Levi Strauss Stock Edges Up Despite Weak Wholesale Business Guidance for 2024
Levi Strauss (NYSE: LEVI) saw a modest 1.3% increase in its stock price on Friday, even though the casual clothing retailer’s fiscal fourth-quarter 2023 results fell slightly short of expectations. While revenue missed the Wall Street consensus estimate, earnings managed to surpass it. However, the company’s fiscal 2024 guidance disappointed analysts due to weakness in its wholesale business.
To address this challenge, Levi Strauss announced a restructuring plan aimed at cutting costs and accelerating the growth of its more profitable direct-to-consumer (DTC) business. As part of the plan’s initial phase, the company will lay off 10% to 15% of its global corporate workforce.
Let’s delve into the details of Levi’s fourth-quarter performance and its outlook for 2024, with a focus on four key metrics.
During the quarter, Levi’s sales increased by 3.2% to reach $1.64 billion (approximately 2% in constant currency). Although this result fell slightly below the $1.66 billion consensus estimate, it was still a respectable showing. Here’s a breakdown of the segments:
– Levi’s core brand revenue grew by 1% year over year.
– Revenue for the company’s other brands category, which includes Dockers and Beyond Yoga, had mixed results. Beyond Yoga experienced a 14% increase in revenue, both as reported and in constant currency. However, Dockers faced an 18% decline (20% in constant currency), primarily due to poor performance in the U.S. wholesale business.
The wholesale channel saw a 2% decline in sales (3% in constant currency) compared to the previous year. While there was low-single-digit percentage growth in the U.S. and Asia, this was overshadowed by a 7% decline in Europe.
On the other hand, Levi’s direct-to-consumer (DTC) channel showed strong growth, with an 11% increase in sales (10% in constant currency). This growth was driven by robust performance in the company’s e-commerce business, where revenue surged by 19%, as well as in its mainline and outlet stores. Importantly, the DTC channel accounted for 42% of total revenue, up from 39% in the year-ago period.
In terms of net income, Levi generated $127 million or $0.32 per share under generally accepted accounting principles (GAAP), representing a 16% decline compared to the previous year. However, after excluding one-time items, net income stood at $179 million or $0.44 per share, marking a 29% increase year over year. This result narrowly beat the $0.43 per share analysts had anticipated.
Looking ahead to fiscal 2024, management provided the following guidance:
– Revenue growth of approximately 4% to 6%.
– Adjusted earnings per share (EPS) of $1.14 to $1.20.
Prior to Levi’s earnings release, analysts had been expecting revenue growth of 4.7% and adjusted EPS growth of 22% for fiscal 2024.
Although Levi Strauss delivered a solid quarter, its weaker-than-expected guidance for fiscal 2024 left investors somewhat disappointed. This outcome is particularly noteworthy when compared to the stellar performance of competitor Lululemon Athletica, whose shares have surged by 30.2% since October 2023. In contrast, Levi’s stock has underperformed, prompting concerns about its long-term prospects.
Investors considering Levi Strauss should weigh these factors carefully. While the company’s restructuring plan shows promise, it may take time to see substantial improvements in its wholesale business. As always, it’s important to conduct thorough research and diversify investments to mitigate risks.
