<\/p>\n
\n\tLevi Strauss & Co. has been leaning into the direct-to-consumer business for more than a decade, shaking off the constraints of being a men\u2019s jeans brand sold through other retailers.<\/p>\n
\n\tBut after a marketing misstep in the third quarter, chief executive officer Michelle Gass has been reminded anew of the value of a little wholesale diversification.<\/p>\n
\n\tDTC accounted for 45 percent of Levi\u2019s business in the quarter, but was not as strong as the company expected, growing by just 2 percent \u2014 a big step down from organic growth of 8 percent in the second quarter. Within the division, e-commerce sales increased by 10 percent, but comparable sales growth was flat.<\/p>\n
\n\tInstead it was the wholesale business that carried the quarter with a 6 percent increase.<\/p>\n
\n\tWhile Levi\u2019s had been making a lot of noise about being a DTC-first retailer, in an interview with WWD, Gass emphasized the importance of a broad base and didn\u2019t flinch away from what went wrong in DTC.<\/p>\n
\n\tThe CEO said store traffic waned in both Europe, where the heat waves kept shoppers away, and the U.S., where Levi\u2019s messaging to consumers missed the mark.<\/p>\n
\n\t\u201cIn the U.S., I\u2019d say our back-to-school campaign did not meet our expectations and it didn\u2019t drive the level of traffic and demand we anticipated,\u201d Gass said. \u201cThe environment has gotten a lot more competitive. We\u2019ve got a lot of people talking about denim these days, but we take accountability, I think we were out there talking about our loose fits, which still do extremely well, where there was a lot of energy and excitement around low rise for women.<\/p>\n
\n\t\u201cWe just did not have as many big brand driving moments,\u201d she said. \u201cThe message was not as relevant as it needed to be. So we acted very quickly. And so toward the end of the quarter leading into this quarter, we pivoted. First, we said, let\u2019s lean into what\u2019s really winning here, which is our low-rise fits. So we put the priority in store in our marketing and messaging around some of our key core fits that are low, low loose, super low, low straight. We increased our media spend. We needed to break through. The tariff refund money has allowed us to do that.\u201d<\/p>\n
\n\tIn 2025, Levi\u2019s went big on the marketing front, wrapping up a yearlong partnership with Beyonc\u00e9 Knowles-Carter that reframed some of the brand\u2019s best known ads from the past.<\/p>\n
\n\tNow the brand is rethinking again just how much star power it should have.<\/p>\n
\n\tGass said the slowdown in the quarter had the company going back over its marketing strategy for the rest of this year and next.<\/p>\n
\n\t\u201cWe want to make sure that we\u2019ve got the right messages, the right talent. This was just a bit of a speed bump, but I\u2019m confident that we\u2019re going to emerge even stronger as we look at 2027. The consumer moves quickly. We have to move quickly too.\u201d<\/p>\n
\n\tLooking to turn some lemons into lemonade, Gass said, said the timing was \u201cgreat because we\u2019re doing it as we get into our most important quarter, which is the holiday season.\u201d<\/p>\n
\n\tAlready the DTC business rebounded in Europe and the switch in marketing emphasis has helped the U.S., leading to a forecast of midsingle-digit growth in the current quarter.<\/p>\n
\n\tDespite the DTC setback, Levi\u2019s held together well in the third quarter.<\/p>\n
\n\tNet income from continuing operations rose 38.5 percent to $169 million, factoring out the impact of the Dockers\u2019 business, which was sold to Authentic Brands Group in February.<\/p>\n
\n\tLevi\u2019s adjusted earnings per share increased to 48 cents from 34 cents a year earlier, coming in 12 cents better than the 36 cents analysts forecast, according to Yahoo Finance.<\/p>\n
\n\tGross margins expanded by 450 basis points to 66.2 percent, boosted by a 490 basis point increase from tariff refunds.<\/p>\n
\n\tTotal revenues for the three months ended Aug. 30 increased 4 percent to $1.6 billion, a 5 percent boost on an organic basis.<\/p>\n
\n\tHarmit Singh, Levi\u2019s outgoing chief financial and growth officer, said: \u201cWe made the decision to redeploy a majority of our tariff refund benefit back into the business during [the third and fourth quarters] to support future growth. Reflecting confidence in our outlook, we are raising our full-year profit guidance and plan to initiate a $100 million accelerated share repurchase program.\u201d<\/p>\n
\n\tOrganic revenues are now expected to rise about 6 percent this year, leaning toward the top end of the 5.5 percent to 6 percent gain previously forecast. The adjusted EPS outlook was increased to $1.54 to $1.56 from the $1.46 to $1.52 previously forecast.<\/p>\n
\n\tWhile sales continue to grow, Levi\u2019s is being more careful with how much stock it keeps on hand as its inventories were down 3 percent at the end of the quarter.<\/p>\n
\n\tInvestors took the update in stride, trading shares down 2.2 percent to $19.09 in after-hours trading on Wednesday.<\/p>\n
#Levi #Strauss #Earnings #Reveal #DirecttoConsumer #Weakness<\/p>\n","protected":false},"excerpt":{"rendered":"
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