Reported Revenue Up 4 percent on Growth Across all Regions
Direct-to-Consumer Revenues up 10 percent and Wholesale up 2 percent
Highlights include:
Three Months Ended | % Increase (Decrease) | |||||||||||
($ millions) | |
|
As Reported | |||||||||
Net revenues | $ | 1,102 | $ | 1,057 | 4 | % | ||||||
Net income attributable to LS&Co. | $ | 60 | $ | 66 | (9 | )% | ||||||
Adjusted EBIT | $ | 110 | $ | 124 | (11 | )% | ||||||
Net revenues grew four percent on a reported basis and grew five percent excluding
Net income and Adjusted EBIT declined nine and eleven percent, respectively, in the first quarter, primarily reflecting lower gross margins. A reconciliation of Adjusted EBIT, a non-GAAP financial measure, is provided at the end of this press release.
“Despite the on-going challenges in the industry, I am pleased that we delivered 5 percent currency-neutral growth over a strong Q1 last year,” said
First-Quarter 2017 Highlights
- On a reported basis, gross margin for the first quarter was 51.2 percent of revenues compared with 53.0 percent in the same quarter of fiscal 2016, reflecting an increase in sales allowances, unfavorable transactional impact of currency and slightly higher product costs. These factors were partially offset by the margin benefit from growth in company-operated retail in
Europe andAmericas . - Selling, general and administrative expenses for the first quarter were
$456 million compared with$441 million in the same quarter of fiscal 2016 and approximately flat as a percentage of revenue. Higher costs were associated with the expansion of the company’s direct-to-consumer business. The company had 51 more company-operated stores at the end of the first quarter of 2017 than it did at the end of the first quarter of 2016. - Operating income margin for the first quarter was ten percent compared with eleven percent in the same quarter of fiscal 2016, primarily reflecting lower gross margins.
Regional Overview
Reported regional net revenues and operating income for the quarter are set forth in the table below:
Net Revenues | Operating Income * | |||||||||||||||||||||||||
Three Months Ended |
% Increase |
Three Months Ended |
% Increase |
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($ millions) |
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578 | $ | 571 | 1 | % | 90 | $ | 88 | 3 | % | ||||||||||||||||
|
310 | $ | 276 | 12 | % | 65 | $ | 51 | 27 | % | ||||||||||||||||
|
214 | $ | 209 | 2 | % | 36 | $ | 41 | (12 | )% | ||||||||||||||||
* Note: Regional operating income is equal to regional adjusted EBIT. Business segment information for the prior-year period has been revised to reflect a change in presentation. Effective first quarter 2017, central costs previously recorded in
- In the
Americas , excluding unfavorable currency effects of$5 million , net revenues increased two percent, reflecting higher revenues in bothMexico and our direct-to-consumer business, partially offset by lowerU.S. wholesale revenues. Net revenues inthe United States declined slightly, as direct-to-consumer growth was offset by declines at wholesale. - In
Europe , excluding unfavorable currency effects of$6 million , net revenues grew fifteen percent reflecting strong and broad based growth across all countries and in both direct-to-consumer and wholesale revenues. Operating income increased primarily due to the region’s higher net revenues and gross margins, partially offset by higher selling expenses. - In
Asia , on a reported and constant currency basis, net revenues grew two percent reflecting direct-to-consumer expansion and performance, partially offset by lower franchise and wholesale revenues. Operating income decreased due to lower gross margins and higher investment in retail expansion.
