Levi Strauss raises profit forecast on cost saving initiatives

NEW YORK: Levi Strauss raised its annual profit forecast, citing the apparel maker’s recent cost savings from job cuts and less aggressive discounts on its jeans and denim clothing, sending its shares up about 8% in extended trading.

In a bid to cut costs, Levi’s has reduced its global corporate workforce, including trimming the number of senior leadership positions. It has also consolidated its operations in Europe and exited lower-margin businesses, such as its Denizen brand and footwear enterprise.

Levi’s cost-cutting campaign has helped its stock recover about 13% this year, not including Wednesday’s late-day rally.

The apparel retailer recorded a restructuring charge of Us$116mil in the first quarter.

However, chief financial officer Harmit Singh said the jeans maker was “feeling good” about a more “stable” US consumer in an interview with Reuters on Wednesday.

Sales of Levi’s clothing directly to consumers on its website and at its network of company-owned stores rose 8% on a constant-currency basis, which follows a 10% increase in the prior quarter.

CEO Michelle Gass said “new product” was driving growth in its direct-to-consumer business, especially in women’s styles, which Levi’s plans to expand with new tops, corsets and denim skirts.

Its adjusted profit was 26 US cents per share in the first quarter ended Feb 25, above expectations of 21 US cents.

“The company’s earnings blowout and raised forecast shows the iconic brand is hitting its stride with consumers,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.

Yet, Levi’s sales through its wholesale channels – which include department stores such as Macy’s and other retailers such as Walmart – fell by 19% on a constant-currency basis, a steeper decline than a 3% drop in the fourth quarter.

With shoppers spending less on clothing amid sticky inflation, many chains that carry Levi’s jeans have reduced their orders in order to keep inventories lean.

Singh told Reuters that Levi’s intends to take similar measures and cut back on about 15% of its product assortment to focus more on top-selling items.