Denim clothing from Levi Strauss & Co. flew off the shelves in the second quarter of 2022 as people started returning to work and social engagements wearing the casual looks that became popular during lockdowns. According to Levi Strauss, the results for the three months ending May 29, 2022, indicated net revenue of $1.5 billion, which climbed 20% in constant currency terms and 15% on a reported basis, minus $47 million in adverse currency impacts.
Revenue Growth follows the Easing of Pandemic-related Restrictions
Company-operated stores reported 16% increase in direct-to-consumer (DTC) net revenue. DTC stores and ecommerce accounted for 37% of the company’s net revenue in the second quarter, with sales of 30% and 7%, respectively. Around 20% of the company's net revenue in Q2 2022 came from its global digital business, which grew 3% over that in the previous corresponding period. The increase in Levi's sales comes as a number of retailers struggle with excess inventory that could limit supplier orders. With plans to accelerate investments in storefronts and online platforms, the jeans manufacturer also intends to strengthen its DTC business.
Increase in Demand for Apparel
The online retail market in the US is gradually returning to its pre-pandemic level as consumers are now spending more on dressier clothing and accessories, besides travel and entertainment. Due to the abundance of products such as electronics, casual clothing, and home goods that were in huge demand during the height of the pandemic, several shops were caught off guard. Inflation is leading to an increase the cost of essentials such as food and gas at the same time, leaving less money for discretionary spending.
The Supply Chain Conundrum
Inventories are increasing at various retail stores. Retail companies arranged orders with foreign factories in advance due to the closure of factories, delay in shipping, and lengthy production cycles, which made it challenging to match supply with the quick changes in demand from customers. At Levi, inventory increased 11% over that in the previous quarter and 29% in the second quarter of 2021. Target, a major customer of Levi, issued a profit warning in June due to excess inventory, which forced it to cancel vendor orders and extend steep discounts on undesirable items. The company said that the growth was in line with expectations and that it was the result of initiatives to lower supply-chain risk and meet the demand from customers. Although Levi's increased prices to offset the increasing costs of labor and raw materials, the company has not yet noticed a significant change in demand for its baggy jeans and other loose-fitting clothing.
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