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Levi Strauss raises profit forecast on cost saving initiatives, fewer discounts

Published 04/03/2024, 04:09 PM
Updated 04/03/2024, 06:25 PM
© Reuters. FILE PHOTO: The Levi Strauss & Co. label is seen on jeans in a store at the Woodbury Common Premium Outlets in Central Valley, New York, U.S., February 15, 2022. REUTERS/Andrew Kelly/File Photo

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 8% in extended trading.

In a bid to cut costs, Levi's (NYSE:LEVI) 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 footwear enterprise.

Levi's cost-cutting campaign has helped its stock recover about 13% this year, not including Wednesday's late-day rally.

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

However, Chief Financial Officer Harmit Singh said the jeans maker was "feeling good" about a more "stable" U.S. consumer in an interview with Reuters on Wednesday.

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

CEO Michelle Gass said "new product" was driving growth in its direct-to-consumer business, especially in women's styles, which Levi's plans to expand with new tops, corsets and denim skirts.

Its adjusted profit was 26 cents per share in the first quarter ended Feb. 25, above expectations of 21 cents.

"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 wholesale channels - which include department stores such as Macy's (NYSE:M) and other retailers such as Walmart (NYSE:WMT) - fell by 19% on a constant-currency basis, a steeper decline than a 3% drop in the fourth quarter.

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

Singh told Reuters that 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 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%.

© Reuters. FILE PHOTO: The Levi Strauss & Co. label is seen on jeans in a store at the Woodbury Common Premium Outlets in Central Valley, New York, U.S., February 15, 2022. REUTERS/Andrew Kelly/File Photo

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

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

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