Levi Strauss Co. on Thursday said it expects annual sales and profits to fall short of Wall Street expectations and will cut 10 to 15 percent of its global workforce as the denim maker seeks to control costs amid a weak wholesale business.
Levi attributed the weak outlook to the company's withdrawal from the Denizen brand and plans to reduce off-price sales, as well as weak currency exchange rates. The company also missed its fourth quarter sales forecast.
The fallout from last year's inventory glut and consumers feeling the pinch from inflation are weighing on the company's wholesale channels, which are outpacing growth in its direct sales business.
Levi's incoming CEO Michelle Gass said the company's U.S. wholesale business improved from last quarter and is expected to grow in the second half of 2024. However, Levi's told investors it will continue to maintain a conservative outlook because consumer demand is unpredictable. he spoke on a post-earnings conference call.
“We are encouraged, but as it relates to this channel, we are not yet declaring victory,” Gass said. “The past year has been volatile, so we are taking a cautious approach going forward.”
By phasing out the Denizen brand, which is cheaper and has lower margins than other Levi's products, the company will expand into product categories such as lightweight denim and sportswear, said Hermit, the chief financial and growth officer. Shin will be able to focus more on it.
“They want to make[Levi's]more upscale and increase its prestige,” said Rachel Wolf, an analyst at Insider Intelligence. “This is a strategic decision because they are moving into the upmarket market and trying to appeal to a more premium consumer.”
Singh also told investors that Levi's is experiencing delays in transit times of 10 to 14 days as a result of continued disruptions to Red Sea shipping. The company has moved some of its U.S. shipments to the West Coast, a route that avoids the Red Sea and Suez Canal.
The company's shares fell 1.7% in after-hours trading Thursday.
Levi's overall wholesale business sales, which account for about 62% of 2022 net revenue, fell 3% on a constant currency basis in the quarter ended Nov. 26.
Headcount reductions are expected to take place in the first half of 2024, and combined with more DTC-focused efforts, are expected to result in net cost savings of $100 million in 2024.
The company expects to incur costs of $110 million to $120 million related to layoffs this quarter.
“We're in an environment of weak demand, and I think that's reflected in the company's forecast and cost-cutting announcements,” said Mari Scholl, senior equity analyst at Columbia Threadneedle Investments. Ta. “This is a sign that they are not satisfied with their sales and are looking for other ways to reduce expenses.”
Levi has approximately 20,000 employees worldwide, including approximately 5,000 corporate employees.
The company expects net sales growth of 1% to 3% in fiscal 2024, compared with analysts' expectations for a 4.7% increase to $6.49 billion, according to LSEG data.
Levi's forecast adjusted earnings per share of $1.15 to $1.25, below expectations of $1.33.