Cash Flow and Balance Sheet
At
On
Investor Conference Call
The company’s first-quarter 2017 investor conference call will be available through a live audio webcast at https://engage.vevent.com/rt/levistraussao~89279970 on
About
Forward Looking Statement
This news release and related conference call contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to: inventory levels, including year-end levels; full year gross margin; SG&A and advertising costs; capital expenditures; debt cost reduction; profitable revenue and gross margin growth; growing the
Non-GAAP Financial Measures
The company reports its financial results in conformity with generally accepted accounting principles in
The company presents non-GAAP financial measures, such as Free Cash Flow, Net Debt and Adjusted EBIT, because it believes they provide investors, financial analysts and the public with additional information to measure performance and evaluate the company’s ability to service its debt and may be useful for comparing its operating performance with the performance of other companies that have different financing and capital structures and tax rates. The company further believes these measures may be useful for period-over-period comparisons of underlying business trends and its ongoing operations. See “RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR THE FIRST QUARTER OF 2017” below for reconciliation to the most comparable GAAP financial measures.
Constant currency
Constant-currency comparisons are based on translating local currency amounts in the prior-year period at actual foreign exchange rates for the current year. The company routinely evaluates its financial performance on a constant-currency basis in order to facilitate period-to-period comparisons without regard to the impact of changing foreign currency exchange rates.
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CONSOLIDATED BALANCE SHEETS | ||||||||||
(Unaudited) | ||||||||||
|
|
|||||||||
2017 |
2016 |
|||||||||
(Dollars in thousands) | ||||||||||
ASSETS | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 368,623 | $ | 375,563 | ||||||
Trade receivables, net of allowance for doubtful accounts of |
406,689 | 479,018 | ||||||||
Inventories: | ||||||||||
Raw materials | 3,157 | 2,454 | ||||||||
Work-in-process | 2,309 | 3,074 | ||||||||
Finished goods | 761,761 | 710,653 | ||||||||
Total inventories | 767,227 | 716,181 | ||||||||
Other current assets | 116,642 | 115,385 | ||||||||
Total current assets | 1,659,181 | 1,686,147 | ||||||||
Property, plant and equipment, net of accumulated depreciation of |
380,389 | 393,605 | ||||||||
|
234,518 | 234,280 | ||||||||
Other intangible assets, net | 42,929 | 42,946 | ||||||||
Deferred tax assets, net | 504,700 | 523,101 | ||||||||
Other non-current assets | 108,598 | 107,017 | ||||||||
Total assets | $ | 2,930,315 | $ | 2,987,096 | ||||||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||||
Current Liabilities: | ||||||||||
Short-term debt | $ | 34,150 | $ | 38,922 | ||||||
Accounts payable | 256,738 | 270,293 | ||||||||
Accrued salaries, wages and employee benefits | 141,992 | 180,740 | ||||||||
Restructuring liabilities | 2,243 | 4,878 | ||||||||
Accrued interest payable | 20,397 | 5,098 | ||||||||
Accrued income taxes | 13,260 | 9,652 | ||||||||
Other accrued liabilities | 263,003 | 252,160 | ||||||||
Total current liabilities | 731,783 | 761,743 | ||||||||
Long-term debt | 1,006,625 | 1,006,256 | ||||||||
Long-term capital leases | 15,428 | 15,360 | ||||||||
Postretirement medical benefits | 98,302 | 100,966 | ||||||||
Pension liability | 337,487 | 354,461 | ||||||||
Long-term employee related benefits | 67,924 | 73,243 | ||||||||
Long-term income tax liabilities | 20,876 | 20,150 | ||||||||
