Levi Strauss & Co. (LEVI) reported mixed results for its third quarter of 2024, with adjusted earnings per share (EPS) of $0.33, which beat analysts’ estimates of $0.31. However, revenue came in at $1.52 billion, slightly missing the $1.55 billion consensus. The company also posted an adjusted EBIT margin of 11.6%, a significant improvement from last year, driven by a strong gross margin of 60%, which outperformed expectations. Despite the earnings beat, Levi’s stock extended its losses, down 8.3% after the earnings release, reflecting investor disappointment over the revenue miss and broader challenges facing the company.
One of the standout metrics from the report was Levi’s adjusted net income, which rose 18% year-over-year to $132 million, surpassing the $121.9 million expected by analysts. However, on the revenue front, the company’s performance was more mixed. Revenues in the Americas, its largest region, fell by 1.2% to $757.2 million, missing estimates of $784.8 million. In contrast, Europe posted stronger results, with revenue rising 5.9% to $406.6 million, beating estimates of $390.1 million. Asia, on the other hand, was relatively flat, generating $247.1 million, slightly below the $250.2 million expected by analysts.
Levi Strauss reaffirmed its full-year guidance for adjusted EPS to range between $1.17 and $1.27, in line with Wall Street's expectations of $1.25. However, the company lowered its full-year revenue growth outlook to approximately 1%, down from the previous range of 1% to 3%, highlighting some headwinds in its key markets, especially in the Americas. The company remains optimistic about its future performance, with CEO Michelle Gass pointing to strong momentum in the Levi’s brand and upcoming campaigns, including a new collaboration with Beyoncé, as key drivers for growth in the coming quarters.
One of the major developments from the earnings call was Levi Strauss initiating a formal review of strategic alternatives for its Dockers brand, which saw a 15% decline in revenue during the quarter. The company has retained Bank of America to explore potential outcomes, including a possible sale of the struggling brand. Management emphasized that there is no specific timeline for the completion of this review, leaving open the possibility that Dockers could continue to be part of the company if no suitable offers are found.
The company also highlighted some of the growth in its direct-to-consumer (DTC) segment, which saw revenues increase by 10% on a reported basis and 12% in constant currency. This growth was driven by a 12% increase in the U.S. and a 9% rise in Europe, along with strong e-commerce performance. Online sales were up 16% on a reported basis, making up a significant portion of Levi’s revenue. DTC now accounts for 44% of total sales, reflecting the company’s strategic shift towards more direct customer engagement.
While the Levi’s brand performed well, growing 5% globally and leading the company's results, other brands under Levi Strauss' umbrella struggled. Other brands, which include Dockers and Beyond Yoga, saw a 7% decline in net revenue, although Beyond Yoga stood out with a 19% increase in sales. The company acknowledged the need to continue investing in and modernizing its other brands to bring them back to growth.
Geographically, the performance was varied. The Americas struggled with a 1.2% decline, partly due to the exit of the Denizen business, but after adjusting for that, the region would have been up 2%. Europe performed better than expected, growing 6% and benefitting from strong demand in key markets, while Asia remained flat. Levi’s direct-to-consumer channels in both the U.S. and Europe were highlights, as they continued to drive sales, but wholesale revenues fell by 6%, reflecting some ongoing challenges in retail distribution.
In conclusion, while Levi Strauss delivered an earnings beat and improved margins, the slight revenue miss, challenges in the Americas, and declining wholesale business weighed on the stock’s performance. The company’s decision to review strategic alternatives for the Dockers brand signals a proactive approach to addressing underperforming segments, but it also underscores the need for stronger growth in its core markets. Looking ahead, Levi Strauss will need to capitalize on its recent marketing efforts, such as its campaign with Beyoncé, and continue modernizing its product lineup to return to more robust growth.