Levi Strauss increased its annual profit outlook on Wednesday, citing the apparel company’s recent cost reductions from workforce reductions and reduced markdowns on its jeans and denim apparel. This announcement boosted its shares by 7% in after-hours trading.
In an effort to reduce expenses, Levi’s has downsized its global corporate workforce and streamlined the number of senior leadership roles. Additionally, the company has consolidated its operations in Europe and discontinued lower-margin ventures, including its Denizen brand and European footwear business.
The apparel retailer recorded a restructuring charge of $116 million in the first quarter.
In the first quarter, Levi’s posted a loss of $10.6 million, equivalent to 3 cents per share, in contrast to a profit of $114.7 million, or 29 cents, recorded a year ago.
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However, during a call on Wednesday, Chief Financial Officer Harmit Singh expressed optimism, stating that the jeans maker is “feeling good” about a “more stable” U.S. consumer environment.
Sales of Levi’s clothing to consumers through its website and company-owned stores increased by 8% on a constant-currency basis, following a 10% rise in the previous quarter.
However, sales for Levi’s through its significant wholesale channels, including department stores like Macy’s and Kohl’s, as well as other retailers like Walmart, declined by 19% on a constant-currency basis. This decline was more pronounced compared to a 3% decrease in the fourth quarter.
Amid persistent inflation causing shoppers to spend less on clothing, many retailers carrying Levi’s jeans have reduced their orders to maintain leaner inventories.
According to Singh, Levi’s plans to implement similar measures and reduce its stock-keeping units.
“We’re getting ready to cut about 15% of our SKUs and concentrate on expanding products that are truly popular with customers,” Singh said. “Currently, the baggier fit and the low, loose assortment seem to be particularly resonating with customers.”
Increased full-price sales and decreased product costs resulted in Levi’s gross margins climbing by 240 basis points to 58.2% in the first quarter, up from 55.8% a year earlier.
However, the San Francisco-based company stated that it still anticipates full-year revenue growth to be in the range of 1% to 3%.
The denim manufacturer anticipates an adjusted profit ranging from $1.17 to $1.27 per share for 2024, an increase from its previous forecast of $1.15 to $1.25. Analysts had predicted a profit of $1.21 per share.
Its net revenue declined by approximately 7.8% to $1.56 billion for the quarter ended February 25, slightly surpassing the estimated $1.55 billion, as per LSEG data.
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