Levi Proves Once Again That Denim Does Not Go Out Of Style

With its latest quarter results, Levi Strauss & Co LEVI showed long gone are the days the jeans retailer depended on wholesalers like Macy’s Inc M and Kohl’s Corporation KSS to drive its business. Now, almost half of Levi’s sales are done through its own website and stores. 

Fiscal first quarter results

For the quarter ended on February 25th, direct-to-consumer sales accounted for a record 48% of total sales, rising from last year’s comparable quarter when they made 42%. 

However, total sales did fall about 8% YoY to $1.56 billion due to shift away from wholesalers, but still topping LSEG’s estimate of $1.55 billion.

While Levi made an income during last year’s comparable quarter, this time, it swung to a net loss of $10.6 million, or 3 cents per share. But adjusted earnings that exclude one-time restructuring costs amounted to 26 cents per share, also surpassing LSEG’s estimate of 21 cents.

A lifted full-year guidance despite an unfavorable macroeconomic backdrop

Despite the macroeconomic uncertainty and discretionary spending slowdown, Levi’s reaffirmed its guidance for full-year sales growth in the range between 1% and 3%. Moreover, it lifted its profit guidance as it now expects adjusted earnings per share in the range between $1.17 and $1.27. Back in January, Levi’s announced it plans to save about $100 million during the fiscal year by trimming its workforce by 10% to 15%.

Moving the focus away from wholesalers to DTC channels paid off.

Levi’s strategic decision to focus on its own digital and physical sales channels boosted its profits and allowed the company to get to know its consumers better, as well as their shopping patterns. One might also wonder how will Levi’s success weigh on wholesale partners and retailers like Macy’s and Kohl’s that are struggling with their own existential crisis. But Levi took more control of its own destiny as department stores like Macy’s continue to shrink and fear for their survival. In February, Macy’s announced the closure of 150 stores. Although such closures would undoubtedly impact Levi, CEO Michelle Gass expects the DTC sales to offset this loss.

Denim does not go out of style.

Fortunately for Levi, denim is still in style, even at times when consumer spending for discretionary items like clothing has been under pressure. During the quarter, sales of denim skirts, dresses and tops rose 19% in its DTC channel, while also performing well in wholesale. It also owes a special thank you to the culture shaper queen, Beyoncé, for naming a song after the brand, allowing Levi’s to still enjoy being part of the conversation. 

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