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Avid denim consumers are turning to levi strauss & co. The company announced Wednesday that it is considering selling new jeans, but its overall business is being dragged down by its Dockers brand, which it is currently considering selling.
Levi's brand sales grew 5% in the fiscal third quarter, the largest increase in two years, but overall revenue was flat and below Wall Street expectations.
Levi's shares fell more than 8% in after-hours trading Wednesday.
Here's how the denim maker performed compared to Wall Street expectations, according to a survey of analysts by LSEG:
- Earnings per share: Adjusted 33 cents, expected 31 cents
- income: $1.52 billion vs. $1.55 billion expected
The company reported net income of $20.7 million, or 5 cents a share, for the three months ended Aug. 25, compared with $9.6 million, or 2 cents a share, a year earlier. Excluding one-time items, Levi's reported profit of $132 million, or 33 cents per share.
Sales were $1.52 billion, slightly higher than the $1.51 billion in the same period last year.
With the final quarter of the fiscal year remaining, Levi reiterated full-year adjusted earnings per share guidance of $1.17 to $1.27, in line with expectations of $1.25, according to LSEG. It expects earnings per share to be at the midpoint of that range.
The company lowered its revenue guidance and now expects sales to grow 1%, compared with the previous range of 1% to 3%. According to LSEG, this was lower than the 2.3% growth expected by analysts.
Goodbye, Dockers
Levi's, which owns its namesake brand, along with Dockers and Beyond Yoga, would have turned out completely differently without Dockers. The brand was founded in 1986 to provide consumers with an alternative to denim: chinos.
Khakis were a mainstay in most consumers' wardrobes throughout the 1990s and 2000s, but today, they've gone out of style. Levi's efforts to differentiate Dockers resulted in excessive overlap with the Levi's brand, which has expanded into a lifestyle brand offering more products than jeans.
During the quarter, Dockers' sales fell 15% to $73.7 million, while sales of Beyond Yoga, the popular athleisure brand it acquired in 2021, rose 19% to $32.2 million.
“The brand has underperformed over the past few years… We believe this is the right decision in the long term. From a financial perspective, we believe Dockers' exit will enhance the company's overall margins and maximize Reduce volatility in revenue growth. “We believe Dockers' exit will allow Dockers and Levi's to operate independently and maximize each other's value independently. ”
Levi's has tapped Bank of America Lead the sales process.
direct benefit
In addition to Docker, Levi's continues to shift its focus to selling directly to consumers, and its profitability continues to improve.
Its gross profit margin rose 4.4 percentage points during the quarter, which Singer attributed to its direct-sales strategy, lower cotton costs and better products that don't need to be sold at reduced prices.
Like other brands, Levi's has been working on a direct sales strategy to reach more customers through its own stores and website rather than through wholesalers like this one. macy's department store. This strategy is good for the bottom line, as margins are higher, and it also allows brands to get closer to their customers through data collection.
This quarter, Levi's direct sales channel grew by about 10%, driven by a strong U.S. market and e-commerce growth of 16%. Overall, direct sales account for 44% of total revenue, and Levi's hopes that number will be closer to 55%.
Behind the numbers are a series of high-profile marketing campaigns, including the jeans brand announcing a partnership with Beyonce forges new partnership.
“Our strategic decision was actually to have Beyoncé represent some of our core products. So in the first chapter of the first ad, she's wearing… 501 and a basic white T-shirt, and it doesn't get more Levi's than that. style,” CEO Michelle Gass told CNBC. “One of the secrets of Levi's success is that we live in the center of culture, and to combine the Beyoncé icon with the Levi's icon, I don't think there's a better example of that.”
global dilemma
Sales in Levi's European operations were $406.6 million, above expectations and higher than StreetAccount's estimate of $392 million, but sales in the Americas and Asia were lower. Levi's reported sales in the Americas of $757.2 million, below StreetAccount analysts' forecast of $789.2 million. In Asia, Levi's revenue was $247.1 million, below StreetAccount's estimate of $258 million.
“China is a drag,” Singer said of the region, which accounts for about 2% of Levi's overall business. “We've faced macro headwinds and we've also had some execution issues. We just changed leadership in China and over time we still believe in China's long-term potential.”
In the Americas, in addition to slowing sales at Docker's, sales at one of Levi's largest wholesale customers in Mexico have also been affected, Singer said. During the quarter, a partner experienced a cybersecurity breach that limited shipping times and impacted sales. Singh said the district was also working through some “implementation issues.”