Levi (LEVI) revenue Q3 2024

Denim-crazy shoppers are turning to Levi Strauss & Co new jeans, but the company’s overall business is being dragged down by its Dockers brand, which the company is now considering selling, it announced Wednesday.

Levi’s brand sales rose 5% during the fiscal third quarter — the biggest gain in two years — but net income came in lower and lower than Wall Street’s expectations.

Levi’s shares fell more than 8% in extended trading on Wednesday.

Here’s how the denim maker performed compared to Wall Street’s expectations, based on a survey of analysts by LSEG:

• Earnings per share: 33 cents adjusted versus 31 cents expected
• Net worth: $1.52 billion versus $1.55 billion expected

The company’s reported revenue for the three-month period ended Aug. 25 was $20.7 million, or 5 cents per share, compared to $9.6 million, or 2 cents per share, last year. Excluding one-time items, Levi’s posted earnings of $132 million, or 33 cents per share.

Sales came in at $1.52 billion, up slightly from $1.51 billion a year ago.

With one quarter left in the fiscal year, Levi’s reaffirmed full-year adjusted earnings per share of $1.17 to $1.27, in line with expectations of $1.25, according to LSEG. It expects earnings per share to fall in the middle of that range.

It adjusted its revenue guidance and now expects sales to grow by 1%, compared to a previous range of between 1% and 3%. That’s below the 2.3% growth expected by analysts, according to LSEG.

Levi’s, which owns its name, along with Dockers and Beyond Yoga, would have printed a very different set of results if it weren’t for Dockers. The brand began in 1986 to offer consumers an alternative to denim: khakis.

Throughout the 1990s and 2000s, khakis were a staple in many consumers’ wardrobes but these days, they are out of fashion. Levi’s efforts to differentiate the Dockers led to a strong partnership with the Levi brand, which grew into a lifestyle brand that offered much more than just jeans.

During the quarter, sales at Dockers fell 15% to $73.7 million while Beyond Yoga, the buzzy athleisure brand it acquired in 2021, saw sales grow 19% to $32.2 million.

“Over the past few years, the company’s brand has not performed well. … We felt that this was the right decision for a long time. Our view from a financial standpoint is that Dockers’ exit will improve the company’s margins and reduce volatility in top-line growth,” Levi’s Chief Financial Officer Harmit Singh told CNBC in an interview. “We believe Dockers’ exit will allow Dockers and Levi’s to operate independently and increase each other’s value independently.”

Levi’s is on tap Bank of America leading the sales process.

Beyond Docker’s, Levi’s is benefiting from growing its profits as it continues to shift its focus to direct-to-consumer sales.

During the quarter, its net income rose 4.4 percent, which Singh attributed to a direct selling strategy, lower cotton costs and better products that did not need to be marked up for sale.

Like other brands, Levi’s has been working to design its direct selling strategy and reach more customers through its stores and websites than through wholesalers. Macy’s. The strategy is a boon to profits because margins are high and it also allows brands to get closer to their customers through data collection.

During the quarter, Levi’s direct channel was up nearly 10%, driven by strength in the US and 16% growth in e-commerce. Overall, direct sales account for 44% of total revenue and Levi’s wants to bring that number closer to 55%.

Behind those numbers are a number of marketing campaigns, including a new partnership the jeans brand announced with Beyoncé on Monday after the pop star released a song titled “LEVII’S JEANS” earlier this year from her country album.

“Our strategic decision was to actually have Beyoncé represent one of our core brands. So in the first ad, the first chapter, she’s…501s and a basic white T-shirt and we don’t get Levi’s beyond that,” CEO Michelle Gass told CNBC. “Part of the recipe for success for Levi’s has been and will continue to be us living cross-culturally and combining Beyoncé’s icon with Levi’s icon, I don’t think there’s a better example of that.”

Sales at Levi’s Europe business came in above expectations at $406.6 million, ahead of StreetAccount estimates of $392 million, but sales in the Americas and Asia fell sharply. Levi’s posted $757.2 million in sales in the Americas, below the $789.2 million expected by StreetAccount analysts. In Asia, Levi’s saw revenue of $247.1 million, below StreetAccount estimates of $258 million.

“China has been struggling,” Singh said of the region, which represents about 2% of Levi’s overall business. “There’s a lot of wind, and we’ve had some execution problems. We’ve just changed the leadership in China and over time we still believe in the long-term strength of China.”

In the Americas, beyond the price drop at Docker’s, sales also impacted one of Levi’s biggest customers in Mexico, Singh said. During the quarter, a partner had a cybersecurity breach, which blocked shipping times and impacted sales. The district also faces “killing issues,” Singh said.