by 11 to 13 percent, ranging between $6.4 billion and $6.5 billion.
“We are planning this year assuming that the supply chain issues are going to continue for the full year,” Bergh said. (The $50 million of sales Levi’s lost in the fourth quarter because of unfilled demand was worse than the $30 million expected and amounted to about 3 points of unrealized growth).
But along with everything else, fashion companies are learning to live with the supply chain disruptions.
“Most of our business is core — a pair of stonewashed 501s doesn’t change from season to season,” the CEO said. “As a result, it’s less of a risk for us to bring inventory in to mitigate against the risk.”
Bergh said shoppers are just ready to spend.
“We’ve checked just about every single data point that we can, including credit card spending into the early part of this year and there doesn’t seem to be any letdown,” he said. “We continue to be optimistic about the economy and the consumer, but we’re keeping an eye on it.”
And Bergh is betting that when consumers spend, they’ll stay in Levi’s sweet spot.
“The denim cycle is real and half our revenues this past quarter were in these looser, baggier fits,” he said. “And the trend toward casualization, it’s real, it’s happening globally.”
For the fourth quarter, Levi’s profits rose to $153 million, or 37 cents a diluted share, from $56.7 million, or 14 cents, a year earlier. Sales for the three months increased 21.6 percent to $1.7 billion.
On a conference call with analysts, Bergh said: “The quarter punctuated a very strong fiscal 2021 performance, delivering our highest revenues since 1998.
“In the most recent quarter, the U.S. jeans growth outpaced apparel, with both categories surpassing 2019 levels for the year. The U.S. jeans category was up 8 percent versus 2019,” he said. “We also continued to increase share of women’s in the U.S., and we have achieved significant traction engaging Gen Z consumers through programs like Levi’s SecondHand re-commerce Initiative and our ‘Buy Better, Wear Longer’ campaign.
“Our strong brand equity is driving pricing power,” he said. “2021 pricing actions are sticking. That’s reflected by the company’s 7 percent [average unit retail price] increase over 2019, which was primarily driven by our pricing initiatives. We have plans to take additional price increases in 2022 and beyond, helping us to offset inflationary pressures.”
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