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Levi Strauss slumps on second-quarter revenue miss as wholesale business remains weak

Granth Vanaik
Updated ·2 min read
FILE PHOTO: Levi Strauss & Co. store at the Woodbury Common Premium Outlets in Central Valley, New York

By Granth Vanaik

(Reuters) -Levi Strauss shares tumbled nearly 16% on Thursday after weakness in the denim maker's U.S. wholesale business led to downbeat second-quarter revenue.

The company's wholesale revenue fell by a mid-single digit percentage in the United States, while sales at its direct-to-consumer (DTC) unit jumped 12% in the quarter ended May 26.

"It was a good quarter but expectations were high with category tailwinds expected to drive strong results," said Citi Research analyst Paul Lejuez, adding that the wholesale business is still holding the company back.

Levi Strauss has been grappling with choppy demand in its wholesale business as retailers have remained cautious about restocking against the backdrop of consumers being careful with their spending.

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Consequently, gains from Levi's more profitable DTC business, which has focused on bringing in trendier styles and selling products at full prices, fell short of boosting overall revenue in the quarter.

Company executives also blamed weak performance of its Dockers brand, known for its chinos and khakis, for hurting Levi's top line.

TD Cowen analyst Oliver Chen said in a note that weakness in shares likely stems from a combination of elevated expectations heading into the results and the second-quarter profit beat not flowing through to the full-year outlook.

Levi Strauss' median price-to-earnings multiple for the next 12 months, a common benchmark for valuing stocks, is 16.8, above the industry median of 14.2, according to LSEG data.

The company's shares have risen more than 40% this year after Michelle Gass, the former top boss at department store Kohl's, took over the role as CEO of Levi Strauss in January.

Its results were in contrast to peer Abercrombie & Fitch that raised its annual sales target last month betting on more demand for its trendier styles.

Levi's shares were trading at $19.41.

(Reporting by Granth Vanaik in Bengaluru; Editing by Mohammed Safi Shamsi)