Levi Strauss & Co (LS&Co) net revenue of $1.5bn for its third quarter (Q2) ended 25 August 2024 was flat on a reported basis and 2% higher on a constant-currency basis compared to its Q3 2023.
Adjusting for the $15m impact of the exit of its Denizen business, LS&Co said its net revenues would have been up 1% on a reported basis and 3% in constant-currency and notes its Levi’s brand was up 5% globally.
Levi Strauss & Co. president and CEO Michelle Gass said: “The underlying fundamentals of our business are getting stronger, driven by the Levi’s brand, which grew 5% globally in Q3, a significant acceleration from H1 and the highest revenue growth in two years.
"We are making progress against our strategic priorities, including double-digit growth in our direct-to-consumer business, continued positive performance in the US, and Europe inflecting to growth.”
GlobalData apparel analyst Louise Deglise-Favre agrees, telling Just Style exclusively that while Levi’s results reflected a deceleration for the group remaining flat on the previous year, the namesake brand outperformed the total group, rising 5% thanks to the renewed focus on growing the Levi’s brand.
She explains: "The marketing and product design efforts for Levi’s seem to be starting to pay off, especially in Europe where growth drastically improved compared to the previous quarter (+7% in constant currency in Q3 vs. -2% in Q2)."
However, despite these encouraging signs, she notes that Levi’s still has more to do to bring back prosperous growth as its performance lacked in it home market of the Americas.
"While the initiatives such as the launch of a campaign with Beyoncé are steps in the right direction, the brand also needs to continue to modernise its image and designs to return to long-term growth," she points out.
Potential Dockers sale after 15% revenue drop
Levi Strauss & Co chief financial and growth officer Harmit Singh said the company is "taking decisive actions to address the areas" where it "underperformed".
Its Dockers brand decreased 15% on a reported basis and 13% on a constant-currency basis with Levi announcing that it has started a "formal review of strategic alternatives for the Dockers brand, which could include a potential sale or other strategic transaction."
Levi notes it has retained Bank of America as its financial advisor and the company has not set a deadline or definitive timetable for the completion of the strategic alternatives review process. It adds there can be no assurance that this process will result in any transaction or particular outcome.
Regionally, LS&Co saw its Americas net revenues decrease 1% on a reported basis and flat on a constant-currency basis, but with an adjustment for the exit of its Denizen business, the Americas was up 2%. Europe enjoyed a 6% increase in net revenue on a reported basis and 7% on a constant-currency basis with positive growth across most markets and in both channels. Asia net revenues were roughly in line with prior year on a reported basis and up 4% on a constant-currency basis.
Levi Strauss' other brands experienced a 7% drop in net revenue on a reported basis and 5% on a constant-currency basis. However, its Beyond Yoga brand increased 19% on a reported and constant-currency basis.
Direct-to-consumer (DTC) net revenues increased 10% on a reported basis and 12% on a constant-currency basis. DTC growth reflected a 12% increase in the US and a 9% increase in Europe. Net revenues from e-commerce grew 16% on a reported basis and 18% on a constant-currency basis. DTC comprised 44% of total net revenues in the third quarter.
Meanwhile, wholesale net revenues decreased 6% on a reported basis and 5% on a constant-currency basis. Adjusting for the exit of the Denizen business, wholesale net revenues declined 3%.
Levi Strauss Q3 overview
- Net revenue was flat at $1.5bn on a reported basis, despite 160 basis points of FX headwind, and 2% higher on a constant-currency basis versus Q3 2023.
- Adjusted EBIT margin increased 250 basis points to 11.6% from 9.1% last year on a reported basis primarily due to higher gross margin.
- Net income was $21m compared to net income of $10m in Q3 2023. Adjusted net income was $132m compared to $112m in Q3 2023.
Louise Deglise-Favre, analyst at GlobalData told Just Style: "While Levi’s results reflected a deceleration for the group remaining flat on the previous year, the namesake brand outperformed the total group, rising 5% thanks to the renewed focus on growing the Levi’s brand. The marketing and product design efforts for Levi’s seem to be starting to pay off, especially in Europe where growth drastically improved compared to the previous quarter (+7% in constant currency in Q3 vs. -2% in Q2). However, despite these encouraging signs, Levi’s still has more efforts to do to bring back prosperous growth as its performance is lacking in it home market of the Americas. While the initiatives such as the launch of a campaign with Beyoncé are steps in the right direction, the brand also needs to continue to modernise its image and designs to return to long-term growth.
Fiscal Q4 and 2024 outlook
Levi Strauss & Co chief financial and growth officer Harmit Singh suggests that based on the continued strength of the Levi’s brand, he expects sequential progression to continue into Q4 as the company accelerates its revenue and profitability.
For fiscal 2024 Levi believes net revenues will grow approximately 1%, and constant-currency net revenues are expected to grow 1.5% to 2%. The company expects adjusted diluted EPS to be at the mid-point of the previously guided range of $1.17 to $1.27.
