Levi Strauss on Thursday it drastically lowered its profit forecast for the 12 months after the apparel retailer reported a pointy decline in wholesale and soft sales revenue in america, its largest market.
Nevertheless, the blue jeans retailer saw shiny spots in direct-to-consumer sales and within the Chinese market.
Shares fell greater than 6% in prolonged trading.
Here’s how the corporate fared within the fiscal second quarter versus Wall Street’s predictions, based on a survey by Refinitiv analysts:
- Earnings per share: 4 cents, adjusted, in comparison with the expected 3 cents
- Income: USD 1.34 billion in comparison with the expected USD 1.34 billion
The corporate’s reported net loss for the three-month period ending May 28 was $1.6 million, or 0 cents a share, in comparison with net income of $49.7 million, or 12 cents a share, a 12 months earlier. Through the quarter, Levi reported adjusted earnings of 4 cents per share.
Sales fell to $1.34 billion, down 9% from $1.47 billion a 12 months earlier.
Midway through the fiscal 12 months, Levi lowered its full-year earnings guidance. It now expects adjusted earnings per share of $1.10 to $1.20, down from the previous range of $1.30 to $1.40. Analysts had expected an adjusted earnings of $1.29 per share, in response to Refinitiv.
Levi also tightened its revenue projections for this 12 months. The retailer now expects sales to grow by 1.5% to 2.5% in comparison with the previous range of 1.5% to three%. Based on Refinitiv, analysts expected a rise of two.6%.
The grim outlook was as a consequence of various aspects, but was driven by an expected slowdown in U.S. wholesale revenue, which fell 22% within the quarter, said chief financial and communications officer.
Wholesale revenue has declined as a consequence of the patron slowdown affecting the retail industry on a big scale and internal issues at Levi causing products to be out of stock, CEO Chip Bergh said.
Bergh noted that the corporate was scuffling with high inventory levels, which was causing congestion at its distribution centers and making it difficult to meet orders for wholesale partners.
“Now our stock levels are improving significantly, that’s, customer fill rates are improving, which is improving our position within the warehouse,” he said.
“We’re now halfway through Q3, we’re seeing an improvement in U.S. wholesale trends, and quite a lot of that is just as a consequence of the undeniable fact that we’ve a greater stock position today,” added Bergh.
The corporate also plans price cuts on about half a dozen of its more price-sensitive items, similar to its 502 and 512 jeans, which is able to reduce its margins in the approaching quarters. The value of the jeans will drop from $79.50 to $69.50, but still higher than their pre-pandemic price of $59.50, Bergh said.
He said the corporate had raised prices against competitors beyond the purpose where it could proceed to realize market share, “so we’re just reducing that price differential with the competition back to historical levels with the $10 recall.”
Bergh noted that the value reduction will only be visible in stores where Levi has wholesale partnerships, similar to Macy’s, and won’t be seen in Levi-owned stores or internationally.
Levi can also be planning the next tax rate within the second half of the 12 months, which he says has contributed to lower prospects. Levi’s effective tax rate for the quarter was 78.4%, in comparison with 36.1% a 12 months earlier.
“Our view of wholesale within the US, even with the value changes we’re taking and every thing else, we’re cautious,” Bergh said. “Only in light of recent performance and current macroeconomic headwinds and only consumer dynamics on this market.”
A pointy decline in wholesale revenue hurts Levi in the short term, but change turnover staying away from wholesalers is a component of the corporate’s larger strategy, Bergh said. The pressure is comparable to Nike Coursebook.
“Our goal is to grow our direct-to-consumer business, including e-commerce, which incorporates our own stores, our franchised partner stores that really include wholesale worldwide, and our e-commerce business. That is our strategic priority, Bergh said.
“It has higher structural funds, higher gross margin, we control the patron experience,” he said.
Through the quarter, DTC revenues grew 13% and were driven by growth in each company stores and online sales. E-commerce revenue grew 20% this quarter.
When Bergh first joined Levi about 12 years ago, wholesale customers like Macy’s AND Kohlsaccounted for greater than 40% of Levi’s total business, but it surely is now lower than 30%, he said.
Based on StreetAccount, the slowdown in wholesale revenue contributed to a 22% decline in sales within the Americas, where Levi reported revenue of $609 million, below an estimate of $639.5 million. Sales fell 2% in Europe, where the corporate reported revenue of $361 million, but in response to StreetAccount, it was higher than the $344 million analysts had expected.
Sales grew in Asia, where revenue increased 18% within the quarter to $262 million, driven by the strength of the corporate’s DTC channel. Based on StreetAccount, it topped Wall Street’s estimate of $230.2 million.
Read the corporate’s full earnings statement Here.