Thanks to ongoing demand for casual clothes and its own brand strength, Levi’s Q2 net revenue rose 15% year over year to $1.5 billion. Wholesale rose 15%, DTC rose 16% and e-commerce rose about 3%, the latter driving about 20% of net revenue in the period, according to a filing with the Securities and Exchange Commission Thursday.
Company-owned stores dominated DTC sales (driving about 30% of net revenue compared to 7% from DTC e-commerce), as more shoppers headed to physical locations. Still, the company sees “tremendous potential in e-commerce” and has created a new Chief Digital Officer role, CEO Chip Bergh told analysts, per a Seeking Alpha earnings call transcript.
Gross margin contracted to 58.1% from 58.8% a year ago, with adjusted EBIT, (excluding Russia-Ukraine, COVID and acquisition-related charges), up 27% to $145 million. Operating income fell 29% to $76 million, driving net income down 23% to $50 million.
Levi’s probably can’t help doing well right now, given the demand for its clothes and the popularity of its brand.
Denim sales in the U.S., up 19% in the last 12 months ending in May, are outpacing the wider apparel market, Bergh told analysts. It also helps that the casualization trend, probably thanks to the pandemic, has spread even to places like Europe, he said.
“The CEO is probably just happy that people are coming into work and wearing a pair of jeans is perfectly acceptable today,” he said. “And that's very different than a pre-pandemic world.”
In the Americas, net revenues grew 17%, driven by growth across wholesale (up 19%) and DTC (up 13%). In Europe net revenues rose 3%, and in Asia, net revenues rose 16%.
The company’s other brands, Dockers and Beyond Yoga, both saw growth across channels, the company also said. Dockers rose 23%, and Beyond Yoga reached net revenue of about $23 million. Levi’s value denim brands fared less well, with sales down mid-single digits, an indication of growing pressure on lower-income households facing higher grocery and gas prices, Bergh said.
All told, however, Levi’s is providing one of the brighter spots in retail right now, according to Wells Fargo analysts led by Ike Boruchow, who said they remain “cautiously optimistic” about the brand.
“The fundamental story at LEVI continues to play out — brand strength, ongoing bottoms cycle, [price] initiatives working, casualization of work — which keeps us bullish on the story,” Boruchow said. “That said, headwinds growing overseas and uncertainty around the direction of the low-end US consumer is likely going to keep material multiple expansion on pause in the near term.”