Levi Strauss shares fall on weak holiday-quarter forecast

10:37 am Thursday, October 03rd, 2024

(Reuters) – Levi Strauss’ shares fell about 7% on Thursday after a tepid forecast for holiday-quarter revenue underscored the denim maker’s struggles with sluggish demand from retailers navigating weak spending by consumers.

The company is also considering a sale of its underperforming khaki and chinos brand Dockers, as apparel makers rethink their product assortments to tackle changing customer preferences.

Disappointing segments such as wholesale (or sales to retailers of its products) and Dockers weigh on Levi’s full-year earnings and its credibility to improve revenue growth, said Stifel analyst Jim Duffy in a note.

Dockers’ sales dropped 15% in the third quarter while wholesale revenue, which accounted for about 56% of total revenue during the period, fell 6%.

Levi said it expects fourth-quarter revenue to grow in the mid-single-digit percentage range, compared to estimates of a 7.36% growth, according to analysts estimates compiled by LSEG.

Still, analysts were upbeat on Levi’s turnaround efforts.

“While challenges remain near-term, we remain encouraged by continued strength in Levi’s business as well as the announcement that the company is evaluating strategic alternatives for the Dockers business,” Telsey Advisory Group analyst Dana Telsey said.

Levi is also looking to boost sales of its products directly through its own stores, website and app.

Global sales in its direct-to-consumer channel rose 10% in the reported period, following an 8% increase in the preceding quarter.

The company’s shares have risen about 27% so far this year. They were at $19.46 in morning trading.

Levi’s forward price-to-earnings ratio for the next 12 months, a common benchmark for valuing stocks, was 14.96, compared with 16.02 for Ralph Lauren and 12.64 for Abercrombie & Fitch.

“We acknowledge room (for Levi) for greater consistency to return to the long-term revenue growth target, which remains the key pushback from investors,” TD Cowen analyst Oliver Chen said.

(Reporting by Juveria Tabassum; Editing by Sriraj Kalluvila and Leroy Leo)