Levi Strauss forecast annual sales and profit below Wall Street expectations on Thursday and said it would cut 10% to 15% of global corporate jobs as the denim maker seeks to rein in costs amid weakness in its wholesale business.
Levi attributed the weak forecast to plans to exit its Denizen brand and cut back on off-price sales, as well as weaker foreign currency exchanges. The company also missed fourth-quarter revenue estimates.
The fallout of an inventory glut last year and consumers feeling the pinch from inflation are a drag on the company’s wholesale channel and outweigh the gains in its direct-to-consumer business.
Levi’s incoming CEO, Michelle Gass, said the company’s US wholesale business improved over its last quarter and is expected to show growth in the second half of 2024. However, unpredictable consumer demand meant Levi’s would continue to be conservative in its outlook, she told investors in a post-earnings conference call.
“We’re encouraged, but as it relates to that channel, we’re not declaring victory yet,” Gass said. “There’s been a lot of volatility this past year … so we are taking a cautious approach as we look forward.”
Phasing out the Denizen brand, which is more inexpensive than other Levi products and sells at a lower margin, would allow the company to focus more on expanded product categories, including lighter-weight denim and athletic wear, according to Chief Financial and Growth Officer Harmit Singh.
“They want to make (Levi’s) more upscale and increase that prestige,” said Rachel Wolff, an analyst at Insider Intelligence. “It’s a strategic decision as they try to move up-market and appeal to a more premium consumer.”
Singh also told investors that Levi’s is experiencing delays of 10 to 14 days in transit times as a result of continued disruptions to Red Sea shipping. The company has shifted some U.S. shipments to the West Coast, a route that avoids the Red Sea and Suez Canal.
Shares of the company were down 1.7% in after-hours trading on Thursday.
Sales in Levi’s total wholesale business, which accounted for about 62% of its net revenue in 2022, dipped 3% on a constant-currency basis in the quarter ended Nov. 26.
The layoffs are set to occur in the first half of 2024, and, coupled with more DTC-focused initiatives, would generate net cost savings of $100 million in 2024.
The company will take a $110 million to $120 million charge related to the job cuts in the current quarter.
“We’re in a soft demand environment and I think that’s reflected in their forecasts and the cost-cutting announcement,” said Mari Shor, a senior equity analyst at Columbia Threadneedle Investments. “It’s a signal they don’t feel great about the topline and are looking for other ways to cut expenses.”
Levi has about 20,000 workers globally, with roughly 5,000 corporate employees.
The company projected fiscal 2024 net revenue growth of 1% to 3%, compared with analysts’ estimate for a 4.7% increase to $6.49 billion, according to LSEG data.
Levi’s expects adjusted per-share profit of $1.15 to $1.25, lower than estimates of $1.33.