“We started the year with strong momentum, but the global pandemic and economic crises had a significantly negative impact on our second-quarter results, as our stores and most wholesale doors were closed around the world for the majority of the quarter,” said Chip Bergh, president and CEO, Levi Strauss & Co.
The company’s net revenues declined 62% for the second quarter ended May 24, 2020, owing to temporary COVID-19-related store closures. This is only partially offset by its e-commerce business that grew 25% for the quarter.
“I’m proud of how the team stepped up in response, accelerating our activation of key e-commerce and omnichannel capabilities, proactively cutting costs and managing cash smartly and finding innovative ways to connect the Levi’s brand with its fans…we are doubling down on our digital transformation, incorporating the power of AI and data science, and leveraging our iconic brands to have an even stronger focus on Gen Z and sustainability. We believe this will enable us to further grow our market leadership position and emerge from this crisis a stronger company,” Bergh stated.
The company’s gross margin decreased 19.2 percentage points on a reported basis to 34.1%, primarily due to inventory costs of $87 million recorded in connection with COVID-19 business disruptions.
“As part of our response, to enable us to become a leaner and more market-responsive organisation, as well as give us greater confidence in our cost structure given the uncertainties around the impact of the virus, we have made the difficult decision to reduce our non-retail, non-manufacturing workforce by about 700 positions, or roughly 15%, which we expect will generate annualised savings of $100 million,” Bergh added.
“It’s been an unprecedented quarter, and we have been swift and agile in responding to the impact of the pandemic on our business. We have taken measures to improve the structural economics of our company, prudently manage inventories and further solidify liquidity. As a result of our actions, in the second quarter, we increased total liquidity to $2 billion, reduced Adjusted SG&A by $157 million and managed inventories to only a 10% increase over the prior year. We are encouraged by early signs of recovery, as roughly 90% of our company-operated and franchisee doors have now reopened globally, with nearly 40% of our company-operated stores comping positive as we exited the month, which in combination with our cost and working capital actions resulted in positive cash flow generation in June,” concluded Harmit Singh, executive vice president and chief financial officer of Levi Strauss & Co.