(Reuters) -Levi Strauss forecast annual profit well below analysts’ estimates after topping fourth-quarter estimates on strong holiday quarter demand, sending its shares down 6% in extended trading on Wednesday.
Under Michelle Gass, who completed one year in the top job in January, the denim maker has trimmed its portfolio to focus on full-price sales, particularly through its direct-to-consumer channel.
Direct-to-consumer sales accounted for 45% of total revenue in the fourth quarter, up from 39% in 2022. But the shift has required heavy investments in marketing and supply chain.
On an adjusted basis, selling, general and administrative expenses jumped 17.4% to $880 million in the fourth quarter.
Still, the full-price sales and lower product costs shielded the company’s margins, which rose 350 basis points in the quarter.
Levi, like other apparel makers, has also trimmed its portfolio, letting go of underperforming brands such as Denizen, as well as considering the sale of the Dockers brand as it adapts to uneven consumer demand.
The company projected annual adjusted profit per share of $1.20 to $1.25, compared with expectations of $1.37, according to data compiled by LSEG.
Levi had been cautious in its expectations for the holiday quarter as U.S. consumers concentrated their spending on big deal events.
However, customers splurged on its trendy denim dress collection and wide-legged bottoms, driving an 8% rise in net revenue on an organic basis to $1.84 billion during the holiday quarter, and beating estimates of $1.73 billion.
The company introduced an organic revenue growth target of 3.5% to 4.5% for fiscal 2025, excluding the impact of divested business and foreign exchange rates, largely above estimates of 3.7% growth.
A stronger dollar is expected to weigh on the company’s international business in Europe and Mexico during 2025, said Rachel Wolff, analyst at EMarketer.
Excluding items, Levi earned 50 cents per share, topping estimates by 2 cents.
(Reporting by Juveria Tabassum in Bengaluru; Editing by Sriraj Kalluvila)
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