Levi shares tumble as profitability slips on costs of promotions

Shares in Levi slumped 15% in New York trade at one stage, erasing all gains for the shares since the start of the year. 

Shares in Levi Strauss fell the most for three years after first-quarter gross margin fell short of expectations due to increased promotions across the business.

The retailer reported gross margin of almost 56% in the three months to the end of February, below the margin of around 59% reported a year ago and less than the average estimate of analysts.

Retailer margins have been strained in recent quarters by higher transportation costs, as well as increased promotions used to offload excess stocks that piled up last year. Levi said stocks rose 33% last quarter.

Levi also recognised a net restructuring charge of $11.4m tied to job-cut-related severance benefits and an $18.2m charge related to discontinued technology projects. The plan is designed to reduce costs and streamline operations.

The shares slumped 15% in New York trade at one stage, erasing all the gains for the shares since the start of the year. 

“We did get rid of inventory to the extent we could — that did hurt margins,” chief financial officer Harmit Singh said on a call with analysts. “Promotional levels were slightly higher than anticipated.”  

Revenue

Quarterly revenue, meanwhile, exceeded expectations, suggesting that demand for denim held up in the first part of the year, even as overall consumer spending cooled.

Levi was “the market-share leader among the key 18-to-30-year-old customer” and saw strength in the women’s jeans business, chief executive Chip Bergh said in the earnings statement.

Revenue in the fiscal first quarter was $1.69bn, compared with the $1.62bn average estimate of analysts surveyed by Bloomberg. Earnings of 34 cents a share, excluding some items, beat the average estimate of 32 cents.

Levi is the first of the US mass-market clothing chains to report first-quarter earnings. Retailers including Macy’s and Gap will report in late May.

Bloomberg