Levi Strauss & Co. continues to dominate the denim world, but while jeans are selling well, another brand under its umbrella is disappointing expectations, Dockers. On Wednesday, the company said it is considering yield the brand, causing a drop in title in pre-market, already down 2,8% in the previous session, with a further drop of 9% at opening.
Levi's Third Quarter Results
To make matters worse, the results for the third quarter of 2024 that did not meet expectations. I revenues stopped at 1,52 billion dollars (about 1,3 billion euros), while Wall Street expected to see at least 1,55 billion dollars.'Net income was $20,7 million, or 5 cents a share, up from $9,6 million, or 2 cents a share, a year earlier, but not quite the leap many had hoped for. Excluding unexpected costs, Levi's reported earnings of $132 million, or 33 cents a share.
There is also positive news: the Levi's brand has shown a 5% increase in sales globally, marking the best result in two years. During the quarter, the gross margin increased by 4,4 percentage points, thanks to the direct sales strategy and lower cotton costs. The sales directed grew about 10%, supported by a 16% increase in e-commerce. In total, direct sales now represent 44% of revenue, and Levi's plans to increase that number to 55%.
On the geographical front, theEurope showed an increase of 6%, while the Americas andAsia hit a few bumps along the way. Levi’s reported sales of $757,2 million in the Americas, below the $789,2 million forecast, and $247,1 million in Asia, also below expectations. In the U.S., in addition to the decline of Dockers, sales were impacted by a cybersecurity issue that affected a major wholesale customer in Mexico, delaying shipments. “The main drag was China,” Singh added, noting that the region represents about 2 percent of Levi’s overall business.
Goodbye, Dockers?
Levi's, which owns the eponymous brand as well as Dockers and Beyond Yoga, would have fared much differently without Dockers. The brand, launched in 1986 to offer a khaki alternative to denim, now appears to be in decline. In the '90s and 2000s, khakis were a wardrobe staple, but today? They've suffered a sudden fall from grace.
During the quarter, the Dockers sales fell 15%, reaching $73,7 million, while Beyond Yoga, the athleisure brand acquired in 2021, has seen the sales up 19%, reaching $32,2 million. In short, Dockers did not perform as hoped, and this contributed to a less rosy financial picture.
"The brand has underperformed over the past two years. We believe this is the right decision for the long term. From our financial perspective, the exit of Dockers will improve the company's overall margins and also reduce volatility in revenue growth," he said. Harmit Singh, Levi's chief financial officer, in an interview with CNBC. “We believe that Dockers' exit will allow both Dockers and Levi's to operate independently and maximize each other's value.” Levi's has already appointed Bank of America to drive the sales process.
Future predictions
Levi's has confirmed its guidance on earnings per share, set in the range of $1,17 to $1,27, in line with expectations of $1,25. However, the company lowered its revenue forecast, now expecting sales growth of 1%, from the previous range of 1% to 3%. This is significantly below the 2,3% growth expected by analysts.
The company is doing everything to attract consumers. As Michelle Gass, CEO of Levi's, pointed out, the company is dedicating itself to improving its offering products, focusing on innovative articles and on a recent campaign Advertising which sees the protagonist Beyoncé.