Levi Strauss & Co.’s finance chief is ramping up the jeans maker’s capital spending, aiming to spend two-thirds of it on digital initiatives to aid the company’s recovery from the effects of the coronavirus pandemic.
San Francisco-based Levi’s this year plans to allocate about $210 million toward capital expenditures, up from last year’s budget, which was trimmed to around $130 million, according to Chief Financial Officer Harmit Singh. “We are reallocating our costs in a way that we drive synergies and savings, and invest in areas of growth,” Mr. Singh said.
Levi’s on Thursday reported net revenue of $1.31 billion for the quarter ended Feb. 28, down 13% compared with the prior-year quarter, before the pandemic hit Europe and the U.S. Digital revenue made up 26%, or about $340 million of net revenue in the quarter, up from about 16% during the prior-year period.
The company expects sales to grow as increasing supplies of Covid-19 vaccines and fresh stimulus funds boost the economic recovery. Levi’s forecasts net revenue will increase by 24% to 25% during the first half of the year, compared with the first half of fiscal 2020 when it booked $2 billion in net revenue. The guidance is “largely driven by a faster recovery and a more optimistic view that we have,” Mr. Singh said.
Levi’s, which temporarily closed many of its stores because of local lockdown restrictions in 2020, has been shifting toward e-commerce sales and expanded its online presence, by offering virtual styling and shopping services, for example. Some of the about 1,540 locations the company owns and operates—consisting of stores as well as shop-in-shops—are currently shut amid the resurgence of coronavirus infections, particularly in Europe. Still, it plans to open 81 new stores in 2021.
Harmit Singh, CFO of Levi Strauss & Co.
Photo: Jeenah Moon/Bloomberg News
The company is looking to expand its digital offerings and increase its use of data analytics and artificial intelligence to forecast consumer demand and set the right prices, Mr. Singh said. “As we decide about pricing and promotions, it tells us how deep you can go,” Mr. Singh said about the company’s AI tool.
The digital initiatives include spending for Levi’s smartphone app, customer loyalty programs and expanding its “buy online, pick up in store” offering in Europe and Asia, he said.
Levi’s also wants to build out its distribution for e-commerce orders, which is largely run by third-party providers. “What this gives you is insight into inventory,” Mr. Singh said, adding that better insight into Levi’s stock helps drive efficiencies.
Levi’s last year reduced its costs, in part by cutting about 700 jobs in the U.S. It reported selling, general and administrative expenses of $583 million for the quarter ended Feb. 28, down 12% compared with the same period last year.
The company continues to “play offense” from an investment standpoint while reducing SG&A expense in other areas, analysts at investment firm Guggenheim Securities LLC said in a note to clients.
Levi’s will use some funds for the launch of its new enterprise-resource-management system, which ties together information on finance, inventory management, supply chains and human-resource management. “We started in Mexico and are now rolling it out to Canada and the U.S.,” Mr. Singh said.
The recent trend toward more casual clothing—which Levi’s promoted during the pandemic months—won’t reverse with more people returning to their offices, Mr. Singh said.
“We think underlying brand strength, new distribution opportunities and an accelerated shift to more comfortable apparel will allow [Levi’s] to exit the pandemic better positioned than peers,” Lorraine Hutchinson, a research analyst at Bank of America Corp., said in a note to clients.
Write to Nina Trentmann at [email protected]
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