Levi Strauss & Co Cuts Annual Forecasts as Sales Fall Short

Levi Strauss & Co, the iconic denim brand, has revised its annual forecasts for the second time this year after reporting lower-than-expected sales in the third quarter. The company has been grappling with declining demand and heavy promotions, particularly in the wholesale channels of North America.

The challenging retail environment, marked by gloomy consumer spending, has impacted not only Levi’s but also other retailers like Macy’s and Nordstrom. High prices and borrowing rates have squeezed budgets, leading to a decline in demand for Levi’s denim bottoms, tops, and cargo pants.

Unseasonably warm weather during the late summer and fall further hampered sales, especially in the wholesale channels where Levi has less control over product displays, according to Chief Financial and Growth Officer Harmit Singh. However, the company’s own stores have seen better performance due to their focus on buy-now, wear-now products such as shorts, lighter denim, skirts, and dresses.

Levi’s wholesale business, particularly in North America, has been struggling with declining sales, primarily affecting the middle-income consumer segment. Shoppers in the $50,000 to $100,000 income range, who are value-conscious, have been particularly affected. This has impacted Levi’s sales at retail partners like Walmart and Target, where the prices of its Signature and Denizen lines start just below $30.

While Levi’s direct-to-customer (DTC) business, catering to a more affluent consumer, saw a 12% increase in net revenue in the Americas segment, the overall outlook for the brand remains challenging. The company’s margins were also affected by price cuts on certain denim bottoms sold to wholesale retailers like Macy’s and Nordstrom, aimed at attracting price-sensitive shoppers.

Analysts suggest that Levi may need to increase promotions and reduce prices if wholesale channel sales continue to worsen, which could further pressure its margins. Shareholders are expressing skepticism about the company’s prospects ahead of the crucial holiday season, despite management’s plans to expand Levi’s denim assortment into skirts, dresses, and other womenswear.

Levi Strauss & Co now forecasts flat to 1% revenue growth for fiscal 2023, compared to the previous estimate of 1.5% to 2.5% growth. The company also expects its adjusted profit per share to be at the lower end of the previously estimated range of $1.10 to $1.20.

In the third quarter, Levi’s net revenue declined slightly to $1.51 billion from $1.52 billion a year earlier, missing analysts’ estimates. The company’s performance reflects the challenges faced by the retail industry as a whole.

Despite these headwinds, Levi Strauss & Co remains committed to expanding its denim assortment and exploring growth opportunities in Europe and Asia. However, investors are yet to be convinced of the company’s narrative.

As Levi prepares for the holiday season, it will need to navigate the changing retail landscape and find innovative ways to appeal to consumers in order to regain its momentum.