Levi Strauss (LEVI +3.17%) reported better-than-expected results for its second quarter of fiscal 2022 (which ended on May 29) after the market close on Thursday, July 7. Consumer demand remained robust for jeanswear and casual clothing from the iconic retailer, despite its price hikes to offset inflationary pressures on input costs.
Levi stock rose 4.7% in Thursday's after-hours trading session. The market's reaction is largely attributable to the quarter's sales and earnings surpassing Wall Street's expectations, with the bottom-line beat a quite substantial one.
Investors were also probably relieved that management reaffirmed its previously issued fiscal 2022 guidance, given that the macroeconomic environment remains challenging. Inflation is high, and some consumers are concerned about the possibility of a recession.
Below is an overview of Levi's second quarter, along with its outlook.
Image source: Getty Images.
1. Revenue jumped 15%
Levi's quarterly sales jumped 15% year over year (20% in constant currency) to $1.47 billion. This result topped the $1.43 billion Wall Street consensus estimate, as outlined in my earnings preview.
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 Q2 2022 Revenue | Change (YOY) |
|---|---|---|
| Americas | $776 million | 17% |
| Europe | $367 million | 3% |
| Asia | $222 million | 16% |
| Other brands | $106 million | 56%* |
| Total | $1.47 billion | 15% |
Data source: Levi Strauss. YOY = year over year. *Excluding Beyond Yoga, this category grew 23% year over year.
Levi's wholesale channel's sales rose 15%. The direct-to-consumer (DTC) channel's sales increased 16% year over year, driven by strength in company-operated stores. The DTC channel generated 37% of total revenue.
Global digital revenue edged up 3% year over year and accounted for 20% of the quarter's total revenue. The year-over-year growth is modest because the company lapped a period of pandemic-driven strength in online shopping.
2. Adjusted EPS surged 26%
Net income under generally accepted accounting principles (GAAP) was $49.7 million, or $0.12 per share, down 25% from the year-ago period. Adjusted for one-time items, net income landed at $117 million, or $0.29 per share, up 26% year over year.
Adjusted net income excludes a charge of $60 million, or $0.15 per share, related to the Russia-Ukraine crisis and other smaller one-time items. Wall Street had been looking for adjusted earnings per share (EPS) of $0.23, so the company easily exceeded this expectation.
NYSE: LEVI
Key Data Points
3. Operating cash flow fell 66%
In fiscal Q2, cash generated from operations decreased 66% year over year to $59.8 million. While this metric moved in the wrong direction, one quarter is just one quarter. Investors should keep their eyes on cash flow.
Levi ended the period with $601.9 million of cash and cash equivalents, $96.4 million in short-term investments, and long-term debt of $998.5 million.
4. Management increased the dividend by 20%
Levi raised its quarterly cash dividend to $0.12 per share, up from $0.10 per share. The dividend will be payable on Aug. 17 to shareholders of record on Aug. 1.
5. Fiscal 2022 revenue is expected to grow 11% to 13% year over year
Management reaffirmed the fiscal year 2022 guidance that it issued in the prior quarter. For the year, it expects 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%.
In short, Levi Strauss turned in another solid quarter. The company has been successfully passing along its higher input costs to consumers in the form of higher product prices. Like last quarter, the profit margin expanded, as adjusted earnings grew faster than revenue.
