Equities

Levi Strauss Beats Revenue Expectations Despite 8% Decline, Shares Rise 5.6%

NEGATIVE

Levi Strauss beats Q1 earnings with $1.6B revenue, shifts focus to DTC amid restructuring, raising 2024 guidance.

By Bill Bullington

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

  • Levi Strauss (LEVI) reports Q1 revenue of $1.6 billion, beating expectations despite an 8% year-over-year decline.
  • Adjusted earnings of 26 cents a share surpassed Wall Street predictions; company embarks on $100 million cost-saving Project Fuel.
  • Shares rose 5.6% post-earnings, with a revised fiscal 2024 earnings outlook of $1.17-$1.27 per share amid strategic DTC shift and wholesale challenges.

Revenue Decline

Levi Strauss & Co. (LEVI), the iconic denim brand, recently reported a fiscal first-quarter revenue of $1.6 billion, marking an 8% decline year-over-year. Despite this downturn, the figures narrowly surpassed analyst expectations, which had been set at $1.5 billion. This decline in revenue raises questions about the company's current market position and its ability to navigate the challenging retail landscape.

Earnings Amidst Restructuring

The company's adjusted earnings were reported at 26 cents a share, exceeding Wall Street's consensus expectations of 21 cents a share. However, these figures come in the context of significant restructuring within the company. Levi's announced a cost savings initiative, Project Fuel, expected to save the company $100 million in fiscal 2024, including through the reduction of corporate jobs. The restructuring charges related to Project Fuel amounted to $116 million in total, primarily from severance and post-employment benefit charges, leading to an unadjusted loss of three cents a share.

Strategic Shifts Under New Leadership

Under the new CEO Michelle Gass, who assumed her role on January 29, Levi Strauss is undergoing a strategic shift towards a direct-to-consumer (DTC) focus, moving away from its traditional wholesale-focused model. While DTC net sales rose 7% year-over-year, wholesale revenue fell by a stark 18%. Gass's statement, “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,” underscores the company's ambition. Yet, the significant drop in wholesale revenue highlights the challenges inherent in this strategic pivot.

Market Reaction and Outlook

Following the announcement, shares of Levi’s were up 5.6% to $19.74 in after-hours trading, with the stock having gained 13% this year. The company has slightly raised its earnings outlook for fiscal 2024, now expecting adjusted earnings per share to range between $1.17 and $1.27, a slight increase from previous projections. However, revenue projections remain unchanged, with Levi’s still expecting sales to grow between 1% and 3% year-over-year. This cautious optimism in the earnings outlook contrasts with the broader challenges faced by the company, including the significant restructuring charges and the ongoing shift in its business model.