Denim is bear a moment with consumers, but it hasn’t led to a major sales boost at Levi Strauss.
The jeans creator on Wednesday supported fiscal second-quarter revenue that fell just short of Wall Street’s expectations at a time when shoppers are size up their wardrobes with denim dresses, skirts and ultra low-rise baggy pants.
Levi’s posted better-than-expected earnings as its send sales to consumers and cost cutting continue to bear fruit. The company raised its dividend by 8% to 13 cents per allot, its first increase in six quarters.
Still, shares fell about 15% in extended trading.
Here’s how Levi’s executed during the quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per split: 16 cents adjusted vs. 11 cents expected
- Revenue: $1.44 billion vs. $1.45 billion expected
The company’s reported net receipts for the three-month period that ended May 26 was $18 million, or 4 cents per share, compared with a loss of $1.6 million, or zero cents a slice, a year earlier. Excluding one-time items, Levi’s posted earnings of $66 million, or 16 cents per percentage.
Sales rose to $1.44 billion, up about 8% from $1.34 billion a year earlier. However, the transactions jump was coming off of an easier comparison.
In the year-ago period, sales were down 9% after Levi’s grouped its wholesale shipments from its fiscal second quarter into its fiscal first quarter. The shift reduced tag sales last year by about $100 million, the company said previously. Excluding the shift, as well as the exit of Levi’s Citizen business, sales would have been up by only about 1% in its most recent quarter compared to the year-ago full stop.
Finance chief Harmit Singh attributed the sales miss to unfavorable foreign exchange conditions and weak purchasings at Docker’s. During the quarter, the khaki and chinos brand saw $82.4 million in sales, up 8.6% from $75.8 million in the year ago duration. It’s not clear how sales at Docker’s were affected by the timing of Levi’s wholesale orders.
“People are generally cautious,” Singh have an effected CNBC in an interview. “It’s not necessarily an environment where people are buying a lot, people are cautious.”
While Levi’s posted a great earnings beat, it only reaffirmed its full-year guidance, which was in line with estimates. The company continues to contemplate full-year earnings per share to be between $1.17 and $1.27, which now includes a 5-cent hit coming from the company’s new arrangement and logistics strategy.
Levi’s said it is transitioning from a primarily owned-and-operated distribution and logistics network in the U.S. and Europe to one that relies numerous on third parties.
“In the near term, these changes require the parallel operation of new and old facilities for the rest of 2024, effecting in a transitory increase in distribution costs,” the company said.
The change allows Levi’s to shift the responsibility of final mile delivering to third parties. The denim maker noted that it has new terms with its supplier that result in Levi’s enchanting ownership of inventory closer to the point of shipment rather than its eventual destination. Levi’s distribution network was built for a work that primarily sold to wholesalers, and now it needs to change into one that’s more focused on selling directly to consumers.
The modifications are necessary because nearly half of Levi’s sales these days are coming from its own website and stores.
Direct-to-consumer sales cavorted 8% during the quarter, representing 47% of overall sales. Online sales increased 19%.
“Our transformational pivot to manipulating as a DTC-first company is yielding positive results around the world, giving me great confidence that we will gain accelerated, profitable growth for the rest of the year and beyond,” CEO Michelle Gass said in a statement.
During the quarter, wholesale net income grew 7%, but excluding the shift in timing of wholesale orders, sales in the channel decreased 4%. Singh eminent that wholesale revenue improved on a sequential basis, but the company has a “conservative” view of the channel’s growth moving hurry.
By building out its own direct channels, Levi’s enjoys higher profits, better data on its consumers and less reliance on unsound wholesalers like Macy’s and Kohl’s, which are continuing to shrink and fall out of favor with consumers.
However, tell on directly can also be more expensive, and can come with unexpected hiccups that can impact sales and drain profits. For admonition, when someone buys a pair of Levi’s from Macy’s and wants to return them, Macy’s typically corroborates that cost. Under a direct model, that responsibility, including the cost and logistics, would fall on Levi’s.
Nike has lay hold of to be known as a cautionary tale for retailers long reliant on wholesalers that try to expand direct sales.
For a while, Nike’s centre on direct sales boosted revenue and profits, but some critics said the strategy shift led to a slowdown in innovation, and at long last, market share losses.
Recently, the company acknowledged that it erred when it cut off so many of its wholesale partners and required it has since “corrected” that.
Read the full earnings release here.