Q2 Earnings: The Path Forward for LS&Co.

Chip Bergh, President & CEO
Levi Strauss & Co.
July 7, 2020

The following message is an excerpt of an email originally shared with employees from CEO Chip Bergh following today’s Q2 Earnings results. Read the full press release here.

Today we announced our Q2 results, as well as our plan to reduce our corporate (non-retail and non-manufacturing) headcount by about 700 positions, or roughly 15% globally. The Q2 results highlight the difficult external environment we’ve been navigating the last several months. The majority of our owned-and-operated and franchise stores, as well as our wholesale partners’ stores, were closed for roughly 10 out of the 13 weeks due to the COVID-19 pandemic. Although our online sales accelerated, it was not nearly enough to offset the revenue impact of closed doors. And, while about 90% of our stores have now reopened around the world, as well as most of our franchise and wholesale partner doors, traffic and revenues continue to lag behind prior year. We expect that a full recovery to pre-COVID levels of revenue will likely take some time and, as a result, we must aggressively cut costs in some areas so we can continue to invest in building our brands and driving growth.

Specifically in Q2, revenues declined 62% overall as well as in every region (-59% in LSA, -68% in LSE and -61% in AMA) — all on a reported basis and versus prior year. Even more dramatic declines in brick and mortar, franchise and wholesale were partially offset by strong ecommerce growth of 25% in the quarter, which grew progressively stronger each month, finishing with May up 79% versus prior year. As a result of dramatically lower revenues, we also recorded a quarterly Adjusted EBIT loss of $206 million — the first time we’ve reported negative EBIT in over 16 years — despite cutting almost $150 million in SG&A in the quarter (roughly a 25% decline versus plan).

Although we are starting to see some green shoots, we need to continue to be cautious. We still face many unknowns. We continue to see COVID-19 infection rates increasing in many states here in the U.S. and in hotspots around the world. We also know there could be a second wave, wholesale partners could be further impacted or supply channels may be challenged, just to name a few possibilities. The depth and breadth of a global recession is a big unknown. And the entire industry continues to be challenged by consumer fears about the pandemic, individual financial security and the economy overall. We must do what I always advocate for: (1) focus on what’s within our own control; and (2) plan for the worst and hope for the best.

Taking Care of Our Employees

Workforce reductions are hard no matter what, but I am particularly aware of the extraordinary circumstances created by the COVID-19 crisis. So, consistent with our values, we are taking steps to take care of our people as best as we can and enhance our benefits available to impacted employees in countries where it is possible. As always, we will follow all local laws, regulations and practices as we implement these proposed workforce actions, including informing and consulting works councils as necessary.

The specifics will vary by country, but most departing employees will receive severance packages and notice periods (including paid nonworking time, in some cases). They can retain their company-issued computers and phones, and in many locations will receive enhanced outplacement and transition assistance. They will also be eligible for Red Tab Foundation support for an additional year, as well as access to our Employee Assistance Program. In addition, we will make sure they have access to basic healthcare, either through social, government-mandated or company-sponsored programs, understanding that these kinds of programs are different in each market. Knowing that the cost of health insurance can be especially burdensome in the U.S., we will be subsidizing continuation coverage (often called COBRA) for a year.

As with all the actions we are taking, our intent is to treat our employees with empathy and respect, and to support everyone who is being impacted during this difficult time.

Leadership Transition

I would also like to announce that [Asia] President David Love will be retiring. David has been with LS&Co. for nearly 40 years in a variety of roles, he started as a planner and rose to top roles in the company, including chief supply chain officer and chief transformation officer.

He has always embodied “Company First” and been willing to step up and serve where he’s most needed. His legacy includes spearheading the creation of the Eureka Innovation Lab, being a tireless champion for sustainability — including helping to launch our Terms of Engagement in 1991 — and earning the respect and trust of his team and partners around the world and across LS&Co.

David’s last day will be January 31, 2021. He will be greatly missed, but I know he is looking forward to being able to spend more time with his beloved wife, Jayne; daughter, Nicole; and son, Connor. But for now, he will be focused on leading our Asia business during what has been one of the most challenging years in business. We’ll continue to rely on his steady hand, his advocacy for his team and his deep knowledge of every aspect of the business through his last day.

Looking Ahead

Lastly, I want to acknowledge how difficult these last few months have been… To our colleagues who are staying, and for those who will be leaving, I thank you all for your hard work and commitment during this particularly challenging time.

In our 167-year history, we’ve weathered many storms. I believe this will be no different. Although these layoffs are painful, they are necessary and will provide us with a path forward so we can be the strongest possible business — and employer — for the next 167 years.