Levi Strauss & Co. Shares rose more than 9% on Tuesday after the denim maker posted 52% online sales growth, which helped offset losses elsewhere in the business in the third fiscal quarter.
Management told analysts it anticipates the strong performance will continue into the holiday quarter, but is calling for a 14% to 15% year-over-year sales decline, assuming the pandemic doesn’t worsen. The company also said it will stop paying dividends in the fourth quarter, but intends to resume payouts in 2021 if positive trends continue.
Levi’s sales were down 27% in the third quarter Coronavirus pandemic-related store closures and net income fell 78%. However, the declines were smaller than expected by the company and exceeded internal targets.
CEO Chip Bergh referred to recent investments in expanding Levi’s direct customer business to achieve above-expected performance. The company also gained market share in the key women’s clothing category. And it relied less on promotions to get goods off the shelves, Bergh said.
“This quarter was way better than we expected, and it’s an out-of-body experience for me to say that with sales down 27% we were profitable … but we were profitable,” Bergh said in an interview with CNBC.
“All of the actions we’ve taken, the tough decisions we had to make very early in the pandemic, are really starting to pay off,” he said. In July, the company announced that it would cut about 15% of its global workforce. Effects on around 700 jobs.
Here’s how Levi’s outperformed analyst expectations based on refinitive data in the third quarter that ended August 23:
- Earnings per share: 8 cents, adjusted, compared to an expected loss of 22 cents
- Revenue: $ 1.06 billion versus $ 822.2 million expected
Levi’s net income fell to $ 27 million, or 7 cents per share, from $ 124 million, or 30 cents per share, last year. With no one-time expense, Levi’s made 8 cents per share, better than an expected loss of 22 cents, according to Refinitiv.
Net sales declined to $ 1.06 billion from $ 1.45 billion last year, beating expectations of $ 822.2 million.
In the Americas, net sales were 29% lower, while Europe was down 16% and Asia was down 42%.
The company announced its digital revenue worldwide which includes sales on its own websites as well as with its wholesale partners such as Amazon, grew 50% year-over-year and accounted for around 24% of sales in the third quarter – twice as much as a year ago.
Levi.com sales alone grew 52%. as customers flocked to Levi’s website to buy denim and back to school t-shirts. The company noted that online sales remained strong even after stores reopened during the pandemic.
Wholesale sales decreased 29% while direct customer sales, which include sales from Levi’s own stores and Levi.com, decreased 22%. The company said sales from wholesale partners like department stores currently account for about 10% of total business, compared to 15% in the past. And CFO Harmit Singh told CNBC that the company intends to keep its wholesale business at the 10% target longer term, with an emphasis on increasing direct sales to consumers.
The company made progress during the quarter selling more to women – items like crop tops and tattered denim shorts. Women’s clothing accounted for only 20% of Levi’s total business in 2015 and has grown to 37% today. Levi’s said its longer-term goal for the women’s category is 50% of total sales.
Levi’s believes the uncertainty caused by the pandemic will have a significant impact on its business for at least the remainder of 2020, with the potential for coronavirus-related results to weigh on results.
Total inventories were up 1% year-on-year by the end of the third quarter, putting them in a “healthy” position before the holidays.
“I’m cautiously optimistic that we don’t have to go down the rabbit hole with promotions … which I think is good for brand health,” Bergh said of the upcoming holiday season.
According to CFO Singh, Levi’s expects fourth quarter profitability to be nearly unchanged from last year.
At the close of trading on Tuesday, Levi shares were down around 22% this year. The company has a market capitalization of approximately $ 6 billion.
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This article originally appeared on www.cnbc.com
