Levi Strauss significantly increased its full-year profit guidance, largely due to substantial tariff refunds that boosted its operating margin and EPS. However, the denim retailer concurrently narrowed its net revenue growth forecast to the lower end of its previously stated range, reflecting a mixed sales performance with its direct-to-consumer segment falling short of internal expectations. CEO Michelle Gass indicated targeted actions are underway to improve DTC performance.
Denim giant Levi Strauss & Co. announced Wednesday a revised, more optimistic profit outlook for the fiscal year, a direct result of substantial tariff refunds. However, the company simultaneously presented a more subdued forecast for its net revenue growth, tempering investor enthusiasm despite the boosted bottom line.
For the full fiscal year, Levi Strauss has elevated its adjusted earnings per share (EPS) expectation to a range of $1.54 to $1.56, an increase from its prior projection of $1.46 to $1.52. This updated guidance surpasses the lower end of analyst expectations, which, according to LSEG, hovered between $1.52 and $1.59.
Conversely, the company scaled back its net revenue growth guidance for the full year, now anticipating a 7% increase—the lowest point of its previous 7% to 7.5% range. This dichotomy led to Levi's shares trading relatively flat in extended hours after an initial brief uptick.
Reflecting on its fiscal third quarter, Levi Strauss reported a 4% rise in net revenues across the Americas. Nevertheless, revenue specifically within the U.S. market experienced a slight 1% contraction. A key highlight for the quarter was a robust operating margin of 13.8%, a significant jump from 10.8% in the same period last year. This improvement was largely propelled by tariff refunds, which alone contributed 4.9 percentage points to both the operating and gross margins.
The impact of these refunds extended to EPS, providing a 16-cent benefit. CEO Michelle Gass noted during an analyst call that 5 cents of this benefit were strategically reinvested back into the business, earmarked for marketing and promotional activities leading up to the critical holiday shopping season.
Analyzing the third-quarter performance against Wall Street's projections (as per LSEG analyst surveys), Levi Strauss presented a mixed bag:
- Adjusted Earnings Per Share: Reported at 48 cents. While a direct comparison to the expected 36 cents was unclear, the actual figure indicated a strong performance.
- Revenue: Achieved $1.61 billion, narrowly missing the anticipated $1.62 billion.
For the three-month period concluding August 30, Levi's reported net income of $168.6 million, equating to 43 cents per share. This marked a decrease from $218.1 million, or 55 cents per share, recorded in the prior year's comparable quarter. Total sales, however, saw an approximate 4% increase, reaching $1.61 billion from $1.54 billion year-over-year.
The company also detailed its sales channels, with direct-to-consumer (DTC) net revenues growing by 2%. However, comparable sales within the DTC segment remained largely flat. DTC operations accounted for 45% of the total net revenue in the third quarter. In contrast, wholesale revenues demonstrated stronger momentum, increasing by 6% for the quarter.
“While we delivered strong results across much of the business, our DTC performance fell short of our expectations during the quarter,” CEO Michelle Gass conceded during the analyst call. She assured that the company possesses a clear understanding of the contributing factors and has already initiated specific actions to bolster DTC performance.
Previously, the company had highlighted broad-based growth across its various business segments, including its core Levi's and premium blue tab brands. In executive news, John Vandemore is set to assume the role of Chief Financial Officer effective November 1, succeeding Harmit Singh, who announced his retirement in April.
