Levi’s shares drop 15% after weakness in wholesale business sinks quarterly revenue

Levi Strauss’ shares tumbled more than 15% on Thursday after weakness in the denim maker’s wholesale business led to downbeat second-quarter revenue.

Despite denim dominating the latest trends in fashion — including the resurgence of early 2000s jorts — the San Francisco-based company said wholesale revenue fell by a mid-single digit percentage in the quarter ended May 26.

The company reporting revenue growth of 8%.

“It was a good quarter but expectations were high with category tailwinds expected to drive strong results,” said Citi Research analyst Paul Lejuez, adding that the wholesale business is still holding the company back.

Levi’s stock fell to $19.35 a share, down 16.4%.

Levi Strauss has been grappling with choppy demand in its wholesale business as retailers have remained cautious about restocking against the backdrop of consumers being careful with their spending.

Consequently, gains from Levi’s more profitable direct-to-consumer (DTC) business, which has focused on bringing in trendier styles and selling products at full prices, fell short of boosting overall revenue in the quarter.

Global DTC revenue increased by 8%, representing 47% of total sales.

“Our transformational pivot to operating as a DTC-first company is yielding positive results around the world, giving me great confidence that we will achieve accelerated, profitable growth for the rest of the year and beyond,” CEO Michelle Gass said in a statement.

Levi’s shift to selling directly has some benefits, like higher profits and less reliance on wholesalers.

But wholesalers often bear the brunt of certain costs, like returned products.

The company’s dividend increased by 8% to 13 cents per share, the company’s first increase in six quarters, according to CNBC.

Sales increased by about 8% to $1.44 billion.

However, the increase comes after sales were down last year due to Levi’s shifting its wholesale shipments from the second quarter into its first quarter, CNBC reported.

The shift reduced sales by about $100 million. Sales would have increased by only 1% in its most recent quarter without the shift, CNBC reported.

Wholesale net revenue grew by 7%.

However, adjusting for the shift in wholesale order timing, global wholesale revenues dropped 4%, the company said.

Finance chief Harmit Singh told CNBC the lackluster sales were due to weak numbers at khaki-brand Docker’s and negative foreign exchange conditions.

“It’s not necessarily an environment where people are buying a lot, people are cautious,” Singh told CNBC.

Levi’s earnings fell in line with estimates.

The company expects full year earnings per share to fall between $1.17 to $1.27.

The company also announced a shift from a primarily owned-and-operated distribution and logistics network in the US and Europe to one that relies more heavily on third-party providers.

During this transition, Levi said it will be simultaneously operating new and old facilities for the remainder of 2024, “resulting in a transitory increase in distribution costs.”

With Post wires