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What consumers who are passionate about denim are paying attention to are: Levi Strauss & Company The company announced Wednesday that it is considering selling a new line of jeans, but its overall business is being held back by the Dockers brand, which it is currently considering selling.
Levi’s brand sales rose 5% in the fiscal third quarter, the biggest increase in two years, but overall revenue was flat and below Wall Street expectations.
Levi’s stock fell more than 8% in extended trading Wednesday.
Here’s how the denim maker performed compared to Wall Street expectations, based on a survey of analysts by LSEG.
Earnings per share: 33 cents adjusted vs. 31 cents expected Earnings: $1.52 billion vs. $1.55 billion expected
The company reported net income of $20.7 million, or 5 cents per share, for the three months ended Aug. 25, compared with $9.6 million, or 2 cents per share, in the year-ago period. Excluding one-time items, Levi’s posted profit of $132 million, or 33 cents per share.
Sales were $1.52 billion, slightly up from $1.51 billion in the same period last year.
With one quarter remaining in the fiscal year, Levi’s reaffirmed its full-year adjusted earnings per share outlook of $1.17 to $1.27, in line with the $1.25 forecast, according to LSEG. We expect earnings per share to be in the middle of that range.
The company lowered its earnings outlook and now expects sales to rise 1%, up from a range of 1% to 3% previously. This was lower than the 2.3% growth expected by analysts, according to LSEG.
Long time no see, Dockers
Like Dockers and Beyond Yoga, Levi’s, which owns the namesake brand, would have had a very different outcome without Dockers. The brand started in 1986 to offer consumers a khaki alternative to denim.
During the 1990s and 2000s, khaki was a mainstay in most consumers’ closets, but it has fallen out of fashion in recent years. The efforts that Levi’s has made to differentiate Dockers have resulted in too much overlap with the Levi’s brand, which has expanded into a lifestyle brand offering more products beyond jeans.
Dockers’ revenue for the quarter was down 15% to $73.7 million, but sales from Beyond Yoga, the buzzy athleisure brand it acquired in 2021, rose 19% to $32.2 million.
“For the past few years, the brand has been underperforming.…We felt this was the right decision for the long term. Financially, the exit of Dockers will improve the overall profitability of the company; We also believe that volatility in sales growth will be minimal,” Levi’s Finance Director Harmit Singh said in an interview with CNBC. “We believe that Dockers’ exit will allow both Dockers and Levi’s to operate independently and maximize each other’s value independently.”
Levi tapped. bank of america Lead the sales process.
direct benefit
In addition to Dockers, Levi’s also continues to shift its focus to direct-to-consumer sales, increasing profitability.
During the quarter, the company’s gross profit margin increased by 4.4 percentage points, which Singh attributes to its direct sales strategy, lower cotton costs, and a superior product that does not require markdowns at the point of sale.
Like other brands, Levi’s has developed a direct sales strategy and worked to reach more customers through its own stores and website rather than through wholesalers. Macy’s. This strategy is profitable because it has high margins and also allows brands to get closer to their customers through data collection.
During the quarter, Levi’s direct channel grew approximately 10% due to strong performance in the U.S. and 16% growth in e-commerce. Overall, direct sales account for 44% of total revenue, and Levi’s would like to see this number closer to 55%.
Behind those numbers are some flashy developments, including the jeans brand announcing a new partnership with Beyoncé on Monday after she released a song titled “LEVII’S JEANS” on her country album earlier this year. There have been many marketing campaigns.
“Our strategic decision was to actually have Beyoncé represent some of our core products. So in the first chapter of our first ad, she…501s and a requisite white T-shirt. , and it doesn’t get more Levi-esque than that,” CEO Michelle Gass told CNBC. “Part of the secret to Levi’s success is that we live at the heart of culture and connect the Beyoncé icon with the Levi’s icon, and I don’t think there’s a better example.”
global predicament
Levi’s European sales beat expectations at $406.6 million, beating Street accounts’ expectations of $392 million, but sales in the Americas and Asia were down. Levi’s had sales of $757.2 million in the Americas, which was lower than the $789.2 million expected by Street Account analysts. In Asia, Levi’s sales were $247.1 million, below StreetAccount’s estimate of $258 million.
“China has been a drag,” Shin said of the region, which accounts for about 2% of Levi’s overall business. “There were some macro headwinds and some implementation issues. China’s leadership has just changed, but we still believe in China’s long-term potential as time passes.”
In the Americas, in addition to the decline at Dockers, sales were also affected by one of Levi’s largest wholesale customers in Mexico, Singh said. During the quarter, our partner experienced a cybersecurity breach that limited shipping times and impacted sales. Mr Singh said the region was also grappling with some “enforcement issues”.
