Levi Strauss & Co. is working to pay off debt incurred by the jeans maker at the start of the pandemic, CFO Harmit Singh said, joining other publicly traded companies that have reduced their financial obligations.

San Francisco-based Levi’s last April raised half a billion dollars in bonds to prepare for financial uncertainty after the company’s stores and those operated by third-party retailers were temporarily closed due to Covid-19 restrictions.

The coronavirus has taken a heavy toll on the company’s finances, with net revenues falling to $ 4.5 billion in the fiscal year ended Nov. 29, down 23% from 2019. It recorded a net loss of $ 127.14 million for the year, compared to net income. of $ 395 million in 2019.

Harmit Singh, CFO of Levi.


Photo:

Jeenah Moon / Bloomberg News

Business at Levi’s has picked up in recent months as restrictions were lifted and consumer spending returned. Revenue reached $ 2.58 billion in the six-month period ended May 30, up nearly 29% from the prior year period. “Last year it was about managing the crisis. This year it’s all about coming out stronger, ”Singh said.

Reducing debt and spending less money on interest payments are key parts of this effort to strengthen the balance sheet. Earlier this year, Levi’s repaid $ 300 million of the $ 500 million borrowed last year, using a feature that allowed prepayment for a 2.5% fee. Still, that turned out to be less than the 5% Levi’s was paying in interest on the bond.

“When you do the math, the excess interest was greater than the premium paid,” Singh said.

Levi’s also refinanced $ 500 million in senior bonds, which reduced its interest charges from 5% to 3.5% and extended the maturity from 2025 to 2031. Lower interest charges allow the company to save about $ 20 million a year, Singh said. Levi’s plans to repay the overdue $ 200 million in the coming months, he said.

The company reported total debt of $ 1.27 billion at the end of its most recent quarter, up from $ 1.81 billion a year earlier. Its total debt to earnings ratio before interest, taxes, depreciation and amortization stood at 2 at the end of May, down from 4.1 in May 2020. The company has access to more than $ 2 billion of cash, enabling it to invest in his business, says Singh. “Access to this liquidity and the stronger balance sheet allow us to grow,” he said.

Debt reduction efforts and strong equity markets lowered the median debt-to-equity ratio of 422 U.S. companies with investment-grade credit ratings to 98% in the first quarter, from 106, according to S&P Market Intelligence. , 3% a year ago. a data provider.

The measure, which calculates total liabilities as a percentage of equity, also fell for 528 unrated companies, including companies such as Levi’s. The debt-to-equity ratio of these companies was 139.7% in the first quarter, down from 154.6% a year earlier. Interest coverage ratios have also improved, S&P said.

Analysts praised Levi’s actions for reducing debt and interest charges. “They have completely repaired the balance sheet,” said Robert Drbul, senior managing director of financial services firm Guggenheim Partners LLC, adding that funds raised last year were intended to protect against the impact of the pandemic.

How will the pandemic affect US retailers? As states across the country struggle to resume operations, the WSJ is investigating the changing retail landscape and how consumers might shop in a post-pandemic world.

Write to Nina Trentmann at [email protected]

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Appeared in the print edition of July 16, 2021 under the title “Levi’s Bids To Reduce Debt Amid Rebond”.



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