Levi Strauss Earnings Call Highlights Growth Amid Challenges

Levi Strauss ((LEVI)) has held its Q4 earnings call. Read on for the main highlights of the call.

The recent earnings call for Levi Strauss & Company highlighted a generally positive sentiment with notable achievements in key business areas. The company reported strong growth in its direct-to-consumer segment and women’s business while achieving a record gross margin. However, challenges persist in managing SG&A expenses, navigating the wholesale channel, and addressing issues in the Chinese market. Additionally, strategic exits from certain business lines pose short-term revenue challenges.

Strong Q4 Revenue Growth

Levi Strauss reported a 12% increase in net revenues on a reported basis for the fourth quarter, with an 8% rise on an organic basis. This strong performance marked a solid conclusion to the fiscal year, highlighting the company’s resilience and ability to drive growth despite market challenges.

Record Gross Margin Achieved

The company reached an all-time high gross margin of 61.3% in the fourth quarter, reflecting significant improvement over the previous year. This 350 basis point expansion underscores Levi Strauss’s effective cost management and pricing strategies.

Women’s Business Momentum

Levi’s women’s business experienced a 12% growth in Q4, reaching nearly $2 billion in sales for the full year. This milestone solidifies Levi’s position as the leading women’s denim brand, showcasing the success of its focused marketing and product strategies.

Direct-to-Consumer Growth

The direct-to-consumer segment posted its 11th consecutive quarter of positive comps, with a 14% growth in Q4 and an 11% increase for the full year. This growth highlights the effectiveness of Levi’s DTC-first strategy and its ability to engage consumers directly.

E-commerce Expansion

E-commerce sales grew by 14% in Q4, contributing to the strong performance of the direct-to-consumer segment. This expansion is expected to further enhance margins in 2024, as the company continues to invest in digital platforms.

SG&A Expense Increase

SG&A expenses rose by 17% year-over-year in Q4, driven by higher sales volume, increased advertising, distribution costs, and compensation incentives. Managing these expenses will be crucial for maintaining profitability in future quarters.

Challenges in China

The company’s operations in China faced difficulties, with a 360 basis point contraction in operating margin in Asia. Losses in China and investments in expanding the direct-to-consumer channel and advertising contributed to this challenge.

Wholesale Channel Volatility

While there was growth in Q4, the wholesale channel remains volatile, prompting a cautious outlook for the future. Levi Strauss expects flat performance in this segment for 2025, reflecting the unpredictable nature of wholesale markets.

Impact of Denizen and Footwear Exits

The strategic exit from the Denizen and footwear businesses is anticipated to result in a 300 basis point headwind to reported net revenues in 2025. This move aligns with Levi’s focus on core segments but presents short-term revenue challenges.

Forward-Looking Guidance

Looking ahead to 2025, Levi Strauss projects organic net revenue growth of 3.5% to 4.5%, with reported net revenues potentially declining by 1% to 2% due to currency and other headwinds. The gross margin is expected to expand by 100 basis points to approximately 61%, and the adjusted EBIT margin is projected to be around 10.9% to 11.1%. The company plans to continue its DTC-first strategy, anticipating high single-digit growth in direct-to-consumer channels, while maintaining a cautious stance on wholesale.

In conclusion, Levi Strauss’s earnings call reflected a generally positive outlook with significant achievements in key business areas. While the company faces some challenges, particularly in managing expenses and dealing with market volatility, its strategic focus on direct-to-consumer growth and women’s business positions it well for future success.