Levi’s profitability rises on higher prices

Bloomberg

Levi Strauss & Co’s profitability rose in its latest quarter, with the jeans maker citing higher prices and fewer sales to off-price retailers. The company also reported continuing weakness in its US wholesale business, however. The shares alternated between losses and gains in late trading.
Gross margin, a key gauge of profitability, rose 1.1 percentage point from a year earlier to 54.3% — higher than the average of estimates compiled by Bloomberg.
Earnings per share also outpaced the estimate. Investors will have to wait to see how Levi performed during the crucial holiday period, since the fiscal quarter the company reported ended on November 24, before Black Friday.
Revenue was lower during the period due to the calendar effect of Black Friday falling a week later in 2019 than the previous year, the company said. That, along with the acquisition of a South American distributor, offset gains in e-commerce and retail. Levi reported stronger sales in Asia and Europe, with e-commerce boosting profitability.
In an interview, Chief Financial Officer Harmit Singh said the company is lessening supply to discount retailers in order to “premiumise the brand offer in the US”. He said Levi is looking to expand its offerings in higher-end department stores like Nordstrom, Saks and Bloomingdales.
Chief Executive Officer Chip Bergh said Levi outperformed its expectations in the US wholesale channel to retailers — but the company still reported a wholesale decline of 4% in the Americas. This was a result of lower sales to off-price retailers, the company said.
The company sees revenue growth of about 7% in fiscal 2020, when stripping out foreign exchange variables. That would be more than double the 3% rate revenue expanded in prior year. Levi expects to open 100 new stores and take over the operation of 80 South America locations.
Investors will be keen on hearing details about Levi’s exposure to China following the outbreak of a new strain of coronavirus. Last fall, the denim maker said it opened a large store in Wuhan, the area at the centre of the coronavirus outbreak.
The virus, which has killed around 360 people, has disrupted supply chains and stifled consumer activity.
The World Health Organization declared the outbreak a global emergency.