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Levi Strauss (LEVI) earnings Q1 2024

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Levi Strauss, which has lengthy relied on wholesalers like Macy’s and Kohl’s to drive its enterprise, is now doing practically half of its gross sales via its personal web site and shops, the corporate mentioned Wednesday when reporting fiscal first quarter earnings. 

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Within the three months ended Feb. 25, direct-to-consumer gross sales made up a report 48% of general gross sales at Levi’s, up from 42% within the year-ago interval and 25% greater on a two-year foundation, the retailer mentioned. 

The shift is a boon for Levi’s earnings. Nevertheless it raises questions in regards to the firm’s relationships with its wholesale companions and whether or not it’s going to harm these retailers as they grapple with their very own existential challenges.

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Levi’s additionally beat Wall Road’s earnings and income estimates and raised its full-year steering. Shares rose as a lot as 10% in prolonged buying and selling.

This is how the blue denims maker did in its first fiscal quarter in contrast with what Wall Road was anticipating, primarily based on a survey of analysts by LSEG, previously often known as Refinitiv:

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  • Earnings per share: 26 cents adjusted vs. 21 cents anticipated
  • Income: $1.56 billion vs. $1.55 billion anticipated

The corporate swung to a internet lack of $10.6 million, or 3 cents per share, throughout the quarter, in contrast with a internet earnings of $114.7 million, or 29 cents per share, within the year-ago interval. Excluding one-time prices associated to Levi’s restructuring, the corporate reported earnings per share of 26 cents, forward of Wall Road’s estimates. 

Gross sales fell to $1.56 billion, down about 8% from $1.69 billion a yr earlier. The gross sales hunch was primarily attributed to a shift in Levi’s wholesale orders, which boosted earnings by about $100 million within the year-ago interval. 

Levi’s nonetheless expects full-year gross sales to rise between 1% and three% because it contends with a slowdown in discretionary spending and an unsure economic system. Nevertheless it anticipates earnings will likely be greater than it beforehand thought. The retailer now expects adjusted earnings per share to be between $1.17 and $1.27, up from a earlier vary of $1.15 to $1.25. 

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Analysts had anticipated gross sales to develop 2.4% on a full yr foundation and earnings per share of $1.21, in response to LSEG. 

For the final couple of years, Levi’s has been transferring away from wholesalers and doing increasingly of its gross sales via its personal shops and web site. Promoting on to customers is healthier for Levi’s earnings and provides it higher information on its prospects and their procuring patterns. 

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Maybe extra importantly, shifting away from wholesalers additionally provides Levi’s higher management over its personal future and reduces its publicity to malls, that are persevering with to shrink and face an unsure future within the U.S. 

In late February, Macy’s – a key wholesale accomplice for Levi’s – introduced it might close 150 stores as activist buyers from Arkhouse Administration look to buy the department store and take it personal. The agency primarily invests in actual property and appears to be extra taken with monetizing Macy’s sprawling retailer footprint than operating a retail enterprise. 

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In an interview with CNBC, CEO Michelle Gass – who took the helm of Levi’s about two months in the past – mentioned wholesale continues to be an essential a part of the corporate’s technique. If Macy’s retailer closures or different challenges to malls impacts Levi’s enterprise, she expects direct-to-consumer gross sales will offset these losses. 

“We work very carefully with our key prospects as a result of we’re essential to them, they’re essential to us, and strategically, wholesale is crucial for us to amplify attain to the buyer,” mentioned Gass. “Whereas there are pressures, these wholesale prospects serve tens of millions of customers and so there’s nonetheless quite a lot of alternative to drive market share inside that channel.” 

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Levi’s beforehand mentioned it is working to get direct-to-consumer gross sales to account for 55% of all gross sales, but when that quantity can get greater, the corporate is “all for it,” mentioned finance chief Harmit Singh. 

Within the meantime, Gass mentioned Levi’s is working “carefully” with its key wholesale prospects to make sure the model is displaying up within the “best possible manner.” 

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Throughout the quarter, international wholesale revenues have been down 9% in comparison with the prior yr when adjusted for the shift in wholesale orders that occurred within the year-ago interval. 

That weak spot was pushed by Europe, which Gass mentioned noticed a “robust” quarter. 

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“As we glance ahead, we’re feeling optimistic. Our pre-books for the second half in Europe wholesale are constructive primarily based on the innovation and vogue that we’re bringing,” mentioned Gass. 

Levi’s has additionally been within the course of of remodeling itself right into a retailer that does much more than simply promote denims. It is working to supply extra skirts, attire and tops, and needs to be considered as a denim way of life enterprise – not only a blue denims firm. 

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Throughout the quarter, gross sales of issues like denim skirts, attire and tops have been up 19% in Levi’s direct-to-consumer channel, mentioned Gass. The merchandise additionally carried out nicely in wholesale, she mentioned. 

Levi’s efforts come at a time when shopper spending for discretionary merchandise like garments and equipment has been underneath stress as consumers look to make use of their additional {dollars} on issues like consuming out and touring or paying down debt. 

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In late January, Levi’s mentioned it might cut 10% to 15% of its global corporate workforce, which is anticipated to avoid wasting the corporate about $100 million throughout the fiscal yr.

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