Denim is trending amongst consumers but has not led to a significant increase in sales. Levi Strauss.
The jeans maker on Wednesday reported second-quarter sales that fell just in need of Wall Street expectations, at a time when shoppers are filling their closets with denim dresses, skirts and very low-slung baggy pants.
Levi's reported better-than-expected earnings as direct-to-consumer sales and cost-cutting proceed to bear fruit. The company raised its dividend 8% to 13 cents a share, the primary increase in six quarters.
Still, shares fell about 12% in prolonged trading.
Here's how Levi's performed through the quarter in comparison with Wall Street expectations, based on an analyst survey conducted by LSEG:
- Earnings per share: 16 cents adjusted in comparison with 11 cents expected
- Revenue: $1.44 billion versus expected $1.45 billion
The company's net income for the three-month period ended May 26 was $18 million, or 4 cents per share, compared with a lack of $1.6 million, or zero cents per share, a 12 months earlier. Excluding one-time items, Levi's posted a profit of $66 million, or 16 cents per share.
Revenue rose to $1.44 billion, up about 8% from $1.34 billion a 12 months earlier, however the jump in revenue was because of easier comparison.
Sales fell 9% in the identical period last 12 months after Levi's shifted its wholesale shipments from the second to the primary quarter. The shift reduced sales last 12 months by about $100 million, the corporate previously said. Without the shift and the exit from the Levi's Denizen business, sales last quarter would have increased only about 1% in comparison with the identical period last 12 months.
Chief Financial Officer Harmit Singh attributed the drop in sales to unfavorable exchange rates and weak sales at Docker's. The khaki and chino brand posted sales of $82.4 million within the quarter, up 8.6 percent from $75.8 million in the identical period last 12 months. It will not be clear how the timing of Levi's wholesale orders affected Docker's sales.
“People are generally cautious,” Singh said in an interview with CNBC. “It's not necessarily an environment where people are buying a lot, people are cautious.”
While Levi's significantly exceeded its earnings forecast, it only confirmed its full-year guidance, which was according to estimates. The company still expects annual earnings per share to be between $1.17 and $1.27, which now features a 5-cent discount because of the corporate's recent distribution and logistics strategy.
Levi's announced that the corporate is transitioning from a predominantly self-operated distribution and logistics network within the U.S. and Europe to 1 that relies more heavily on third parties.
“In the short term, these changes will require parallel operation of new and old plants for the remainder of 2024, which will result in a temporary increase in distribution costs,” the corporate said.
The change allows Levi's to outsource responsibility for last-mile delivery to a 3rd party. The jeans maker noted that it has agreed recent terms with its supplier that can end in Levi's taking responsibility for inventory closer to the shipping point than the ultimate destination. Levi's distribution network was built for a corporation that sold primarily to wholesalers and must now transform into one which focuses more on selling on to consumers.
The changes are needed because almost half of Levi's sales now come from its own website and stores.
Direct-to-consumer sales increased 8% through the quarter, representing 47% of total sales. Online sales increased 19%.
“Our transformation to a DTC-first company is delivering positive results around the world and gives me great confidence that we will deliver accelerated, profitable growth for the remainder of the year and beyond,” CEO Michelle Gass said in an announcement.
During the quarter, wholesale sales increased 7%, but excluding the shift within the timing of wholesale orders, sales on this channel declined 4%. Singh noted that wholesale sales improved from the previous quarter, but the corporate has a “conservative” view of the channel's future growth.
By expanding its own direct channels, Levi's is making higher profits, has higher data on its consumers, and is less depending on shady wholesalers like Macy's and Kohl's, which proceed to shrink and fall out of favor with consumers.
However, direct selling will also be dearer and are available with unexpected problems that may impact sales and reduce profits. For example, if someone buys a pair of Levi's shoes at Macy's and needs to return them, Macy's often covers those costs. In a direct selling model, that responsibility, including costs and logistics, would fall on Levi's.
Nike is seen as a cautionary tale for retailers who’ve long relied on wholesalers and at the moment are attempting to expand direct sales.
For a time, Nike's give attention to direct sales increased sales and profits, but some critics felt the change in strategy led to a decline in innovation and ultimately a lack of market share.
The company recently admitted that it made a mistake in taking so lots of its wholesale partners offline and said it has since “corrected” the error.
Read the complete results release Here.
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