Levi Strauss Beats Q1 Earnings Expectations, Raises Full-Year Profit Guidance

Levi Strauss beats Q1 earnings with 26 cents per share, raises full-year guidance amidst strategic DTC pivot.

By Bill Bullington

4/3, 17:20 EDT
Levi Strauss & Co

Key Takeaway

  • Levi Strauss beats Q1 earnings expectations with 26 cents per share, revises full-year profit guidance upwards.
  • Strategic pivot to DTC model yields a 7% increase in net sales, despite an overall 8% revenue decline and wholesale challenges.
  • Company raises full-year earnings outlook to $1.17-$1.27 per share, reflecting confidence in growth strategies and operational efficiency.

Levi Strauss Surpasses Expectations

Levi Strauss & Co. has recently outperformed analyst expectations for the first quarter, leading to an upward revision of its full-year profit guidance. Despite a challenging retail environment, the company's strategic initiatives, including cost-cutting measures and a pivot towards a direct-to-consumer (DTC) model, have begun to yield significant benefits. The company reported adjusted earnings of 26 cents per share, surpassing the Wall Street consensus of 21 cents. This performance is particularly noteworthy given the broader context of an 8% year-over-year revenue decline to $1.6 billion, which still exceeded analyst projections of $1.5 billion. The company's shares responded positively to the news, with a 5.6% increase in after-hours trading, reflecting a 13% gain for the year.

Strategic Shifts and Operational Efficiency

Levi Strauss's strategic refocus towards enhancing its DTC channel has shown resilience and adaptability amid declining wholesale sales. The DTC net sales rose by 7% year-over-year in the quarter, while wholesale revenue fell by 18%. This shift is part of the company's broader strategy to evolve from a wholesale-focused model to a DTC-first apparel retailer, as articulated by new CEO Michelle Gass. The company's operational efficiency is further evidenced by its Project Fuel initiative, expected to save $100 million in fiscal 2024, and its ability to exceed gross margin expectations despite restructuring charges of $116 million related to severance and post-employment benefits.

Revenue Resilience and Market Adaptability

Levi's revenue for the quarter, though down 8% from the previous year, still managed to beat analyst forecasts. This performance reflects the strength of Levi's DTC business and its enduring brand appeal, even as it faced a $100 million one-time hit from U.S. wholesale sales and a 7% decline in European wholesale sales. CFO Harmit Singh highlighted the company's strategic initiatives to optimize inventory and cash flow, which are expected to contribute to improved free cash flow and enable investments in dividends, share buybacks, and strategic acquisitions.

Positive Outlook and Strategic Investments

Looking ahead, Levi Strauss has raised its full-year earnings outlook to a range of $1.17 to $1.27 per share, up from the previous forecast of $1.15 to $1.25. This adjustment reflects the company's confidence in its strategic direction and operational capabilities. CEO Michelle Gass's vision for growth includes introducing new styles and expanding the product range to drive demand and bolster wholesale growth. The company's focus on inventory optimization and cash flow improvements positions it well for future investments and sustainable profitable growth.

Management Quotes

  • Michelle Gass, CEO of Levi Strauss:

    "We are on our way to transforming this company into a best-in-class DTC-first apparel retailer, setting the stage for our next phase of sustainable profitable growth."