Dive Brief:
- Levi’s inventory has come into line with its revenue, helping the apparel company beat its own estimates on gross margin, CEO and President Chip Bergh told analysts on the company’s third quarter conference call.
- For Q3, inventories were up 6% year over year by dollar value. More than two-thirds of the increase resulted from a change in terms with suppliers that has Levi’s taking ownership of inventory bound for the Americas closer to the point shipment, according to Chief Financial and Growth Officer Harmit Singh.
- As Levi’s looks at products beyond denim, it has also expanded its vendor base “to bring in vendors who have key capabilities and expertise in areas like tops or dresses et cetera,” President Michelle Gass said.
Dive Insight:
Levi’s joins a growing cohort of apparel companies that have — after more than a year of rightsizing — cleaned up their inventories, to the benefit of their bottom line. Management now expects inventory levels in Q4 to come in below last year by the period’s end, Singh said.
Inventory in Q3 was up only 1% year over year after accounting for the changes to supplier terms, which meant that Levi’s logged inventory value earlier than it would have at this time last year. Meanwhile, inventory in Levi’s U.S. business came in below last year.
Companywide, Levi’s shaved 17 percentage points off its inventory growth from last quarter. The progress is even sharper compared to last year’s inventory surge of 43%. Executives also noted that the the company’s fill rates have improved, helping to keep inventory in check.
Because of the elevated inventory levels of recent periods, operating Levi’s distribution centers has “been tough,” Singh said. “We really have been working collectively as a team to try and decongest ... our DCs, so that we could start servicing our customers and our stores.”
As for the changes to supplier terms, taking ownership of inventory at the point of shipment means Levi’s could take on more risks for any mishaps to product in transit.
Singh said the change was in line with how the apparel company handles shipments in Asia and Europe. The tweak was made possible by new enterprise planning software, and it “simplifies our global ways of working with suppliers in line with industry standards,” Singh added.
More broadly, Levi’s is changing its operations and supply chain as it builds out its direct-to-consumer capabilities.
“From an end-to-end supply chain, when you're in direct-to-consumer whether that's your stores or in e-comm, you want to be able to have the flexibility to chase into things that are working really well or pull back if they're not,” Gass said.
