Q3 Net Revenues in Line With Prior Year, With 14% Growth in Global DTC

Gross Margin of 55.6% Exceeded Q3 Outlook

Continued Sequential Improvement in Inventory; Up 1% to Prior Year on a Comparable Basis

Diluted EPS of $0.02 and Adj. Diluted EPS of $0.28

Company Expects FY Adj. Diluted EPS at Low End of Previously Guided $1.10-$1.20 Range

Levi Strauss & Co. (NYSE: LEVI) today announced financial results for the third quarter ended August 27, 2023.

“In the third quarter, we delivered double-digit growth in our direct-to-consumer business, driven by strong comp-store gains, which helped offset continued softness in the wholesale channel, primarily in the U.S.,” said Chip Bergh, president and chief executive officer of Levi Strauss & Co. “We are focused on the levers within our control and the actions we took in the third quarter are beginning to drive improvements in US wholesale trends. As we look longer term, we remain confident in our ability to achieve our goals given the global strength of the Levi’s brand, the momentum in our direct-to-consumer business globally, and the exceptional growth potential of our product portfolio and our international business.”

“We delivered Adjusted EBIT and Adjusted diluted EPS in line with our expectations while navigating a challenging operating environment,” said Harmit Singh, chief financial and growth officer of Levi Strauss & Co. “While we saw sequential improvement in the business across the company as we moved through Q3 with both July and August up versus prior year, given the ongoing uncertainty in the macro environment, we are taking a cautious approach to our outlook for the fourth quarter. As we accelerate our transition to a DTC-led company, we have commenced an initiative to review our operating model and cost structure that should drive agility and material cost savings beginning in 2024.”

Financial Highlights

• Net Revenues of $1.5 billion were consistent with the prior year on a reported basis and 2% lower on a constant-currency basis versus Q3 2022.

• DTC (Direct to Consumer) net revenues increased 14% on a reported basis and 13% on a constant-currency basis, driven by broad-based growth in both company-operated mainline and outlet stores and e-commerce. Revenues from e-commerce grew 19% on a reported basis and 18% on a constant-currency basis reflecting double-digit growth across all brands. As a percentage of third quarter net revenues, DTC comprised 40% of total net revenues.

• Wholesale net revenues declined 8% on a reported basis and 10% on a constant-currency basis as growth in Asia and Latin America was offset by declines in North America and Europe.

• In the Americas, net revenues decreased 5% on a reported basis and 7% on a constant-currency basis. DTC net revenues increased 12% on a reported basis and 11% on a constant-currency basis driven by company-operated mainline and outlet stores and e-commerce. Wholesale net revenues decreased 12% on a reported basis and 14% on a constant-currency basis as softness in North America was partially offset by growth in Latin America.

• In Europe, net revenues decreased 2% on a reported basis and 6% on a constant-currency basis; excluding Russia, net revenues decreased 3% on a constant-currency basis. DTC net revenues increased 10% on a reported basis and 6% on a constant-currency basis, and 11% excluding Russia, driven by company-operated mainline and outlet stores and e-commerce. Wholesale net revenues decreased 10% on a reported basis and 14% on a constant-currency basis, reflecting the cautious order environment among wholesale partners.

• Asia net revenues increased 12% on a reported basis and 18% on a constant-currency basis, reflecting growth across almost all markets, including strong growth in China. DTC net revenues rose 15% on a reported basis and 23% on a constant-currency basis, driven by strength in company-operated mainline and outlet stores and e-commerce. Wholesale net revenues increased 8% on a reported basis and 13% on a constant-currency basis.

• Other Brands net revenues increased 12% on a reported basis and 9% on a constant-currency basis. Dockers® increased 9% on a reported basis and 5% on a constant-currency basis as strong growth internationally and in DTC was partially offset by U.S. wholesale. Beyond Yoga® rose 25% on reported and constant-currency bases.

