Levi’s 501 blue jeans were displayed by Levi Strauss, but the company’s full-year sales forecast was cut due to weaker shopping trends at U.S. department stores and big-box retailers. The company missed Wall Street’s revenue expectations for the quarter, leading to a slight drop in shares. CEO Chip Bergh attributed the decline in sales to inflation, rising mortgage rates, and gas prices, which have caused consumers to buy fewer Levi’s products from wholesale retailers.
Here are the key highlights from Levi’s fiscal third quarter performance:
– Earnings per share: adjusted at 28 cents, surpassing the expected 27 cents.
– Revenue: $1.51 billion, falling short of the anticipated $1.54 billion.
– Net income for the three-month period ending on August 27 was $10 million, or 2 cents per share, compared to the previous year’s $173 million, or 43 cents per share.
– Adjusted earnings per share stood at 28 cents.
– Sales remained relatively consistent compared to the $1.52 billion in revenue from the same period last year.
Despite a more positive outlook for Levi’s direct-to-consumer business and improving wholesale trends in the early stages of the fourth quarter, Chief Financial and Growth Officer Harmit Singh approached the company’s forecast with caution.
Levi, like other retailers, has been affected by diminished sales in the U.S. Levi’s products are sold both through its own stores and website as well as through major retailers like Macy’s, Kohl’s, and Target. These retailers, which purchase items from Levi in bulk, have experienced weaker discretionary sales. Bergh noted that the value-based denim lines from Levi, such as Signature by Levi Strauss and Denizen, have seen decreasing sales, particularly at Walmart and Target.
Levi’s direct-to-consumer business and international sales have been more successful. Net revenues from the company’s direct-to-consumer business increased by 14% compared to the previous year, with e-commerce revenue growing by 19%. Direct-to-consumer sales accounted for 40% of total net revenues in the third quarter, a figure that Levi aims to increase to 55% by fiscal 2027. However, wholesale net revenue declined by 8% due to sales drops in North America and Europe, despite gains in Asia and Latin America.
Levi is focused on expanding into international markets and driving more direct sales. Michelle Gass, the incoming CEO replacing Bergh, emphasized Levi’s potential for growth in global markets, especially with younger consumers. While the brand is already available in 110 countries, Gass believes there is an opportunity to gain market share in regions like Mexico and India. Additionally, Levi plans to diversify its product offerings by selling other types of clothing, such as chinos, tops, and outerwear, alongside jeans.
Levi faced challenges related to unseasonably warm weather in the U.S. and Europe, affecting sales trends. However, while wholesale retailers only carry jeans, the Levi stores offer a wider range of clothing options such as tank tops, skirts, and shorts, allowing them to adapt to customer preferences and weather conditions. Bergh also noted that Levi stores attract shoppers with higher incomes who are willing to pay more for premium denim.
To counter declining sales, Levi reduced the prices of select jeans, but the prices remain higher than pre-pandemic levels. The company is “cautiously optimistic” that new styles and the approaching holiday season will encourage consumers to spend more. Bergh also mentioned that cleaner inventories across the retail industry could be beneficial during the holiday season, leading to a less promotional environment compared to last year.
Despite Levi’s stock falling 14% this year, the company aims to remain competitive and perform well during the upcoming months.
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