Levi Strauss, the iconic denim brand, is undergoing a significant shift in its sales strategy, with online and in-store sales now accounting for nearly half of its total revenue. In the first quarter of the fiscal year, direct-to-consumer sales made up a record 48% of overall sales, up from 42% in the previous year. This shift has proven to be lucrative for Levi’s profits, but it raises questions about the company’s relationships with its wholesale partners and the impact on struggling department stores.
The first quarter earnings report also revealed that Levi’s beat Wall Street’s expectations for both earnings per share and revenue. The company reported adjusted earnings per share of 26 cents, surpassing the estimated 21 cents. Revenue came in at $1.56 billion, slightly higher than the expected $1.55 billion. However, Levi’s experienced a net loss of $10.6 million during the quarter, compared to a net income of $114.7 million in the previous year. The decline in sales was primarily attributed to a shift in wholesale orders.
Despite the sales slump, Levi’s remains optimistic about its full-year outlook. The company expects sales to rise between 1% and 3%, although discretionary spending and an uncertain economy pose challenges. However, Levi’s anticipates higher profits than previously projected, with adjusted earnings per share now predicted to be between $1.17 and $1.27.
Levi’s decision to focus more on direct-to-consumer sales and reduce its reliance on wholesalers is driven by several factors. Firstly, selling directly to consumers is more profitable for Levi’s and provides valuable data on customer shopping patterns. Secondly, it allows the company to have greater control over its own destiny and reduces its exposure to struggling department stores.
One of Levi’s key wholesale partners, Macy’s, recently announced plans to close 150 stores. While CEO Michelle Gass acknowledges the importance of wholesale, she believes that any losses from department store closures can be offset by strong direct-to-consumer sales. Gass emphasized that Levi’s works closely with its key customers to amplify reach to consumers and drive market share within the wholesale channel.
Levi’s is also expanding its product offerings beyond just jeans. The company aims to be viewed as a denim lifestyle brand, not just a blue jeans company. During the first quarter, sales of denim skirts, dresses, and tops saw a 19% increase in the direct-to-consumer channel. These products also performed well in wholesale.
Levi’s is navigating a challenging retail landscape, where consumer spending on discretionary products like clothing and accessories is under pressure. However, the company remains optimistic about its future. It is working on innovative fashion offerings and strengthening its presence in Europe, which had a tough quarter but shows promising signs for the second half.
In late January, Levi’s announced workforce cuts of 10% to 15% in an effort to save $100 million during the fiscal year. This move aligns with the company’s transformation into a retailer that offers a wide range of products beyond just jeans.
Overall, Levi Strauss is adapting to changing consumer preferences and market conditions by focusing more on direct-to-consumer sales, expanding its product offerings, and working closely with its wholesale partners. While challenges remain, Levi’s strong first quarter performance and optimistic outlook indicate that the brand is on the right track to continued success in the ever-evolving retail industry.