• Operating margin of 2.3% was down from 13.1% in Q3 2022 as a result of higher SG&A expenses and an impairment charge of $90.2 million related to the Beyond Yoga® acquisition, and lower net revenues and gross margin. Adjusted EBIT margin declined 330 basis points to 9.1% from 12.4% last year due to gross margin contraction and SG&A deleverage due to higher DTC expenses.

• Gross margin was down 130 basis points to 55.6% from 56.9% in Q3 2022. Adjusted gross margin was down 130 basis points to 55.6% from 56.9% last year. The decline in Gross margin and Adjusted gross margin was driven by lower full-price sales, strategic pricing actions and higher product costs. These impacts were partially offset by favorable channel and geographic mix, as well as lower air freight expenses and favorable currency exchange.

• Selling, general and administrative (SG&A) expenses were $715 million compared to $664 million in Q3 2022. Adjusted SG&A was $702 million compared to $675 million last year, reflecting higher planned expenses to support DTC expansion.

• Interest and other expenses, which include foreign exchange losses, were $38 million compared to $13 million in Q3 2022. The increase in expenses was primarily driven by a $19 million pension settlement loss and foreign currency transaction losses reflecting the impact of rate fluctuations on foreign denominated balances.

• The effective tax rate was 386.6% compared to 7.2% in Q3 2022. The increase in the effective tax rate is primarily driven by the foreign-derived intangible income deduction on a proportion to losses before income taxes. Additionally, the non-cash impairment charge related to the Beyond Yoga® acquisition resulted in an income tax benefit of $22 million. Excluding the impact of the impairment, the tax rate would be 10% for Q3 2023.

• Net income was $10 million compared to net income of $173 million in Q3 2022. Adjusted net income was $112 million compared to $161 million in Q3 2022.

• Diluted earnings per share was $0.02 compared to diluted earnings per share of $0.43 in Q3 2022. The recognition of the Beyond Yoga® impairment unfavorably impacted diluted earnings per share by $0.17, net of tax. Adjusted diluted earnings per share was $0.28 compared to $0.40 in Q3 2022.

Additional information regarding Adjusted gross margin, Adjusted SG&A, Adjusted EBIT, Adjusted EBIT margin, Adjusted net income, Adjusted diluted earnings per share, as well as amounts presented on a constant-currency basis, all of which are non-GAAP financial measures, is provided at the end of this press release.

Balance Sheet Review as of August 27, 2023

• Cash and cash equivalents were $295 million, while total liquidity was approximately $1.1 billion.

• The company’s leverage ratio was 1.6 as compared to 1.1 at the end of Q3 2022.

• Total inventories increased 6% on a dollar basis. Approximately 5% of the year-over-year increase is due to the modification of terms with the majority of our suppliers that results in the company taking ownership of inventory for goods being brought into the Americas closer to the point of shipment rather than destination. This is consistent with existing terms for goods sent to Europe and Asia. The remaining 1% increase represents a 17 point improvement from last quarter and reflects U.S. inventory levels below prior year’s level . We continue to expect sequential progress, achieving total company inventory levels below prior year levels by year end.

Additional information regarding leverage ratio, which is a non-GAAP financial measure, is provided at the end of this press release.

Shareholder Returns

• The company returned approximately $48 million to shareholders in the third quarter, in dividends representing $0.12 per share, in line with Q3 2022.

• The company did not repurchase any shares in the quarter. At quarter end, the company had $680 million remaining under its current share repurchase authorization, which has no expiration date.

• The company declared a dividend of $0.12 per share, totaling approximately $48 million. The dividend is payable in cash on November 9, 2023 to the holders of record of Class A common stock and Class B common stock at the close of business October 26, 2023.

Fiscal 2023 Guidance

• Reported net revenues are expected flat to up 1% year-over-year.

• Adjusted diluted EPS is expected to be on the low-end of the previously guided range of $1.10 to $1.20.

• More details will be provided during the earnings conference call.

