Management cites strength in core Levi’s brand, opportunity with Beyoncé partnership, but struggles in Mexico and China
Shares of Levi Strauss & Co. slid after hours on Wednesday after the jeans maker tempered its full-year sales forecast and said it was weighing a possible sale of its struggling Dockers business, as it cuts costs and doubles down on newer denim offerings to attract inflation-embattled shoppers.
While management called out strength in its core Levi’s brand and potential gains from its new promotional campaign with megastar singer Beyoncé, they also pointed to sluggish sales in retail stores in Mexico and China’s weaker economy as a drag on the results.
Levi’s stock fell 11% in after-hours trade on Wednesday.
Executives said they were evaluating “strategic alternatives” for Dockers, known mainly for khakis. Among the alternatives, management said, were a sale or or another transaction.
“This is all about focus,” Chief Executive Michelle Gass said on Levi’s earnings call. “Our intention going forward is to really amplify our focus on the Levi’s brand and accelerate Beyond Yoga.”
Levi Strauss acquired Beyond Yoga, a yoga-wear brand, in 2021, in an effort to draw more women customers. Levi Strauss once weighed selling off Dockers, first launched in 1986, some two decades ago. But Gass on Wednesday said that business had underperformed for some time. The company has retained Bank of America as its financial advisor to help weigh options.
“This is the next and, frankly, the biggest decision we’ve made, to really position the business for the long term,” she said.
Even as it expands its offerings elsewhere — in service of what Gass has called a “denim lifestyle” — Levi Strauss has also recently exited its Denizen flexible pants business and its footwear business. And it has taken steps to work with more third-party logistics firms to handle shipping and distribution.
The company said it expects sales for its full fiscal year, which ends in November, to grow approximately 1%. That’s a bit more subdued than the forecast the company offered in June for sales growth of 1% to 3%.
Levi’s also said it expects adjusted earnings per share to land “at the midpoint” of its prior forecast for $1.17 to $1.27.
The company sees “mid-single-digit” sales growth for the fourth quarter, as it navigates the difficulties with China, Mexico and its Dockers brand.
During the call, management called out gains in women’s clothing, tops and looser-fitting pants. They also said they had made gains with higher-income shoppers. But Levi’s third-quarter results were mixed.
The company reported third-quarter net income of $20.7 million, or 5 cents a share, compared with $9.6 million, or 2 cents a share, in the same quarter last year. Adjusted for goodwill, severance and other charges, Levi Strauss earned 33 cents a share.
Sales came in at $1.52 billion, compared with $1.51 billion in the prior-year quarter.
Analysts polled by FactSet expected adjusted earnings of 31 cents a share, on revenue of $1.55 billion.
Gass, in the company’s earnings release, said the company’s underlying fundamentals were getting stronger, helped by 5% growth by its Levi’s brand. She also said its direct-to-consumer business, which handles online sales and sales at its own stores, also saw double-digit growth, and a solid showing in the U.S. and improvement in Europe.
“Looking to Q4 and beyond, we will amplify our focus on the Levi’s brand, exemplified by our new campaign with Beyoncé and an innovative product pipeline designed to build momentum with our fans around the world,” she said in the release.
Levi’s on Monday announced the campaign with Beyoncé, whose album “Cowboy Carter,” released this year, has a song named “Levii’s Jeans.” That campaign, Levi’s said in a release, will reinterpret “several of the Levi’s brand’s most iconic advertisements” with the filmmaker Melina Matsoukas. It will run through 2025.
“Based on the continued strength of the Levi’s brand, we expect sequential progression to continue into Q4 as we accelerate revenue and profitability,” Chief Financial Officer Harmit Singh said in Levi’s earnings release.
The results from Levi’s came as port workers on the East Coast go on strike over pay increases and other protections, potentially leading to shipping delays and massive losses. Singh said the impact would depend on how long the strike went on. He said the company had been preparing for the possibility of a stoppage “as early as March,” and redirected some of its shipping to ports along the West Coast.
And after pandemic-related disruptions and multiple conflicts abroad, he said businesses needed “a little bit more consistency” in the world’s supply chains.
“Getting more consistency, clarity, I think, will really make a big difference,” he said.