Third quarter was good for Levi Strauss & Co., which saw revenue gains in its top five strategic business priorities: Europe, Asia, direct-to-consumer, women’s and tops.
In a Nutshell: Chip Bergh, Levi’s president and CEO, said, “Our strategies to diversify to faster-growing, high opportunity, high-gross-margin businesses continue to drive momentum, as we again grew revenues double-digits internationally, in our direct-to-consumer business, and in the women’s and tops categories.”
Levi’s global wholesale business grew 2 percent on a constant currency basis, even though U.S. wholesale was facing what Bergh called the “toughest comparison of the year.”
Net Sales: For the three months ended Aug. 25, net revenues rose 3.8 percent to $1.45 billion from $1.39 billion.
Levi’s said its direct-to-consumer business grew by 12 percent on a constant currency basis in the quarter, mostly due to expansion and performance of the retail network and e-commerce growth. The wholesale business rose 1 percent on a reported basis and 2 percent on a constant-currency basis, reflecting growth in Europe and Asia. Its women’s business rose 10 percent for the quarter, while tops saw gains of 14 percent.
The company said gross margin fell by 20 basis points due to foreign exchange headwinds, but rose 40 basis points due to revenue growth in direct-to-consumer and international after excluding the currency impact.
By region on a reported basis, net revenues in the Americas fell 3 percent to $771 million, while Europe was its best performer at up 14 percent to $463 million. Revenues in Asia saw a 9 percent gain to $213 million.
Earnings: Net income slipped 4.3 percent to $124.5 million, or 30 cents a diluted share, from $130.1 million, or 33 cents, a year ago. On an adjusted basis, diluted earnings per share were 31 cents.
Wall Street was expecting adjusted diluted earnings per share of 28 cents on revenues of $1.44 billion.
The company affirmed its full-year guidance for 2019, which includes net revenue growth on a constant currency basis of 5.5 percent to 6 percent. The forecast includes the impact of its acquisition of The Jeans Company, a South American distributor related to its Levi’s and Dockers brands. The $35 million acquisition, which includes 80 Levi’s and Dockers retail doors, was disclosed in August. It also takes into account capital expenditures of $190 million to $200 million that includes nearly 100 new company-operated store openings in 2019.
CEO’s Take: According to Bergh, “As for the fourth quarter, we again expect strong performance in international, direct-to-consumer, women’s and tops, and improved comparisons for U.S. wholesale. We’ll stay focused on what we can control as we grow this business over the long-term.”