Levi's CFO: 'I firmly believe we have pricing power'

Dive Brief:

Denim and apparel giant Levi Strauss & Co. saw a 156% year-over-year revenue jump and is raising its fiscal year outlook, the company said in its second quarter earnings report.
“People are out there shopping,” Levi’s CFO Harmit Singh told Yahoo, adding that returns to offices and a renewed interest in denim bodes well for the brand. “The apparel category has expanded, [and] denim is growing fast.”
The consistently affordable price of Levi’s products reflect their strong value, Singh said. “I firmly believe we have pricing power. It's always better to price when the brand's hot, and the products are relevant than when you need to price, and we continue to do that.”

Dive Insight:

The brand has grown 5% globally over the second quarter, Singh, its CFO since 2013, said, “and our view is we are in the early innings of pricing.”

“We generated strong momentum in the second quarter with the accelerated recovery of our revenues and delivered growth across all regions and channels,” Levi’s CEO Chip Bergh said in a statement. “This was underscored by the strength of our brands and our ability to capitalize on evolving denim trends and a continued shift to casualization.”

“Revenues in most markets are recovering faster than anticipated, and we are emerging from the pandemic with sustainable and improved structural economics." Singh added, discussing the brand’s adjusted expectations. “Our balance sheet remains strong and we continue to return cash to shareholders, with dividends now back to pre-pandemic levels.”

As the brand introduces more innovation and relevant products, which have higher average unit retail [AUR] prices, consumers can count on price increases.

“Take our looser, baggier fits: they're higher AURs, the price is a little higher, and they’re resonating really well with the consumer, so it's clearly an opportunity for us,” Singh said. “We are also using AI and data analytics to manage promotion to determine where we can price and where we can't, and that's making a big difference.”

Over the past year and a half, Levi’s has pivoted its model from prioritizing brick-and-mortar retail to elevating e-commerce and digital, which currently make up about a quarter of its business. Pre-pandemic, digital sales comprised about “mid-teens” percent of its revenue.

“Our digital business is up and growing big time, and has doubled over the years,” Singh said. “As lockdowns lift, most of our European stores are open. Business is recovering and growing, [and] we have a huge potential.”

Structurally, Levi’s is emerging from the pandemic much stronger than it entered it, Singh said. Its digital ecosystem has grown 75% over the second quarter of 2020. With a record 58.8% gross margin, driven by upped direct-to-consumer net revenues and price increases, its most recent quarter was its third consecutive quarter of increased gross margins.

The focus on digital allows Levi’s to connect directly with its customers, and reach younger consumers more directly. It recently introduced an app in the US, of which 70% of users are young adults. “It’s definitely making a big difference in allowing us to exemplify and endure our brand,” Singh said.

When it comes to finding and retaining staffers to work in brick-and-mortar stores, Levis’ attrition rates are lower than most, Singh said. In its second quarter 2020 earnings report, Levi’s laid off over 700 workers, 15% of its workforce, which Singh called the “toughest” call of the pandemic.

The savings resulting from the cut, which at the time Bergh and Singh estimated to be $100 million, went directly into digital investments.

“We are ensuring the total rewards we offer our employees are competitive in the marketplace,” Singh said of its current in-person staff. “We’re seeing normal pressures, but we’ve been able to withstand them and ensure our employees are servicing our consumers with the same service levels we maintained pre-pandemic.”

The brand will likely see “some wage inflation,” Singh acknowledged, but the company “will be able to withstand that, just given the brand we are, the service levels we provide, and the benefits we provide to our employees.