Levi Strauss & Co (LEVI) posted its quarter results, and the denim makers’ shares fell by 15 percent on Wednesday. The company posted better-than-expected earnings but missed Wall Street analyst’s revenue projections by a small margin.
Although denim is back as a favorite with web fans, Levi does not seem to be riding the denim wave as per the summer trend, although sales of dresses, skirts, and ultra low-rise baggy jeans made with denim are resurgent. CWEB analyzes some of the reasons for the fall in share price.
Wednesday’s results reported earnings of 16 cents adjusted per share, while analysts polled by LSEG had expected an EPS of 11 cents per share. Levi fell slightly short of revenue expectations after posting $1.44 billion for its fiscal second quarter, while analysts projected a revenue of $1.45 billion.
Levi increased its dividend to 13 cents per share, an 8 percent increase. Despite this first increase in six quarters, Levi’s shares declined. The jeans maker has kept its full-year guidance at $1.17 to $1.27 per share.
Levi has posted better earnings due to increased direct sales to customers, which have decreased costs and increased earnings. Wholesale stores such as Macy’s and Kohl’s are seeing shrinking sales due to several factors, including declining discretionary purchases by web fans. Many of them also purchase goods directly from company websites and apps.
The jeans maker would do well if it found the optimum balance between direct sales and selling through large retail stores and learned from Nike. A few months ago, the footwear and apparel giant acknowledged that it had focused too much on its website and app. It corrected this by renewing partnerships with retailers, including Macy’s and DSW. Levi’s also needs to find such a balance.
CWEB analyzes that direct sales to web fans through an app and website has many advantages but also a few disadvantages, such as low returns and huge initial investments. The optimum way to increase sales is through retail stores and a company online store.
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