Levi Strauss raises FY profit target on cost saving initiatives, fewer discounts

By Granth Vanaik and Katherine Masters

(Reuters) -Levi Strauss raised its annual profit forecast on Wednesday, citing the apparel maker’s recent cost savings from job cuts and less aggressive discounts on its jeans and denim clothing, sending its shares up about 7% in extended trading.

In a bid to cut costs, Levi’s has reduced its global corporate workforce, including trimming the number of senior leadership positions. It has also consolidated its operations in Europe and exited lower-margin businesses, such as its Denizen brand and European footwear enterprise.

The apparel retailer recorded a restructuring charge of $116 million in the first quarter.

However, Chief Financial Officer Harmit Singh said the jeans maker is “feeling good” about a more “stable” U.S. consumer in a call with Reuters on Wednesday.

Sales of Levi’s clothing directly to consumers on its website and at the network of stores owned by the company rose 8% on a constant-currency basis, which follows a 10% increase in the prior quarter.

“The company’s earnings blowout and raised forecast shows the iconic brand is hitting its stride with consumers,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.

Yet, Levi’s sales through its still-important wholesale channels – which include department stores such as Macy’s and Kohl’s and other retailers such as Walmart – fell by 19% on a constant-currency basis, a steeper fall compared with a 3% drop in the fourth quarter.

With shoppers spending less on clothing amid sticky inflation, many chains that carry Levi’s jeans have pared back their orders in order to keep their inventories lean.

Singh told Reuters Levi’s intends to take similar measures and cut back on about 15% of its product assortment to focus more on top selling items.

“What’s really resonating these days is the baggier fit, the low, loose assortment,” Singh said.

Higher full-price sales and lower product costs also led Levi’s gross margins to rise by 240 basis points to 58.2% in the first quarter, from 55.8% a year earlier.

But the San Francisco-based firm said it continues to expect full-year revenue to grow in the range of 1% to 3%.

The denim maker said it expects an adjusted profit between $1.17 and $1.27 per share for 2024, up from its prior expectations of $1.15 to $1.25. Analysts’ expected a profit of $1.21 per share.

Its net revenue fell about 7.8% to $1.56 billion in the quarter ended Feb. 25, narrowly beating estimates of $1.55 billion, according to LSEG data.

Its first-quarter adjusted profit was 26 cents per share, above expectations of 21 cents.

(Reporting by Granth Vanaik in Bengaluru and Kate Masters in New York; Editing by Krishna Chandra Eluri)


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