Other long-term liabilities | 58,724 | 63,796 | ||||||||
Total liabilities | 2,337,149 | 2,395,975 | ||||||||
Commitments and contingencies | ||||||||||
Temporary equity | 86,197 | 79,346 | ||||||||
Stockholders’ Equity: | ||||||||||
|
||||||||||
Common stock — |
375 | 375 | ||||||||
Additional paid-in capital | — | 1,445 | ||||||||
Retained earnings | 921,943 | 935,049 | ||||||||
Accumulated other comprehensive loss | (417,558 | ) | (427,314 | ) | ||||||
Total |
504,760 | 509,555 | ||||||||
Noncontrolling interest | 2,209 | 2,220 | ||||||||
Total stockholders’ equity | 506,969 | 511,775 | ||||||||
Total liabilities, temporary equity and stockholders’ equity | $ | 2,930,315 | $ | 2,987,096 | ||||||
The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
Three Months Ended | ||||||||||
|
|
|||||||||
2017 | 2016 | |||||||||
(Dollars in thousands) | ||||||||||
(Unaudited) | ||||||||||
Net revenues | $ | 1,101,991 | $ | 1,056,500 | ||||||
Cost of goods sold | 537,438 | 496,902 | ||||||||
Gross profit | 564,553 | 559,598 | ||||||||
Selling, general and administrative expenses | 456,213 | 441,163 | ||||||||
Restructuring, net | — | 1,848 | ||||||||
Operating income | 108,340 | 116,587 | ||||||||
Interest expense | (19,934 | ) | (14,902 | ) | ||||||
Other income (expense), net | 408 | (2,219 | ) | |||||||
Income before income taxes | 88,814 | 99,466 | ||||||||
Income tax expense | 28,693 | 33,175 | ||||||||
Net income | 60,121 | 66,291 | ||||||||
Net loss (income) attributable to noncontrolling interest | 22 | (455 | ) | |||||||
Net income attributable to |
$ | 60,143 | $ | 65,836 | ||||||
The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||
Three Months Ended | ||||||||||
|
|
|||||||||
2017 | 2016 | |||||||||
(Dollars in thousands) | ||||||||||
(Unaudited) | ||||||||||
Net income | $ | 60,121 | $ | 66,291 | ||||||
Other comprehensive income (loss), before related income taxes: | ||||||||||
Pension and postretirement benefits | 3,691 | 3,582 | ||||||||
Net investment hedge losses | — | (664 | ) | |||||||
Foreign currency translation gains (losses) | 7,684 | (7,575 | ) | |||||||
Unrealized gains (losses) on marketable securities | 1,000 | (1,829 | ) | |||||||
Total other comprehensive income (loss), before related income taxes | 12,375 | (6,486 | ) | |||||||
Income taxes related to items of other comprehensive income | (2,811 | ) | (1,224 | ) | ||||||
Comprehensive income, net of income taxes | 69,685 | 58,581 | ||||||||
Comprehensive loss (income) attributable to noncontrolling interest | 214 | (674 | ) | |||||||
Comprehensive income attributable to |
$ | 69,899 | $ | 57,907 | ||||||
The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
Three Months Ended | ||||||||||
|
|
|||||||||
2017 | 2016 | |||||||||
(Dollars in thousands) | ||||||||||
(Unaudited) | ||||||||||
Cash Flows from Operating Activities: | ||||||||||
Net income | $ | 60,121 | $ | 66,291 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 27,386 | 25,111 | ||||||||
Unrealized foreign exchange losses | 5,373 | 8,348 | ||||||||
Realized gain on settlement of forward foreign exchange contracts not designated for hedge accounting | (9,076 | ) | (12,967 | ) | ||||||
Employee benefit plans’ amortization from accumulated other comprehensive loss and settlement loss | 3,682 | 3,734 | ||||||||
Stock-based compensation | 2,350 | (1,053 | ) | |||||||
Other, net | 1,554 | 1,565 | ||||||||
Change in operating assets and liabilities: | ||||||||||
Trade receivables | 69,935 | 104,777 | ||||||||
Inventories | (53,432 | ) | (134,923 | ) | ||||||
Other current assets | (1,961 | ) | (2,758 | ) | ||||||
Other non-current assets | (2,928 | ) | (1,425 | ) | ||||||
Accounts payable and other accrued liabilities | 4,611 | 49,462 | ||||||||
Restructuring liabilities | (2,652 | ) | (5,614 | ) | ||||||
