Levi Strauss & Co. jumped after cost-cutting measures boosted profitability and a bet on baggy jeans and denim skirts drove higher-than-expected sales.
The retailer, which announced a cost-cutting and productivity plan in January, said those measures are now paying off. Levi Chief Executive Officer Michelle Gass, who took over as CEO in January, has also focused on introducing fresh merchandise. These products, including denim skirts and non-denim activewear pants, have helped drive demand and are beginning to support wholesale growth, she said.
The shares rose as much as 14 per cent before U.S. markets opened. If that gain holds into regular trading hours, the stock will be set for its biggest rise since January 2022. Levi shares are up 13 per cent this year through Wednesday’s close, more than three times the advance of the Dow Jones Industrial Average.
“Overall, the year has gotten off to a good start and category tailwinds seem likely to help the top-line,” Citi analyst Paul Lejuez said in a note, pointing to new styles and a shout-out to Levi on singer Beyoncé’s new album.
Revenue outpaced expectations, falling less than expected despite weakness in Levi’s wholesale business. The company is focusing on its direct-to-consumer operations, which include Levi’s own stores and website. Sales from the DTC division rose 7 per cent in the quarter, while wholesale revenue from third-party retail partners fell 18 per cent.
“Wholesale will still continue to be an important part of our business moving forward,” Gass said in an interview, noting that the company expects improvement in the latter part of the year. “Yes, the majority of our big growth will come from DTC, but wholesale extends our reach, which is critical.”
Adjusted earnings per share of 26 cents exceeded the average analyst estimate of 21 cents, while gross margin, a gauge of profitability, also beat expectations in the three months ended Feb. 25.
Levi raised its full-year profit guidance by 2 cents from its previous outlook and now sees earnings per share for the period in a range of US$1.17 to $1.27. Chief Financial Officer Harmit Singh attributed the improvement to better expense control.
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