Levi’s reported better-than-expected profits as its direct-to-consumer sales and cost cuts continue to pay off. The company raised its dividend 8%, to 13 cents per share, its first increase in six quarters.
Here’s how Levi’s performed in the quarter compared to what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: 16 cents adjusted vs. 11 cents expected
- Income: $1.44 billion versus $1.45 billion expected
The company’s reported net income for the three months ended May 26 was $18 million, or 4 cents per share, compared with a loss of $1.6 million, or zero cents per share, a year earlier. early. Excluding one-time items, Levi’s posted a profit of $66 million, or 16 cents per share.
Sales reached $1.44 billion, up about 8% from $1.34 billion a year earlier. However, the increase in sales comes from easier comparison.
Over the past year, sales declined 9% after Levi’s moved its wholesale shipments from the fiscal second quarter to the fiscal first quarter. The change reduced sales last year by about $100 million, the company previously said. Without this change, as well as the exit of Levi’s Denizen business, sales would have increased about 1% in the most recent quarter compared to the same period last year.
Chief financial officer Harmit Singh attributed the sales failure to unfavorable foreign exchange conditions and weak sales at Docker’s. During the quarter, the khaki and chino brand reported revenue of $82.4 million, up 8.6% from $75.8 million last year. It is not clear how Docker’s sales were affected by the timing of Levi’s bulk orders.
Although Levi’s posted a solid profit, it only reaffirmed its full-year guidance, which was in line with estimates. The company continues to expect full-year earnings per share to be between $1.17 and $1.27, which now includes a 5 cent decline from the new distribution strategy and logistics of the company.
Levi’s said it is moving from a distribution and logistics network primarily owned and operated in the United States and Europe to one that relies more on third parties.
“In the short term, these changes require the parallel operation of new and old facilities for the remainder of 2024, which will result in a transitional increase in distribution costs,” the company said.
This change allows Levi’s to shift responsibility for last-mile delivery to third parties. He noted that he had new terms with his supplier that led Levi’s to take possession of inventory closer to the shipping point rather than its final destination. Levi’s distribution network was built for a company that sold primarily to wholesalers and now needs to transform into a company focused more on selling directly to consumers.
The changes are necessary because nearly half of Levi’s sales today come from its own website and stores.
Direct-to-consumer sales jumped 8% during the quarter, accounting for 47% of overall sales. Online sales increased by 19%.
“Our transformation pivot to operating as a DTC-first company is delivering positive results around the world, giving me great confidence that we will achieve accelerated, profitable growth for the remainder of the year and at beyond,” CEO Michelle Gass said in a statement.
During the quarter, wholesale revenue increased 7%, but excluding the change in bulk order timing, channel sales declined 4%.
By creating its own direct channels, Levi’s benefits from higher profits, better data on its consumers and less reliance on fragile wholesalers like Macy’s and Kohl’s, which continue to shrink and lose favor with consumers.
However, selling direct can also be more expensive and lead to unexpected setbacks that can impact sales and drain profits. For example, when someone buys a pair of Levi’s at Macy’s and wants to return them, Macy’s usually covers that cost. In a direct model, this responsibility, including costs and logistics, would fall to Levi’s.
Nike is now known as a warning to retailers who have long relied on wholesalers trying to grow their direct sales.
For a time, Nike’s focus on direct sales boosted its revenue and profits, but some critics said the change in strategy led to a slowdown in innovation and, ultimately, losses. of market share.
Recently, the company admitted that it made a mistake in removing so many of its wholesale partners and said that it has since “corrected” this situation.
Read the full earnings release here.
News Source : www.cnbc.com
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