Levi falls most on record as promotions hit profit margin
LEVI Strauss & Co shares fell the most on record after first-quarter gross margin fell short of expectations due to increased promotions.
The retailer reported gross margin of 55.8 per cent in the three-month period ended Feb 26, below the 59.3 per cent reported a year ago and less than the average analyst estimate of 56.9 per cent. Retailer margins have been strained in recent quarters by higher transportation costs, as well as increased promotions used to offload excess inventory that piled up last year. Levi said inventories rose 33 per cent last quarter.
Levi also recognised a net restructuring charge of US$11.4 million tied to job-cut-related severance benefits and US$18.2 million related to discontinued technology projects. The plan aims to reduce costs and streamline operations.
The shares closed down 16 per cent on Thursday (Apr 6), the largest drop since the company’s 2019 initial public offering. The drop erased the stock’s advance in 2023 through Wednesday’s close.
“We did get rid of inventory to the extent we could — that did hurt margins,” chief financial officer Harmit Singh said on a call with analysts. “Promotional levels were slightly higher than anticipated.”
Quarterly revenue, meanwhile, exceeded expectations, suggesting that demand for denim held up even as overall consumer spending cooled.
Levi was “the market-share leader among the key 18-to-30-year-old customer” and saw strength in the women’s jeans business, chief executive officer Chip Bergh said in a statement.
Revenue in the fiscal first quarter was US$1.69 billion, compared with the US$1.62 billion average estimate of analysts surveyed by Bloomberg. Earnings of 34 US cents a share, excluding some items, beat the average estimate of 32 US cents.
Levi is the first of the US mass-market apparel chains to report first-quarter earnings. Retailers including Macy’s and Gap will report in late May. BLOOMBERG
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