After years of relying on wholesalers like Macy's and Kohl's to propel its growth, Levi Strauss announced on Wednesday that over half of its sales are now made through its own online and physical locations. According to Levi's, direct-to-consumer sales accounted for a record 48% of total sales in the three months that concluded on February 25. This is a 25% increase over the previous two years and a rise from 42% in the same period last year.
The change benefits Levi's bottom line. However, it begs the question of how the business views its wholesale partners and if it will harm those merchants as they struggle with their own existential issues.
Along with exceeding Wall Street's predictions for revenue and profitability, Levi's increased its full-year outlook. Parts increased by up to 10% during extended trading. In contrast to the same period last year, when net income was $114.7 million, or 29 cents per share, the firm saw a net loss of $10.6 million, or 3 cents per share, during the current quarter. After deducting one-time expenses associated with Levi's reorganization, the business declared earnings per share of 26 cents, exceeding Wall Street's projections.
From $1.69 billion to $1.56 billion in sales, a decrease of around 8% was recorded. A change in Levi's wholesale orders, which increased profitability by almost $100 million in the same time last year, was the main cause of the sales decline.
Levi's continues to project a 1% to 3% increase in full-year sales as it battles a slowdown in discretionary spending and an unclear financial system. However, it expects profits to exceed its initial estimates. Adjusted earnings per share were previously expected to be between $1.15 and $1.25, but the company now anticipates them to be between $1.17 and $1.27.
LSEG reports that analysts had projected earnings per share of $1.21 and a 2.4% annual growth in revenues.Levi's has been increasing its sales through its own stores and internet in recent years, decreasing its reliance on wholesalers. Levi's profits increase when it sells directly to clients because it obtains more information about its clientele and their purchasing habits.
More significantly, eschewing wholesalers provides Levi's more autonomy over its course and lessens its reliance on department shops, which are steadily contracting and have an unclear future in the United States.
An important Levi's wholesale partner, Macy's, stated in late February that it will shut 150 locations in response to an attempt by activist investors from Arkhouse Management to acquire the department store and take it private. The company's primary asset class is real estate, and it's perceived as more
more focused on making money off of Macy's extensive store network than managing a retail company.
About two months ago, CEO Michelle Gass of Levi's remarked in a CNBC interview that the company's strategy still heavily relies on wholesale. She believes that direct-to-consumer sales will more than make up for whatever losses Levi's may incur from Macy's store closures or other difficulties facing department retailers.
Because they are important to us and we are important to them, we engage closely with our major customers. In addition, wholesale is strategically essential to our efforts to increase consumer reach, according to Gass. "There are still many opportunities to grow market share within that channel, even with the pressures these wholesale customers face because they serve millions of consumers."
Levi has already stated that it's aiming to have 55% of revenues come from direct-to-consumer sales, but if that percentage can be increased, the business is "all for it," according to finance head Harmit Singh.
Meanwhile, according to Gass, Levi's is collaborating "closely" with its major wholesale clients to make sure the brand is represented in the "best possible way."
After accounting for the change in wholesale orders from the previous year, worldwide wholesale sales for the quarter decreased by 9% from the previous year.
Europe, which Gass claimed suffered a "tough" quarter, was the main cause of this deterioration.
"We feel hopeful as we look to the future. Because of the novelty and style we're delivering, our pre-books for the second half of Europe wholesale are good. Additionally, Levi's has been evolving into a business with many broader offerings than just jeans. It aims to be recognized as a denim lifestyle brand rather than just a blue jeans company and is trying to expand its selection of skirts, dresses, and shirts.
The business stated that it is essential to be at the "center of culture" as part of such efforts. It received a welcome boost on Friday when Beyoncé gave the company "Levii's Jeans," a song from her new album "Cowboy Carter," its own moniker.
With lines like "You don't need designer" and "Love it when you tease me in them jeans," the song—a duet with Post Malone—celebrates Levi's.
During an analyst call, Gass was questioned over the song. as well as whether it has caused a surge in purchases. She called the tribute a "honor," even if she refrained from stating whether it affected income in any way.
"Levi's brand is having a powerful moment around the world, and denim is having a moment," Gass stated. We put a lot of effort and money into ensuring that the Levi's brand stays at the forefront of society, and we're really delighted that a cultural shaper like Beyoncé named a song after us. I don't believe there's any better evidence or proof point than that.
In Levi's direct-to-consumer channel, sales of goods such as denim dresses, skirts, and tops increased by 19% during the quarter, according to Gass. The goods likewise did well in wholesale, according to her.
Levi's efforts come at a time when consumers are trying to spend their spare money on things like dining out, vacationing, or paying off debt, which puts pressure on purchasing for discretionary items like clothes and accessories.
With the reduction of 10% to 15% of its worldwide corporate personnel, Levi's is anticipated to save over $100 million in the upcoming fiscal year. The announcement was made in late January.
Writing By Seraphina Pseudonyma
Head Editor & Chief : Kennedy Lucas Patterson
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