Perfection doesn’t exist in the world of corporate fashion, so how one gets back up is more important than how they fall.
Witness Levi Strauss & Co., which saw its direct-to-consumer business stumble in its fiscal third quarter, with organic revenue growth slowing to 2 from 8 percent in the second quarter, disrupting what has been a strong run.
Michelle Gass, chief executive officer, was clear about the reasons — extreme heat in Europe and mismatched marketing in the U.S. — and quick to add that the DTC business is already back on track and is expected to post midsingle-digit growth for the current quarter.
Shares of the company were down 3.8 percent to $18.77 in midday trading Thursday, a relatively modest downturn in a market where investors and analysts are ready to pounce on any sign of weakness.
Levi’s — under Gass as well as her predecessor Chip Bergh — has built up a certain credibility and is getting the benefit of the doubt.
BNP Paribas analyst Laurent Vasilescu summed it up as a “no harm, no foul” situation.
And Needham analyst Tom Nikic called it a “very noisy print,” but was encouraged by the “reacceleration in DTC.”
“Fortunately this seems to be just a short-term blip,” Nikic said.
Neil Saunders, who is managing director of GlobalData and not known for pulling punches, said, “Levi’s had a solid third quarter, even if some of the recent heat has come out of the growth figures.
“The slightly slower growth doesn’t take away from the fact that Levi’s has a very sound underlying strategy,” Saunders said. “While it is an iconic label with a very rich history, it also feels very youthful and fast moving. Much of this comes from the energy inside the business, which has changed the way the brand presents itself to consumers.”
Harmit Singh, the denim company’s outgoing chief financial and growth officer, told analysts on a conference call that the company received some $80 million in tariff refunds in the quarter and has “redeployed” $60 million of that, with a third going to marketing, a third to distribution and a third to promotional activities.
“In Q3, the majority was promotions, a little bit of advertising, a little bit of inventory clearance,” Singh said. “In Q4, it’s largely advertising, marketing, distribution and slight promotions.”
The trick for Levi’s is going to be to ensure its DTC “reacceleration” continues.
Strong companies that trip, get a pass. Companies that keep falling down get reevaluated.
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