Release Date: October 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Levi Strauss & Co (LEVI, Financial) reported a 2% increase in net revenues in constant currency, with a 5% growth in the Levi's brand globally, marking the best quarterly growth for Levi's in two years.
- The company achieved record Q3 gross margins of 60%, enabling a 250 basis points expansion in adjusted EBIT margin and double-digit adjusted diluted EPS growth.
- Direct-to-consumer (DTC) sales were up 12%, with strong performance in the US and Europe, and e-commerce sales increased by 18%.
- Levi's women's business grew 11%, solidifying its position as the number one women's denim brand in the US.
- The company launched a significant global campaign with Beyoncé, expected to drive further brand engagement and sales growth.
Negative Points
- The Dockers brand underperformed, leading Levi Strauss & Co (LEVI) to explore strategic alternatives, including a potential sale.
- Challenges in China and Mexico impacted overall performance, with China facing macroeconomic headwinds and Mexico wholesale affected by a cybersecurity breach.
- US wholesale sales were down 2%, continuing to be a headwind to overall revenue growth.
- The company faced a $0.05 EPS headwind from tax, despite achieving profitability targets.
- Foreign exchange fluctuations, particularly the Mexican peso against the dollar, negatively impacted revenue.
Q & A Highlights
Q: Can you talk about the drivers of this quarter's revenue miss and your confidence in the Q4 acceleration?
A: Harmit Singh, Chief Financial and Growth Officer, explained that the revenue miss was due to foreign exchange impacts, lower performance in Mexico wholesale due to a cybersecurity breach, macroeconomic headwinds in China, and underperformance of the Dockers brand. Despite these challenges, they are confident in Q4 acceleration due to stronger starting positions, continued strength in the US and Europe, improved global wholesale, and a new partnership with Beyoncé.
Q: Can you expand on the rationale for the Dockers evaluation and its timing?
A: Michelle Gass, President and CEO, stated that the decision to explore strategic options for Dockers is about focusing on the Levi's brand and accelerating Beyond Yoga. Dockers has underperformed, and they are considering selling the business to improve top-line growth and margin structure. Bank of America has been engaged to assist with this process.
Q: Could you elaborate on the 5% global growth for the Levi's brand and market share trends by region?
A: Michelle Gass highlighted that the 5% growth is driven by strong direct-to-consumer performance, with DTC up 12% globally. The Levi's brand is gaining market share, particularly in women's denim, where it is now the number one brand in the US. The brand is also seeing growth in both men's and women's tops.
Q: How far along is Levi Strauss in transforming into a global DTC business?
A: Michelle Gass noted that while they are still in the early stages, significant progress has been made, especially with new leadership and initiatives like Project Fuel. The company is focused on accelerating growth and profitability, with improvements in e-commerce and retail operations.
Q: Can you quantify the drivers of gross margin outperformance in the quarter?
A: Harmit Singh explained that the gross margin outperformance was driven by lower product costs, higher full-price sales, and favorable brand and channel mix. These factors offset FX headwinds and higher airfreight costs due to chasing product demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
