Levi Strauss (LEVI): Digital maintains momentum amid pandemic-induced store closures

Amid the COVID-19 pandemic, several retailers were forced to close their stores but in turn witnessed a pickup in their digital business. Levi Strauss & Co. (NYSE: LEVI) is the latest one to join this group. The denim giant, which reported its second quarter 2020 results on Tuesday, had to close most of its stores for the majority of the quarter but was able to offset the impact through the growth of its digital business.

Quarterly results

Net revenues declined 62% year-over-year to $498 million as stores remained closed for the most part of the quarter. The company incurred losses both on a reported and adjusted basis, with adjusted loss per share totaling $0.48 compared to EPS of $0.17 reported in the year-ago period.

Revenues declined across all geographic regions, with the highest drop of 68% in Europe. Revenues were down 59% in the Americas and 61% in Asia. Business was disrupted in all regions by store closures brought on by the pandemic.

Digital boom

From mid-March, most of Levi’s company-operated, franchise and wholesale customer retail locations remained closed across the Americas, Europe and most of Asia, with only a portion reopening by the end of May. The closures which lasted around 10 weeks adversely affected revenues, earnings and cash flows.

During this time, the company-operated ecommerce business saw a growth of 25% which, after a slight dip in March, picked up in April and climbed to 79% growth in May. In June, the business grew around 70%, which is over three times the pre-COVID level.  

“The pandemic is accelerating retail landscape shifts and consumer behavior in ways that play to the strength of the Levi’s brand. And 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.” – Chip Bergh, President and CEO

In the wake of the coronavirus outbreak, Levi rapidly deployed several omni-channel initiatives such as ship from store, buy online pick up in store, and virtual concierge. The company continued to improve its direct-to-consumer business through its mobile app and loyalty programs.

These initiatives benefited the ecommerce business which made up 15% of total revenues compared to 5% in the previous year. The pandemic has driven a shift in consumer behavior and has pushed more people to shop online.

The company’s ecommerce business grew more than 100% in the US and 35% in Europe in May compared to the same month a year ago. If the current momentum continues, Levi expects its ecommerce business to be profitable for the full year ahead of expectation.

Expense reduction and outlook  

Levi decided to cut its non-retail, non-manufacturing workforce by around 15%, which would come to around 700 positions. This move is expected to generate annualized savings of $100 million.

Levi is seeing early signs of recovery as around 90% of its stores worldwide have reopened and it saw strong revenue growth at around 40% of its company-operated stores in the final week of June. Due to the uncertainty surrounding the COVID-19 pandemic, the company does not expect revenues to return to pre-COVID levels until sometime in 2021.

The stock has dropped 34% since the beginning of the year and was down over 8% in afternoon hours on Wednesday.