Dive Brief:
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Levi’s Q1 net revenue fell 7.8% year over year to $1.6 billion. Direct-to-consumer revenue (stores and online) rose 7%, and contributed a record 48% of total net revenues. E-commerce grew 13% and wholesale fell 18%.
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Gross margin expanded 240 basis points to 58.2%, thanks mostly to lower product costs and favorable mix. The denim maker swung to a loss of $10.6 million from $114.7 million in net income a year ago, according to a company press release.
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Inventory was down 14%, and CEO Michelle Gass told analysts that last year’s supply chain issues “are long behind us.”
Dive Insight:
Despite the quarter’s declines, Levi’s executives Wednesday said results beat its expectations, thanks to inventory and expense discipline, direct-to-consumer sales growth, renewed strength in the U.S. — its largest market — and strength in denim. The U.S. business is also “a lot more profitable than definitely a year ago,” driven by gross margin and expense management, Chief Financial Officer Harmit Singh told analysts.
The momentum may be epitomized by the song “Levii’s Jeans” on Beyoncé’s new album, Cowboy Carter. At press time, the brand had switched its logo to include the double-i spelling, a reference to the artist’s designation of the record as “act ii” and her use of double-i throughout.
Gass said the brand is honored by the song, according to an earnings call transcript.
“Denim is having a moment, and the Levi's brand is having a powerful moment around the world. I mean, you see head-to-toe denim everywhere around the world, Western is really trending and Western is trending in fashion and in music,” she said. “One of the things that really is significant about the Levi’s brand, and we place a lot of emphasis and investment, is making sure that Levi's brand remains in the center of culture. And I don't think there's any better evidence or proof point than having someone like Beyoncé, who is a culture shaper, to actually name a song after us.”
In emailed comments Wednesday, Wells Fargo analysts led by Ike Boruchow also cited Beyoncé’s potential influence in furthering the brand’s position and said they “note a clear change in tone and business trajectory, and following a tough 12-24 months there are now growing signs of optimism.”
“This was an important quarter for [Levi’s],” they also said. “Not only was it their first top-line beat in 12 months, but also their first raised [full-year] outlook in two years.”
In a statement Singh said the company remains “confident in our ability to return the topline to mid-single-digit growth in the second half of this year” and is increasing its earnings expectation for the full fiscal year.
Other reasons for optimism include signs of consumer strength in the U.S., including gains from middle-income customers, as well as global strength in denim and market share gains more broadly, according to Gass.
“We're feeling better about the consumer than we did three to six months ago,” she said.
