Levi Strauss forecast annual sales and profit below Wall Street expectations on Thursday and said it might cut 10% to fifteen% of world corporate jobs because the denim maker seeks to rein in costs amid weakness in its wholesale business.
Levi attributed the weak forecast to plans to exit its Denizen brand and reduce on off-price sales, in addition to weaker foreign currency exchanges. The corporate also missed fourth-quarter revenue estimates.
The fallout of a listing glut last 12 months and consumers feeling the pinch from inflation are a drag on the corporate’s wholesale channel and outweigh the gains in its direct-to-consumer business.
Levi’s incoming CEO, Michelle Gass, said the corporate’s US wholesale business improved over its last quarter and is predicted to point out growth within the second half of 2024. Nevertheless, unpredictable consumer demand meant Levi’s would proceed to be conservative in its outlook, she told investors in a post-earnings conference call.
“We’re encouraged, but because it pertains to that channel, we’re not declaring victory yet,” Gass said. “There’s been a whole lot of volatility this past 12 months … so we’re taking a cautious approach as we glance forward.”
Levi’s incoming CEO Michelle Gass Levi Strauss
Phasing out the Denizen brand, which is more inexpensive than other Levi products and sells at a lower margin, would allow the corporate to focus more on expanded product categories, including lighter-weight denim and athletic wear, in keeping with Chief Financial and Growth Officer Harmit Singh.
“They need to make (Levi’s) more upscale and increase that prestige,” said Rachel Wolff, an analyst at Insider Intelligence. “It’s a strategic decision as they struggle to maneuver up-market and appeal to a more premium consumer.”
Singh also told investors that Levi’s is experiencing delays of 10 to 14 days in transit times because of this of continued disruptions to Red Sea shipping. The corporate has shifted some U.S. shipments to the West Coast, a route that avoids the Red Sea and Suez Canal.
Shares of the corporate were down 1.7% in after-hours trading on Thursday.
Sales in Levi’s total wholesale business, which accounted for about 62% of its net revenue in 2022, dipped 3% on a constant-currency basis within the quarter ended Nov. 26.
The layoffs are set to occur in the primary half of 2024, and, coupled with more DTC-focused initiatives, would generate net cost savings of $100 million in 2024.
Levi said it plans to reduce on off-price sales, resulting in a weaker forecast. REUTERS
The corporate will take a $110 million to $120 million charge related to the job cuts in the present quarter.
“We’re in a soft demand environment and I believe that’s reflected of their forecasts and the cost-cutting announcement,” said Mari Shor, a senior equity analyst at Columbia Threadneedle Investments. “It’s a signal they don’t feel great in regards to the topline and are on the lookout for other ways to chop expenses.”
Levi has about 20,000 staff globally, with roughly 5,000 corporate employees.
The corporate projected fiscal 2024 net revenue growth of 1% to three%, compared with analysts’ estimate for a 4.7% increase to $6.49 billion, in keeping with LSEG data.
Levi’s expects adjusted per-share profit of $1.15 to $1.25, lower than estimates of $1.33.