U.S. wholesale took a bite out of Levi Strauss & Co. in the second quarter.
But chief executive officer Chip Bergh told WWD that the brand was still strong and gaining — leading denim market share in women’s for the first time — although the consumer is expected to remain unsteady.
“Here in the U.S., the consumer is clearly stressed right now and I suspect that’s going to continue through the second half of this year,” Bergh said.
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Accordingly the company has cut its outlook for the year, after taking its lumps in the second quarter.
Net losses for the quarter totaled $1.6 million, down from earnings of $49.7 million a year earlier. However, adjusted earnings per share tallied 4 cents, just ahead of the 3 cents analysts projected, according to FactSet.
Sales for the three months ended May 28 fell 9 percent to $1.3 billion, in line with the company’s projection and analysts’ expectations.
Levi’s direct-to-consumer revenues rose 13 percent, with a 20 percent gain in e-commerce.
But wholesale sales decreased 22 percent, with strong growth in Asia and Latin America offset by declines in North America and Europe.
Some of that came from a shift in shipments from the second quarter into the first three months, without which wholesale revenues were down by low-double digits from nearly 20 percent constant currency growth in the prior year.
Still, it’s been a tough landscape to navigate quarter to quarter. The climate is what prompted Levi’s to cut its outlook for the year.
Adjusted earnings per share are now expected to come in at $1.10 to $1.20 as opposed to the $1.30 to $1.40 previously forecast. The revenue forecast was narrowed to a range of 1.5 percent to 2.5 percent, instead of the 1.5 percent to 3 percent seen previously.
“We knew this year was going to be kind of a tale of two halves,” Bergh said. “We’re up against a very, very strong base period a year ago. Our business was up 23 percent a year ago.”
The company also came into the year with too much inventory and was making some tweaks that would move some shipments earlier.
“Given all that as a background, we are essentially pretty close to where we expected to be,” Bergh said. “If you look at where we are versus pre-pandemic, we’re up 10 percent.”
Under Bergh — who’s preparing to hand off the CEO reins to Michelle Gass, the former Kohl’s Corp. chief who’s now Levi’s president — the company has deemphasized wholesale, although the segment still accounts for about a third of its business.
“What’s driving our results clearly is the strength of our direct-to-consumer business, which is one of our critical strategic priorities, which continues to grow very nicely,” Bergh said. “Our challenge is U.S. wholesale.”
The CEO pinned that on “macroeconomic pressures” on consumers from the midtier on down and the pressure of too much inventory, a position that is righting itself.
Bergh said the company would be taking some targeted price promotions in its wholesale business on certain items to be competitive, but that prices in the channel are still above where they were before the pandemic.
“Despite everything that’s going on, I think the really good news is we’re winning in the marketplace,” Bergh said. “Our market share is growing, in fact.”
He said the men’s business remains the number-one denim brand in the U.S. and is twice as big as the nearest competitor. And for the first time, the women’s business is the market share leader in denim in the U.S. — a goal Levi’s has long chased.