Income tax liabilities | 17,732 | 23,654 | ||||||||
Accrued salaries, wages and employee benefits and long-term employee related benefits | (72,555 | ) | (78,302 | ) | ||||||
Other long-term liabilities | (1,091 | ) | 178 | |||||||
Net cash provided by operating activities | 49,049 | 46,078 | ||||||||
Cash Flows from Investing Activities: | ||||||||||
Purchases of property, plant and equipment | (25,073 | ) | (30,725 | ) | ||||||
Proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting | 9,076 | 12,967 | ||||||||
Net cash used for investing activities | (15,997 | ) | (17,758 | ) | ||||||
Cash Flows from Financing Activities: | ||||||||||
Proceeds from senior revolving credit facility | — | 75,000 | ||||||||
Repayments of senior revolving credit facility | — | (154,000 | ) | |||||||
Proceeds from short-term credit facilities | 9,911 | 9,208 | ||||||||
Repayments of short-term credit facilities | (7,774 | ) | (6,763 | ) | ||||||
Other short-term borrowings, net | (8,288 | ) | 3,102 | |||||||
Repurchase of common stock | (193 | ) | — | |||||||
Dividend to stockholders | (35,000 | ) | — | |||||||
Other financing, net | (1,158 | ) | (118 | ) | ||||||
Net cash used for financing activities | (42,502 | ) | (73,571 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 2,510 | (2,219 | ) | |||||||
Net decrease in cash and cash equivalents | (6,940 | ) | (47,470 | ) | ||||||
Beginning cash and cash equivalents | 375,563 | 318,571 | ||||||||
Ending cash and cash equivalents | $ | 368,623 | $ | 271,101 | ||||||
Noncash Investing Activity: | ||||||||||
Purchases of property, plant and equipment not yet paid at end of period | $ | 7,103 | $ | 14,244 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||
Cash paid for interest during the period | $ | 1,456 | $ | 1,176 | ||||||
Cash paid for income taxes during the period, net of refunds | 11,677 | 11,164 | ||||||||
The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
FOR THE FIRST QUARTER OF 2017
The following information relates to non-GAAP financial measures, and should be read in conjunction with the investor call held on
Free cash flow: |
||||||||||
Three Months Ended | ||||||||||
|
|
|||||||||
(Dollars in millions) | ||||||||||
(Unaudited) | ||||||||||
Most comparable GAAP measure: | ||||||||||
Net cash provided by operating activities | $ | 49.0 | $ | 46.1 | ||||||
Non-GAAP measure: | ||||||||||
Net cash provided by operating activities | $ | 49.0 | $ | 46.1 | ||||||
Purchases of property, plant and equipment | $ | (25.1 | ) | (30.7 | ) | |||||
Proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting | $ | 9.1 | 13.0 | |||||||
Dividend to stockholders | $ | (35.0 | ) | — | ||||||
Free cash flow | $ | (2.0 | ) | $ | 28.4 | |||||
Net debt: |
||||||||||
(Unaudited) | ||||||||||
|
|
|||||||||
(Dollars in millions) | ||||||||||
Most comparable GAAP measure: | ||||||||||
Total debt | $ | 1,040.8 | $ | 1,045.2 | ||||||
Non-GAAP measure: | ||||||||||
Total debt | $ | 1,040.8 | $ | 1,045.2 | ||||||
Cash and cash equivalents | (368.6 | ) | (375.6 | ) | ||||||
Net debt | $ | 672.2 | $ | 669.6 | ||||||
Adjusted EBIT: |
|||||||||
Three Months Ended | |||||||||
|
|
||||||||
(Dollars in millions) | |||||||||
(unaudited) | |||||||||
Most comparable GAAP measure: | |||||||||
Net income | $ | 60.1 | $ | 66.3 | |||||
Non-GAAP measure: | |||||||||
Net income | 60.1 | 66.3 | |||||||
Income tax expense | 28.7 | 33.2 | |||||||
Interest expense | 19.9 | 14.9 | |||||||
Other (income) expense, net | (0.4 | ) | 2.2 | ||||||
Restructuring and related charges, severance and other, net | 1.3 | 7.7 | |||||||
Adjusted EBIT | $ | 109.6 | $ | 124.3 | |||||
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Investor Contact:
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