Levi Strauss & Co. (LEVI Quick QuoteLEVI - Free Report) reported stellar first-quarter fiscal 2022 results, wherein both sales and earnings beat the Zacks Consensus Estimate and improved year over year. Impressive gains from its e-commerce business and strategic efforts, including brand strength drove the quarterly performance.

Shares of this San Francisco, CA-based player have decreased 15% in the past three months compared with the industry’s 19.7% fall.

Image Source: Zacks Investment Research

Q1 Metrics

LEVI’s adjusted earnings of 46 cents a share outpaced the Zacks Consensus Estimate of 42 cents. Moreover, quarterly earnings increased 35.3% from the year-ago quarter’s level.

Net revenues of $1,591.6 million came above the Zacks Consensus Estimate of $1,555 million. Further, the metric jumped 22% on a reported basis and 26% on constant-currency basis excluding adverse currency impacts of $38 million.

Direct-to-consumer (DTC) net revenues grew 35% on gains from the company-operated stores and e-commerce business. As a rate of quarterly revenues, sales from DTC stores and e-commerce accounted for 30% and 9%, respectively, for a total of 39%. Further, wholesale net revenues rose 15% on robust demand for the Levi's brand, globally.

Levi Strauss’ global digital revenues grew roughly 16% year over year, comprising nearly 25% of first-quarter 2022 revenues.

Segment wise, net revenues in the Americas jumped 26.4% year over year to $765.9 million, while in Europe, the metric increased 12.6% to $469.4 million and that in Asia, grew 10.9% to $258.4 million. LEVI’s newly-formed Other Brands segment, consisting of Dockers and Beyond Yoga, reported revenues of $97.9 million, increasing 96.2% year over year.

Margins & Costs

Adjusted gross profit came in at $945.6 million, significantly up from $752.8 million recorded in the year-ago quarter. Excluding the pandemic and acquisition-related charges, a gross margin of 59.4% expanded 170 basis points (bps) year over year.

Adjusted SG&A jumped 22.3% to $707.7 million due to increased selling and distribution expenses along with higher incentive compensation. As a rate of revenues, adjusted SG&A jumped 20 bps to 44.5%, reflecting elevated investments in advertising, and promotion and higher distribution expenses.

Adjusted EBIT came in at $237.9 million, increasing 36.7% from the year-earlier quarter’s figure. Also, adjusted EBIT margin was 14.9%, expanding 160 bps year over year on higher sales and gross margin.

Other Financials

Levi Strauss ended the quarter with cash and cash equivalents of $678.3 million and short-term investments of $98.8 million. These were complemented by an amount of $837 million available under its revolving credit facility, resulting in a total liquidity position of $1.6 billion.

As of Feb 27, 2022, long-term debt and total shareholders’ equity were $1,020.5 million and $1,723.6 million, respectively. Total inventories rose 20% year over year to $1,006.2 million. During the three months of fiscal 2022, cash from operations was $86 million on increased collections of trade receivables, partly offset by an elevated inventory spend and SG&A expenses. This currently Zacks Rank #4 (Sell) LEVI’s adjusted free cash flow was a negative $124 million during the same period.

During the fiscal first quarter, Levi Strauss repurchased 3 million shares. Subsequent to the quarter end, LEVI completed the $200-million share buyback program by buying back an additional 2 million shares for $40 million. Management declared a cash dividend of 10 cents per share totaling roughly $40 million, payable May 24, 2022, or after to its shareholders of record as of May 6.

Outlook

Given Levi Strauss strength in business and growth strategies, management remains optimistic about fiscal 2022. It continues to witness robust demand for the products across geographies and categories. It reaffirmed guidance for fiscal 2022.

Levi Strauss continues to project a net revenue increase of 11-13% from the fiscal 2021 level in the band of $6.4-$6.5 billion. Adjusted EPS is guided between $1.50 and $1.56, up from $1.47 earned in fiscal 2021.

The Zacks Consensus Estimate for fiscal 2022 sales and earnings is currently pegged at $6.5 billion and $1.52, respectively.

Solid Picks in Retail

Some better-ranked stocks in the broader Retail sector are Capri Holdings (CPRI Quick QuoteCPRI - Free Report) , Boot Barn Holdings (BOOT Quick QuoteBOOT - Free Report) and Tapestry (TPR Quick QuoteTPR - Free Report) .

Capri Holdings, which offers accessories and footwear, sports a Zacks Rank #1 (Strong Buy) at present. CPRI has an expected earnings per share (EPS) growth rate of 53.9% for three-five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Capri Holdings’ current financial-year sales and EPS suggests growth of 37% and 215.8%, respectively, from the year-ago corresponding figures. CPRI has a trailing four-quarter earnings surprise of 1,018.2%, on average.

Boot Barn Holdings, a lifestyle retailer of western and work-related footwear, apparel and accessories, presently has a Zacks Rank #2 (Buy). BOOT has an expected EPS growth rate of 20% for three-five years.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial-year sales and EPS suggests growth of 62.6% and 220.8%, respectively, from the year-ago corresponding figures. BOOT has a trailing four-quarter earnings surprise of 47.1%, on average.

Tapestry, a renowned designer of fine accessories, presently carries a Zacks Rank of 2. TPR has a trailing four-quarter earnings surprise of 28.2%, on average.

The Zacks Consensus Estimate for Tapestry’s current-year sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the corresponding year-ago levels. TPR has an expected EPS growth rate of 10% for three-five years.