Shares of denim maker Levi Strauss & Co. fell more than 15% on Thursday after the company reported weak second-quarter earnings due to a slump in its wholesale business.
Despite denim dominating the latest fashion trends, including a resurgence of the short shorts of the early 2000s, the San Francisco-based company reported that its wholesale sales for the quarter ended May 26 fell by a mid-single-digit percentage.
The company reported an 8% increase in revenue.
“It was a good quarter, but expectations were high that category tailwinds would drive better results,” said Citi Research analyst Paul Lejuez, adding that the wholesale business remains a drag on the company.
Levi’s stock price fell 16.4 percent to $19.35 per share.
Levi Strauss & Co. has struggled with shaky demand in its wholesale business as retailers remain cautious about replenishing inventory as consumers remain cautious about spending.
As a result, profits from Levi’s more profitable direct-to-consumer (DTC) business, which has focused on trendier styles and selling products at full price, failed to boost overall quarterly revenue.
Global DTC revenues increased 8% and accounted for 47% of total sales.
“Our transformational shift to operate as a DTC-first company is producing positive results around the world, and we are very confident in our position to deliver accelerated profitable growth for the remainder of the year and beyond,” CEO Michelle Gass said in a statement.
Levi’s switch to direct selling has provided several benefits, including higher profits and reduced reliance on wholesalers.
However, wholesalers often bear the majority of certain costs, such as returns.
The company increased its dividend 8% to 13 cents a share, the first increase in six quarters. According to CNBC:.
Sales increased about 8% to $1.44 billion.
However, the increase comes after Levi’s saw its sales decline last year as it shifted its wholesale shipments from the second quarter to the first quarter, CNBC reported.
The change cost the company about $100 million in revenue, and CNBC reported that without it, sales would have increased just 1% in the most recent quarter.
Wholesale net revenue increased 7%.
However, taking into account changes in the timing of wholesale orders, global wholesale sales fell 4 percent, the company said.
Financial chief Harmit Singh told CNBC the sales slump was due to weak sales at the company’s khaki brand, Dockers, and unfavorable foreign exchange rates.
“It’s not necessarily a big buying environment. People are being cautious,” Singh told CNBC.
Levi’s profits fell as expected.
The company expects full-year earnings per share to be between $1.17 and $1.27.
The company also announced that it will transition its distribution and logistics networks in the United States and Europe from being primarily owned and operated by the company to networks that rely more heavily on third-party providers.
During this transition period, Levi said it will operate the old and new facilities simultaneously for the remainder of 2024 and will “experience temporary increased delivery costs.”
With post wire
