Wholesale is just not clicking for Levi Strauss & Co. right now.
While Chip Bergh, president and chief executive officer, told WWD that the brand is going from strength to strength at its own stores and website, the dynamic is tougher at outside merchants.
“The things that are well within our control are doing really, really well and the things that are outside of our control are kind of a bit of a drag on the business,” Bergh said. “We’re continuing to grow share. We grew share with men’s women’s and amongst the key 18- to 30-year-olds, our DTC business was up strong double digits….Unfortunately, all of that double-digit growth was offset by a very, very soft wholesale business, which was down 10 percent [in constant currencies] globally.”
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The company’s third-quarter net income fell to $10 million from $173 million a year earlier. Adjusted earnings per share also fell — down to 28 cents from 40 cents — but still came in 1 cent better than the 27 cent profit analyst projected, according to FactSet.
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Net revenues for the three months ended Aug. 27 were flat at $1.5 billion and down 2 percent in constant currencies.
The company’s direct-to-consumer business grew by 14 percent overall and was led by a 19 percent expansion in e-commerce. The wholesale business, however, dropped by 8 percent in reported dollars with declines in North America and Europe overwhelming gains in Asia and Latin America.
Bergh, who’s preparing to pass the baton over to president Michelle Gass, has already grown DTC from 21 percent of the business when he joined in 2011 to about 40 percent today. And the company’s strategic plan has it targeting DTC to make up 55 percent of sales.
In the meantime, the wholesale business has several things working against it.
Bergh noted that June, July and August were the hottest on record and that Levi’s wholesale customers still skew heavily toward denim bottoms.
“In our own stores we’ve got a much bigger mix of shorts and dresses, dresses and skirts and other kinds of seasonally appropriate things,” he said. “In some parts of the world, we sell a product with cool technology.
“We can respond to changes in the marketplace reasonably quickly,” he said. “I think we need to get better at it, but we can respond. If it’s really, really hot, we won’t have Sherpas on the floor, hopefully. So the assortment really does matter.”
In its own stores, Levi’s can also give shoppers some TLC to help them find the right jeans.
Additionally, many of the third-party retailers that carry Levi’s products also cater to the income groups that have been feeling the pinch of the economy.
“We are seeing really good momentum on our tier two and tier one products in our own retail stores,” Bergh said. “In wholesale, it’s a little bit of a different picture, and here in the U.S., wholesale is dominantly tier three product because of the price points that we have to sell at.
“The lower to moderate or middle-income consumer has been significantly impacted by inflation and it’s getting worse,” the CEO said. “Mortgages just hit a generational high, inflation is very high and gas prices are going up again. So that consumer is really impacted and we see it most on our two value brands — Signature by Levi Strauss and Denizen, which were down-double digits this past quarter.”
Some targeted price cuts phased in later in the summer and the wholesale business improved as the quarter went on.
Harmit Singh, chief financial and growth officer of Levi Strauss & Co., said, “We do expect growth in the fourth quarter. It’s lower than what we anticipated, but we do expect growth driven by a couple of reasons. One, sequential improvement quarter-over-quarter, even in wholesale. The second is Asia, [which] continues to be strong. DTC continues to be strong and [there is] newness in assortments that is hitting the floors for the holiday season.”
Levi’s is looking for net revenues to come in flat to up 1 percent for the full year.