This outlook also assumes no significant worsening of macro-economic pressures on the consumer, inflationary pressures, supply chain disruptions, or currency impacts. A reconciliation of non-GAAP forward looking information to the corresponding GAAP measures cannot be provided without unreasonable efforts due to the challenge in quantifying various items including but not limited to, the effects of foreign currency fluctuations, taxes, and any future restructuring, restructuring-related, severance and other charges.

Investor Conference Call

To access the conference call, please pre-register on https://register.vevent.com/register/BId9d37e55f1db47b8b1d5249cd2eb2ef4 and you will receive confirmation with dial-in details. A live webcast of the event can be accessed on https://edge.media-server.com/mmc/p/685esjao/.

A replay of the webcast will be available on http://investors.levistrauss.com starting approximately two hours after the event and archived on the site for one quarter.

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.™, Denizen® and Beyond Yoga® 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 3,200 brand-dedicated stores and shop-in-shops. Levi Strauss & Co.'s reported 2022 net revenues were $6.2 billion. For more information, go to http://levistrauss.com, and for financial news and announcements go to http://investors.levistrauss.com.

Forward Looking Statements

This press release and related conference call contain, in addition to historical information, forward-looking statements, including statements related to: future financial results, including the company's expectations for the full fiscal year 2023 net revenues, adjusted diluted earnings per share and effective tax rate; inflationary pressures; fluctuations in foreign currency exchange rates; global economic conditions; supply chain constraints and disruptions; future dividend payments; future share repurchases; performance of our wholesale and DTC businesses; future inventory levels and our ability to execute against our long-term business strategies. 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 2022 and its Quarterly Reports on Form 10-Q for the quarter ended August 27, 2023, 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 gross profit, Adjusted gross margin, Adjusted SG&A, Adjusted SG&A margin, Adjusted EBIT (both reported and on a constant-currency basis), Adjusted EBIT margin (both reported and on a constant-currency basis), Adjusted EBITDA, Adjusted net income (both reported and on a constant-currency basis), Adjusted net income margin, Adjusted diluted earnings per share (both reported and on a constant-currency basis), constant-currency net revenues, net debt, leverage ratio, Adjusted free cash flow and return on invested capital 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 gross profit, Adjusted gross margin, Adjusted SG&A, Adjusted EBIT (both reported and on a constant-currency basis), Adjusted EBIT margin (both reported and on a constant-currency basis), Adjusted net income (both reported and on a constant-currency basis), Adjusted net income margin (both reported and on a constant-currency basis), Adjusted diluted earnings per share (both reported and on a constant-currency basis), constant-currency net revenues, net debt, leverage ratio, Adjusted free cash flow, and return on invested capital, 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) 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” below for reconciliation to the most comparable GAAP financial measures. A reconciliation of non-GAAP forward looking information to the corresponding GAAP measures cannot be provided without unreasonable efforts due to the challenge in quantifying various items including but not limited to, the effects of foreign currency fluctuations, taxes, and any future restructuring, restructuring-related, severance and other charges.

Constant-currency

The company reports certain operating results 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. Constant-currency results do not eliminate the transaction currency impact, which primarily include the realized and unrealized gains and losses recognized from the measurement and remeasurement of purchases and sales of products in a currency other than the functional currency. Additionally, gross margin is impacted by gains and losses related to the procurement of inventory, primarily products sourced in EUR and USD, by the company's global sourcing organization on behalf of its foreign subsidiaries.

Source: Levi Strauss & Co. Investor Relations

The notes accompanying the consolidated financial statements in the company's Form 10-Q for the third quarter of fiscal 2023 are an integral part of these consolidated financial statements.

The notes accompanying the consolidated financial statements in the company's Form 10-Q for the third quarter of fiscal 2023 are an integral part of these consolidated financial statements.

The notes accompanying the consolidated financial statements in the company's Form 10-Q for the third quarter of fiscal 2023 are an integral part of these consolidated financial statements.

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