Levi Strauss slashes annual forecast amid supply chain pressures

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“As we navigate the third quarter, a confluence of pressures – from inflation to falling consumer sentiment to rising interest rates – has begun to drive down consumer demand, while our industry continues to experience supply chain disruptions and an increased promotional environment,” Chip Bergh, president and CEO of Levi’s, said on the Oct. 6 earnings call. “Unsurprisingly, this created a difficult quarter. Despite this, we were able to deliver strong results with net sales growth of 7% at constant currencies, which translates to over 1% on a reported basis. »

Thursday, Levi’s declared income of $1.5 billion in the quarter ending August 28, a record for the third quarter but still $100 million short analysts surveyed by FactSet. Levi’s net income for the quarter, at $173 million, was down 11% from the $193 million reported a year ago.

Levi’s attributes most of its growth in the Americas — where revenue jumped 3% year-on-year — to its direct-to-consumer channels such as its outlets and stores. This quarter, DTC store and e-commerce sales accounted for 29% and 6% of total Levi’s revenue, respectively. DTC accounted for 40% of total Levi’s sales in 2020. Speaking to CNBC last yearBergh said he wants the company to be “DTC-led going forward.”

Levi’s has been building its DTC presence for quite some time. In 2020, it launched its first NextGen store in North America. The location, in San Francisco, offered shoppers additional services such as a “Tailor Shop” for custom t-shirt designs. Earlier this summer, Levi’s added more sizing features to its website and app, including the “What’s My Size” algorithm and the “See It In My Size” tool.

“Levi’s push into direct-to-consumer sales will drive margin growth and open the door to experimentation with new product lines,” Shoggi M. Ezeizat, consumer industry analyst at Third Bridge, said in a statement. note. “Our experts recommend that Levi’s focus on a more balanced approach to growing its full-price, higher-margin business and maintaining its in-store sales growth trajectory.”

Ezeizat added that womenswear has “strong growth potential for Levi’s.” On the earnings call, Bergh said his women’s business was up 8%, driven primarily by Levi’s bottoms, which were up 7%. In the United States, he said, the Levi’s brand was up “in single digits, with strong growth in new women’s fits.” Women today are opting for looser fits, he explained, and are moving more and more from high-rise jeans to mid-rise jeans.

However, “from January to August 2022, total jeans sales (men’s, women’s and children’s) were down 1% from the same period last year, with the declines driven by women’s jeans,” Kristen Classi- Zummo, director and industry analyst covering fashion apparel at NPD Group, said in an email. “Last year, the stimulus and increased economies led to an increase in many sought-after categories, such as denim. As prices rise and consumers increasingly calculate their spending, complying with a year of such high growth stabilizes the industry.

Still, she added, “it’s important to understand that the market is 9% higher this year than it was in 2019 before the pandemic.”

Levi’s posted its biggest year-over-year loss in Europe, where revenue fell 19% from the same period in 2021. This is likely due, in part, to Levi’s decision to suspend its operations in Russia in March, in response to Vladimir Putin’s invasion. from Ukraine. “Given the huge disruptions occurring in the region, which are making normal business untenable, LS&Co. temporarily suspends its business operations in Russia, including any new investments,” the company said in a statement. Press release at the time.

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