Levi’s Chip Bergh optimistic for 2022 after posting big gains – WWD
It was full speed ahead at Levi Strauss & Co. last year.
And with consumption high, a booming denim trend, the world becoming more casual and the brand expanding into high-margin categories like women’s, chief executive Chip Bergh told WWD that growth will only continue this year.
Of course, the world is still battling COVID-19 and the ensuing supply chain issues that cost Levi’s fourth-quarter sales $50 million.
But overall, 2021 turned out to be not just a remarkable year, but remarkable in the way that tends to make accountants happy.
Levi’s closed its fiscal year Nov. 28, about two months ahead of most other retailers, and Bergh said business continued to grow during the holiday season.
So some good news from the denim maker could be a welcome sign for the rest of the industry, especially since many of the changes that have buoyed Levi’s – from cost restructuring to more comprehensive sales – will also help. other major fashion companies.
Levi’s posted net profits of $554 million last year, an increase of $159 million from 2019. And two-year sales were flat at $5.8 billion, skipping the distortion of first COVID-19 lockdowns in 2020.
“The company is as strong today as it has been for decades,” Bergh said. “We feel really, really good about the results. Gross margins are significantly higher than in 2019. For the full year, our [adjusted] gross margins were 57.9%, 410 basis points ahead of 2019.
“What’s driven the gross margins is a lot of the price increases and also the decline in promotions,” he said. “We have maintained the inventory very well. It was a much less promotional year, a lot less promotional holidays and that carries over to the bottom line.
Levi’s is also expanding into higher-margin businesses, such as direct-to-consumer, international, and women’s, where it still sees itself as underpenetrated.
While there are still big question marks for Levi’s and everyone else — including the pandemic, inflation, and the supply chain — Bergh looks at it all and feels very optimistic.
The company forecast revenue this year to rise 11% to 13%, ranging between $6.4 billion and $6.5 billion.
“We are planning this year assuming supply chain issues will continue throughout the year,” Bergh said. (The $50 million in sales Levi’s lost in the fourth quarter due to unmet demand was worse than the expected $30 million and represented about 3 points of unrealized growth).
But with everything else, fashion companies are learning to live with supply chain disruptions.
“Most of what we do is essential – a pair of faded 501s doesn’t change from season to season,” the CEO said. “As a result, it’s less risky for us to bring in inventory to mitigate risk.”
Bergh said shoppers were just willing to spend.
“We checked just about every data point we could, including credit card spending earlier this year and there doesn’t appear to be any disappointment,” he said. “We continue to be bullish on the economy and the consumer, but we are keeping our eye on it.”
And Bergh is betting that when consumers do spend, they’ll stay in Levi’s sweet spot.
“The denim cycle is real and half of our revenue last quarter came from these looser, looser fits,” he said. “And the trend towards precariousness, it’s real, it’s happening on a global scale.”
For the fourth quarter, Levi’s earnings rose to $153 million, or 37 cents per diluted share, from $56.7 million, or 14 cents, a year earlier. Sales for the three months rose 21.6% to $1.7 billion.
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