Levi Strauss CEO Chip Bergh: Coronavirus pandemic will separate retail’s winners and losers

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KEY POINTS
  • Levi Strauss, which has been around for 167 years, is going to use COVID-19 “as an opportunity to come out stronger on the other side,” CEO Chip Bergh says.
  • The crisis “will further separate the winners and losers,” Bergh adds.
  • Levi Strauss expects to take a “materially significant” hit during the second quarter of 2020, because of the pandemic.
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Levi Strauss CEO Chip Bergh said the coronavirus pandemic “will further separate the winners and losers” in the retail industry today.

“The brands that are going to win are going to be the ones that have deep connections,” with consumers, Bergh told CNBC in an interview on Tuesday afternoon. “We are going to double down on the things that are working.”

Levi Strauss, which has been around for 167 years, is going to use COVID-19 “as an opportunity to come out stronger on the other side,” Bergh added. “We’ve been through it all … the Spanish flu. No other apparel company can say that.”

The company on Tuesday reported its first-quarter 2020 results, for the period ended Feb. 23. Levi Strauss said it saw a boost from Black Friday week. However, the coronavirus outbreak that started in China roughly during the middle of the quarter hit the period’s net revenue in Asia by about $20 million.

The company reported net income of $153 million, or 37 cents per share, compared with $147 million, or 37 cents a share, a year earlier. Adjusted quarterly earnings were 40 cents per share, 5 cents better than analysts were expecting, based on Refinitiv data.

Revenue rose to $1.51 billion from $1.44 billion a year ago, better than the $1.47 billion analysts were anticipating.

Levi Strauss said all but six stores in mainland China have reopened after a lockdown to stop the spread of the coronavirus, including its biggest China location in Wuhan, where the virus emerged. Traffic there is still below year-ago levels, but is progressing week by week, according to Bergh. E-commerce remains strong, he said.

The company said that because its bricks-and-mortar stores across Europe and North America, in addition to other parts of the world, remain closed, Levi Strauss expects to take a “materially significant” hit during the second quarter of 2020.

It said it plans to furlough all of its retail store staff in the U.S. Levi Strauss had about 7,300 U.S. employees as of Nov. 24, according to its annual filing.

Levi said Tuesday that it has borrowed $300 million on a credit facility to strengthen its balance sheet.

Additionally, retail stores in North America will likely remain shuttered for longer than they were in China, Bergh said. “China was able … to manage the crisis a little bit differently,” he said.

Lululemon CEO Calvin McDonald said something similar about its reopening timeline when the athletic apparel brand reported earnings last month.

“We are really trying to learn from the reopening of stores in China,” Levi Strauss’ Bergh said. “What are [shoppers] concerned about when they come back to stores? What are they looking for?”

One example Levi Strauss is already seeing is that, as shoppers in China head back to stores, more women are looking for fashionable items, like wide-leg jeans, versus staples. “Women are sick of what they were wearing,” Bergh said.

The denim maker, meantime, has either halted or canceled all of its outstanding purchase orders for new merchandise from vendors — in cases where items were not completely finished. “We are trying to manage through this with [our partners],” Bergh said.

The CEO also cautioned that the retail environment is becoming increasingly reliant on using deep discounts during this pandemic to make sales. And that will weigh heavily on profits.

“I do think it is going to get very, very promotional,” he said. “We have resisted that temptation.”

Levi Strauss is not offering a full-year outlook at this time.

Shares of Levi Strauss were up 2.6% in after-hours trading Tuesday. The stock is down more than 35% this year. The company’s market cap is about $4.8 billion.

 

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