Get 40% Off
🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

Levi Strauss to cut prices as weak consumer spending hits outlook

Published 07/06/2023, 04:11 PM
Updated 07/06/2023, 08:05 PM
© Reuters. The Levi Strauss & Co. label is seen on clothes in a store at the Woodbury Common Premium Outlets in Central Valley, New York, U.S., February 15, 2022. REUTERS/Andrew Kelly/File Photo
TGT
-
JWN
-
AEO
-
LEVI
-

By Granth Vanaik and Katherine Masters

(Reuters) -Levi Strauss & Co cut its annual profit forecast on Thursday, in a sign that higher costs were weighing on the denim clothing maker's margins as it struggles with falling sales at its wholesale channels in North America.

Shares of the company fell about 6% in extended trading, as it joined peer American Eagle Outfitters (NYSE:AEO) in predicting a weak outlook for consumer spending.

Levi’s net revenues for the second quarter that ended May 28 declined by 9%, its steepest quarterly drop since the first quarter of 2021, according to Refinitiv data.

Chief Executive Officer Chip Bergh said in a post-earnings call that the company would cut prices on roughly six products sold in wholesale channels, such as retailers Macy's (NYSE:M) and Nordstrom (NYSE:JWN), in a bid to boost sales among more "price-sensitive" shoppers.

Those items will include core denim products like Levi's (NYSE:LEVI) 502 jeans, which can sell across seasons.

Consumers are cutting spending on pricier discretionary items, including apparel, as the cost of living rises in the U.S., and the price reductions would make the company's rates more comparable with similar items from competitors, according to Bergh.

"We're competing now for other dollars that are being spent out of the consumer's wallet, and that moderate income consumer is having to make some tough choices," he said.

Levi's now expects adjusted profit to be between $1.10 and $1.20 per share for 2023, compared to its prior forecast of $1.30 to $1.40. Adjusted gross margin is predicted to contract approximately 90 basis points from prior year's 57.6% compared to the 50 basis points decline previously anticipated.

The annual reported net revenue is expected to increase 1.5% to 2.5% from a year earlier, the apparel maker said, narrowing its previous forecast range of 1.5% to 3%.

Inventory backlog created supply chain challenges in Levi's U.S. distribution centers, resulting in its inability to fulfill demand, Bergh added.

Revenue in the company's higher-margin direct-to-consumer channel increased 13% for the second quarter, while its wholesale channel posted a 22% decline as wholesalers tightened their inventories in North America and Europe.

Sales in Americas declined 22%, while those in Europe fell 2%.

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

Decline in U.S. wholesale revenues is likely the beginning of a trend for the rest of 2023 that will induce Levi's to increase promotions and cut prices, crimping gross margins and slowing revenue growth as a result, said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.

The apparel maker posted a net loss of $1.6 million for the second quarter, compared with a net income of $49.7 million a year earlier.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.