Earnings call: Levi Strauss & Co. reports flat revenues, aims for direct-to-consumer model growth

Levi Strauss & Co (NYSE:)., during its third quarter earnings conference call, reported flat revenues compared to the previous year, with a 2% decline on a constant-currency basis. The company, however, saw strong double-digit growth in its direct-to-consumer business, and announced plans to focus on this model, alongside driving international growth and diversifying its business. Levi’s is also accelerating its transition to a direct-to-consumer (DTC) business model with plans to enhance its e-commerce platform and loyalty program. The company expects flat to 1% revenue growth for the full year and a low-to-mid single-digit revenue increase in Q4.

Key takeaways from the call:

• Levi’s reported a gross margin of 55.6% and adjusted SG&A expenses of $702 million in Q3. The company’s DTC business saw growth, while wholesale sales remained soft.
• The company is focusing on Mexico and India as key growth markets, with brand-building and strong performance leading to significant sales growth compared to pre-pandemic levels.
• Levi’s is planning to expand its denim dressing offerings, and is seeing success in categories beyond denim, such as chinos.
• The company is conducting a review of its operating model to drive cost and working capital savings. It aims to achieve a 15% EBIT margin over time.
• Levi’s has announced partnerships with Crocs (NASDAQ:), Kenzo, Denim Tears, and the K-pop band NewJeans to strengthen its brand.
• The company is working on a new innovation platform for 2024, and is focusing on product innovation and improved assortment to stabilize its wholesale business.
• Levi’s is narrowing its EPS outlook to the low end of its previous range of $1.10 to $1.20. It expects adjusted gross margin to contract by approximately 90 basis points, and adjusted EBIT margin to be around 9% for the full year and approximately 12% for Q4.

The company plans to continue investing in its key markets and expand its product offerings. It also aims to become a $9 billion to $10 billion organization. In the third quarter, Levi’s achieved 13% growth in its DTC channel and saw a 9.1% adjusted EBIT margin. The company remains confident in its brand and is working towards long-term profitable growth.

During the earnings call, the company discussed its recent strategic pricing actions and mentioned that they have seen a distinct change in trend for the items on which they increased prices. They believe they have isolated the most price-sensitive items and are not planning further price adjustments. The company is committed to driving gross savings and improving operating margin, particularly in relation to their pivot to a direct-to-consumer business model. The company is working on refining their timelines, design, product development, and vendor base. The company is prioritizing category expansion and international growth, as well as DTC operations. They are committed to becoming a more efficient and agile company to achieve long-term shareholder goals.

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