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Levi Strauss & Co. (LEVI) 2 Oct 24 2024 Q3 Earnings call transcript

AInvestThursday, Oct 3, 2024 11:25 am ET
2min read

In the latest earnings call, Levi Strauss & Co. reported a robust third-quarter performance, showcasing a 2% increase in constant currency revenue and a 3% rise when excluding the Denizen business. The company's focus on strategic growth initiatives, including its pivot to a direct-to-consumer (DTC) business model and the expansion of its Levi's brand, has resulted in significant improvements in profitability and market share.

Strategic Shifts and Growth Opportunities

Michelle Gass, the company's President and CEO, highlighted the strong underlying fundamentals of the business, which include a 5% global growth in the Levi's brand and a 12% increase in DTC sales. The strategic shift towards a DTC-first company is a key driver of this growth, as the company narrows its focus on its core brands and accelerates the growth of Beyond Yoga. This strategic move has led to a 250 basis point expansion in adjusted EBIT margin and double-digit adjusted diluted EPS growth.

Challenges and Addressing Headwinds

Despite these positive developments, Levi Strauss & Co. faced challenges in specific areas, including Dockers, China, and Mexico. The company is evaluating strategic alternatives for Dockers, including a potential sale or other strategic transactions, aiming to maximize the potential of both Ellis & Co. and Dockers. In China, the company is working to improve its execution and reset its business, following the appointment of a new interim leader with a strong track record in the Asia market. Mexico, on the other hand, saw mixed performance, with DTC growth outpacing wholesale, but wholesale underperforming due to challenges with key customers.

Product and Market Innovation

Levi Strauss & Co.'s product portfolio continues to be a key growth driver, with innovations in denim dressing, fashion fits, and performance fabrics. The Levi's brand is expanding beyond jeans, offering a head-to-toe denim lifestyle that includes dresses, skirts, and tops. This strategic move has resulted in triple-digit growth in denim dresses and skirts, with women's tops performing exceptionally well. The company's focus on sustainability and innovative fabrics, such as Performance Cool and its non-denim performance tech series, is also driving growth and differentiating the brand from competitors.

Outlook and Future Prospects

Looking ahead, Levi Strauss & Co. is optimistic about its future prospects, with plans to accelerate growth across categories, channels, and geographies. The company is doubling down on its winning strategies, including denim dressing and fashion fits, to drive further growth. Despite facing headwinds in certain areas, such as China and Mexico, the company remains confident in its ability to address these challenges and capitalize on its strengths. With a focus on strategic growth initiatives, innovative product offerings, and a strong brand, Levi Strauss & Co. is well-positioned for continued success in the coming quarters and beyond.

In conclusion, Levi Strauss & Co.'s third-quarter performance highlights its strategic focus on growth initiatives, product innovation, and operational efficiency. Despite challenges in certain areas, the company's strong financial performance and strategic moves, such as the pivot to a DTC-first business model, position it well for long-term success. With a clear focus on expanding its Levi's brand and accelerating the growth of Beyond Yoga, Levi Strauss & Co. is well on its way to achieving its ambition of becoming a $10 billion more profitable company.

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