(Reuters) -Levi Strauss & Co cut its annual forecasts for the second time on Thursday after missing third-quarter sales estimates, reeling from hefty promotions and falling demand at wholesale channels in North America.
Gloomy consumer spending has hit retailers like Macy’s (NYSE:M) and Nordstrom (NYSE:JWN) as high prices and borrowing rates squeeze budgets, denting demand for Levi’s (NYSE:LEVI) denims bottoms, tops and cargo pants.
Unseasonably warm weather through the late summer and fall also hurt sales, particularly of men’s jeans in wholesale channels where Levi has less control over product displays, according to Chief Financial and Growth Officer Harmit Singh.
“In our own stores we have a lot more buy-now, wear-now product — things like shorts, lighter denim, skirts and dresses,” Singh told Reuters on a call.
Levi has struggled with declining sales at its overall wholesale business, particularly in North America, which has a higher exposure to the middle-income consumer.
“Value-conscious” shoppers earning between $50,000 and $100,000 are particularly under pressure, Singh said. This has impacted Levi’s sales at retail partners such as Walmart (NYSE:WMT) and Target, where prices of its Signature and Denizen lines start just below $30.
Net revenue in Levi’s Americas segment decreased 5%, even as its direct-to-customer (DTC) business, which serves a more affluent consumer, rose 12%.
“The brand is trying to sell more through DTC but overall will probably face headwinds going into the holiday season,” said Michael Ashley Schulman, a partner at Running Point Capital.
Its margins were also hit by price cuts on certain denim bottoms sold to wholesale retailers like Macy’s and Nordstrom in a bid to boost sales among more price-sensitive shoppers.
Levi’s adjusted gross margins declined 130 basis points to 55.6% during the third quarter, also hurt by lower full-price selling and higher product costs.
Analysts have said Levi might have to increase promotions and cut prices if wholesale channel sales continue to worsen, which could pressure its margins further. Shareholders are skeptical of the company’s prospects ahead of the key holiday season, according to Schulman, even as executives pledge to expand Levi’s denim assortment into skirts, dresses and other womenswear.
“It seems that management’s narrative of an expanding casualization trend in workwear and potential European and Asian growth is not resonating with investors,” he said.
Levi forecast revenue to be flat to up 1% in fiscal 2023, compared with prior estimate of 1.5% to 2.5% growth.
The company said it expects an adjusted profit per share at the low end of its prior estimated range of $1.10 to $1.20. Analysts on average were expecting $1.12.
Net revenue declined to $1.51 billion in the quarter ended Aug. 27 from $1.52 billion a year earlier, missing analysts’ estimate of $1.54 billion, according to LSEG data.
Source: Economy - investing.com
