Levi Strauss Is Proof That Denim Is As Fashionable As Ever

On Wednesday, Levi Strauss & Co LEVI issued a mixed quarterly report. While the iconic denim brand is doing great as far as its namesake brand and Beyond Yoga are concerned, but its Dockers business is another story, one that Levi is thinking to sell. On a brighter note, by focusing on direct selling and turning away from wholesellers like Macy’s Inc M, aided by lower cotton costs, Levi grew its gross margin.

Fiscal Third Quarter Highlights

During the quarter ended on August 25th, Levi reported sales grew 5%, which is the biggest increase in two years. However, overall revenue was flat at $1.52 billion and below LSEG’s consensus estimate of $1.55 billion. The Dockers brand reported sales contracted by as much as 15% as they brought in $73.7 million. On the other hand, Beyond Yoga reported 19% growth as sales grew to $32.2 million.

With lower cotton costs and without any need to mark down its products to sell them like Macy’s and its magical sales, Levi grew its gross margin by 4.4 percentage points thanks to its direct selling strategy with which it is less reliant on wholesalers like Macy’s. Once ‘the world’s greatest department’ store, long gone are the days when Macy’s enjoyed margins that Levi is now taking for itself.  Fueled by strength in the U.S., the direct channel went up about 10%, with e-commerce alone growing even 16%. Direct sales made 44% of Levi’s total revenue and the denim maker aims to push its contribution to 55%.

Net income amounted to $20.7 million or 5 cents per share, with adjusted earnings amounting to 33 cents, surpassing LSEG’s consensus estimate of 31 cents.

Denim seems to be the fashion for every era as it never goes out of style.

Levi is counting on denim-loving consumers. During the latest reported quarter, financials were brought down by the Dockers brand as well as challenges in China and Mexico, causing Levi to miss Wall Street estimates for revenue and having to trim its revenue guidance. With Beyonce’s support with the official ad campaign having launched on Monday, Levi hopes to fuel growth in the women’s’ department over the long-haul. CEO Michelle Gass spoke confidently of this opportunity as the denim maker sees it growing to at least half of its business, doubling over time and even $2 billion just this year. But, for the latest quarter, missing Wall Street’s expectations for revenue and trimming its revenue guidance as it now sees revenue growing 1%, while it previously guided for growth between 1% and 3%. But, with one more quarter to go in the fiscal year, Levi did reaffirm its full-year guidance for adjusted earnings per share that are expected between $1.17 and $1.27. By selling Dockers, Levi believes that both Dockers and Levi’s will be empowered to maximize their own values as independent units. 

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