Levi Strauss Beats Earnings Expectations with Strategic Cost Cuts

Key Takeaway

• Levi Strauss beats earnings expectations with an adjusted EPS of 26 cents, outperforming analyst forecasts due to strategic cost cuts and a focus on DTC sales.
• Despite an 8% revenue drop to $1.56 billion, the company's operational efficiencies and market adaptability exceed analyst expectations.
• Levi raises its full-year earnings outlook to $1.17-$1.27 per share, reflecting confidence in continued growth and strategic investments in new styles and acquisitions.

Strategic Refocus Pays Off

Levi Strauss & Co. has demonstrated resilience and strategic foresight in a challenging retail landscape by pivoting towards enhancing its direct-to-consumer (DTC) channel. This move showcases the company's adaptability and commitment to meeting evolving consumer demands, despite facing declines in wholesale sales. The iconic jeans maker's focus on its DTC operations, which include Levi's own stores and website, has paid dividends. Sales from the DTC division rose 7% in the quarter, highlighting the brand's enduring appeal and market adaptability. CEO Michelle Gass, who took over in January, has emphasized the importance of both the DTC and wholesale channels to the company's growth strategy.

Earnings Beat Expectations

Levi Strauss reported adjusted earnings per share of 26 cents, surpassing the average analyst estimate of 21 cents, despite a net loss due to restructuring charges related to layoffs and cost cuts announced earlier in the year. The company's gross margin also exceeded expectations, indicating effective strategic adjustments and operational efficiencies. Revenue fell 8% to $1.56 billion but still managed to outpace analyst forecasts of $1.55 billion. This performance is particularly noteworthy given the challenges in the U.S. and European wholesale business, underscoring the company's robust underlying financial health.

Revenue Resilience and Optimizations

The company's revenue resilience is evident in its ability to exceed analyst forecasts despite a challenging quarter. Levi's strategic initiatives to streamline operations and focus on the direct consumer are yielding tangible benefits. Chief Financial Officer Harmit Singh highlighted efforts towards inventory optimization and cash flow improvements, which are expected to end the fiscal year with lower inventory levels than the previous year. These optimizations contribute to improved free cash flow, enabling strategic investments in dividends, share buybacks, and acquisitions, such as a distributor in Colombia.

Positive Outlook and Strategic Investments

Levi Strauss has raised its full-year earnings outlook, signaling confidence in its strategic direction and operational capabilities. The company now expects adjusted per-share profit of $1.17 to $1.27, up from a prior forecast of $1.15 to $1.25, and maintains its outlook for sales growth of 1% to 3% for its fiscal year. This positive trajectory is supported by the introduction of new styles, such as baggy jeans, denim skirts, dresses, and non-denim activewear pants, which have helped drive demand. Singh's optimism about the U.S. consumer and the anticipated return to growth in the European wholesale business in the second half further reinforces the company's outlook.

Management Quotes

• Michelle Gass, CEO of Levi Strauss & Co.:

  "Wholesale will still continue to be an important part of our business moving forward... Yes, the majority of our big growth will come from DTC, but wholesale extends our reach, which is critical."

• Harmit Singh, CFO of Levi Strauss & Co.:

  "[The full-year profit guidance improvement] attributed to better expense control."