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Levi Strauss Lowers Full-Year Sales Outlook Again as Changing Store Trends Impact the Iconic Blue Jeans Maker

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Levi Strauss Cuts Sales Forecast as Retail Trends Weaken

Levi Strauss has revised its full-year sales forecast downward due to weaker shopping trends at department stores and big-box retailers across the U.S. The company's more cautious outlook follows a previous reduction in its full-year profit forecast. Levi now expects net revenues to be flat to up 1% year-over-year, compared to the previous range of 1.5% to 2.5% growth. CEO Chip Bergh attributes the decline in sales to factors such as inflation, rising mortgage rates, and gas prices, which have affected the purchasing power of middle-income consumers.

Financial Performance and Retail Challenges

Levi's fiscal third-quarter results fell short of Wall Street expectations. Adjusted earnings per share were 28 cents, slightly higher than the anticipated 27 cents, while revenue of $1.51 billion missed the expected $1.54 billion. The company reported a net income of $10 million, or 2 cents per share, compared to $173 million, or 43 cents per share, in the same period last year. Levi's sales remained relatively stable, aligning with the $1.52 billion revenue reported in the year-ago period.

Impact of Weaker Retail Sales and Wholesale Decline

Levi, like other retailers, has faced challenges in the U.S. market. The company sells its products directly through its website and stores worldwide, as well as through retail chains like Macy's, Kohl's, and Target. However, these retailers, which purchase wholesale items from Levi, have experienced weaker discretionary sales. Levi's value-based denim lines, such as Signature by Levi Strauss and Denizen, have been particularly affected, with sales of these brands at Walmart and Target declining by double digits. Bergh attributes the decline in wholesale sales to unseasonably warm weather in the U.S. and Europe, which affected the demand for jeans. However, Levi has seen stronger performance in its direct-to-consumer business, including e-commerce. Net revenues from direct-to-consumer sales increased by 14% in the fiscal third quarter, driven by double-digit growth across all brands. The company aims to increase the contribution of direct-to-consumer sales to 55% by fiscal 2027. In an effort to boost sales, Levi implemented price cuts on select items, targeting price-sensitive customers. The company remains "cautiously optimistic" that the launch of new styles and the upcoming holiday season will encourage customers to make purchases. Despite these challenges, Levi's stock has underperformed the S&P 500, falling approximately 14% this year. The stock closed at $13.21 on Thursday, down nearly 2%. Please note that this story is developing, and updates will be provided as more information becomes available.

Levi Strauss Downgrades Sales Forecast: Implications for New Businesses

Levi Strauss's decision to revise its full-year sales forecast downward due to weakening retail trends could have significant implications for new businesses. The company's CEO, Chip Bergh, has attributed the sales decline to factors such as inflation, rising mortgage rates, and gas prices, which have impacted the purchasing power of middle-income consumers.

Understanding Market Challenges

The financial performance of Levi Strauss, a well-established brand, serves as a stark reminder of the challenges businesses can face in a volatile market. The company's fiscal third-quarter results fell short of expectations, with a net income of $10 million compared to $173 million in the same period last year. For new businesses, understanding these market challenges is crucial for strategic planning and risk management.

Impact of Retail Sales and Wholesale Decline

Levi's experience with weaker retail sales and a decline in wholesale purchases highlights the importance of diversification. The company has seen a decline in sales of its value-based denim lines at big-box retailers like Walmart and Target, indicating a shift in consumer behavior. However, its direct-to-consumer business, including e-commerce, has shown stronger performance.
Adapting to Market Changes
In response to these challenges, Levi has implemented price cuts on select items and is focusing on launching new styles and leveraging the upcoming holiday season to boost sales. These strategies underscore the need for new businesses to remain flexible and adaptable in the face of market changes. The developments in Levi's financial performance and strategy provide valuable insights for new businesses. Monitoring these situations can offer important lessons in navigating market challenges and adapting business strategies.
Story First Published at: https://www.cnbc.com/2023/10/05/levi-strauss-levi-earnings-q3-2023.html
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