Levi Strausshas long relied on wholesalers like macy’s department store and Kohl’s In an effort to drive business, the company said Wednesday when reporting fiscal first-quarter earnings that nearly half of its sales are now through its own website and stores.
Direct-to-consumer sales accounted for 48% of Levi’s total sales in the three months ended February 25, a record high, up from 42% in the same period last year and up 25% from two years ago. explain.
The shift has been a boon to Levi’s bottom line. But it raises questions about the company’s relationship with its wholesale partners and whether that could harm those retailers as they grapple with their own existential challenges.
Levi’s also beat Wall Street’s profit and revenue estimates and raised its full-year guidance. Shares rose 10% in after-hours trading.
Here’s how the blue jeans maker’s fiscal first-quarter performance compared to Wall Street expectations, according to a survey of analysts by LSEG (formerly Refinitiv):
- Earnings per share: Adjusted 26 cents, expected 21 cents
- income: $1.56 billion vs. $1.55 billion expected
The company had a net loss of $10.6 million, or 3 cents a share, in the quarter, compared with a net profit of $114.7 million, or 29 cents a share, in the same period last year. Excluding one-time costs related to Levi’s restructuring, the company reported earnings of 26 cents per share, above Wall Street expectations.
Sales fell to $1.56 billion, down about 8% from $1.69 billion a year earlier. The sales decline was primarily due to changes in Levi’s wholesale orders, which added about $100 million to profit in the same period last year.
Levi’s still expects full-year sales to rise 1% to 3% due to slowing discretionary spending and economic uncertainty. But it expects profits to be higher than previously expected. The retailer now expects adjusted earnings per share of $1.17 to $1.27, up from the previous range of $1.15 to $1.25.
Analysts had expected full-year sales to grow 2.4% and earnings per share of $1.21, according to LSEG.
Over the past few years, Levi’s has moved away from relying on wholesalers and increasingly sold through its own stores and website. Selling directly to consumers is better for Levi’s bottom line and gives it better data about customers and their shopping patterns.
Perhaps more importantly, getting rid of wholesalers also gives Levi’s greater control over its destiny and reduces its exposure to department stores, which continue to shrink and face an uncertain future in the United States
In late February, Macy’s, Levi’s’ main wholesale partner, announced it would close 150 stores as activist investors in Arkhouse Management look to acquire the department store and take it private. The company invests primarily in real estate and appears more interested in profiting from Macy’s massive store footprint than running a retail business.
Michelle Gass, who took over as CEO of Levi’s about two months ago, told CNBC that wholesale remains an important part of the company’s strategy. If Macy’s store closings or other challenges facing department stores impact Levi’s business, she expects direct-to-consumer sales to offset those losses.
“We work closely with our key customers because we are important to them and they are important to us, and wholesale is strategically critical to us expanding our reach to consumers,” Gass said. “While there are pressures, But these wholesale customers serve millions of consumers, so there are still many opportunities to grow market share within that pipeline.”
Levi’s has previously said it is working to have direct-to-consumer sales account for 55% of total sales, but if that number can be improved further, the company will be “all in,” Finance Chief Hammett said Harmit Singh said.
Meanwhile, Gass said Levi’s is working “closely” with its major wholesale customers to ensure the brand is represented in the “absolute best way.”
After adjusting for changes in wholesale orders during the same period last year, global wholesale revenue fell 9% in the quarter compared with the prior year.
The weakness was driven by Europe, which Gass said had a “difficult” quarter.
“Looking ahead, we are optimistic. Based on the innovation and fashion we bring, our bookings in the European wholesale market are very positive in the second half of the year,” Gass said.
Levi’s has also been transforming into a retailer that sells more than just jeans. The company is working to offer more skirts, dresses and tops and wants to be seen as a denim lifestyle business rather than just a blue jeans company.
Gass said sales of items such as denim skirts, dresses and tops in Levi’s direct-to-consumer channel grew 19% this quarter. The products also performed well on the wholesale side, she said.
Levi’s efforts come at a time when consumer spending on discretionary items like clothing and accessories is under pressure as shoppers look to spend extra money on things like dining out, traveling or paying off debt.
In late January, Levi’s said it would lay off 10% to 15% of its global corporate employees, which is expected to save the company about $100 million in this fiscal year.
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