Levi’s raises full-year profit guidance after tariff refunds and early holiday sales signs Levi Strauss & Co. has upgraded its full-year profit forecast following a big boost from tariff refunds and a strong outlook for the holiday shopping season. The denim maker said its third-quarter results and positive trends give it a more positive outlook on the rest of the year.
Third quarter. Levi Strauss for the fiscal third quarter ended August 30 reported net revenue of approximately $1.61 billion, up 4% from last year, with organic revenue up 5%. The company reported adjusted diluted earnings of 48 cents per share, well above analyst estimates of approximately 36 cents.
Of the net stronger earnings, $79 million was due to a refund of tariffs paid in prior periods under the International Emergency Economic Powers Act. Levi Strauss said it expects to re-invest about $60 million of this refund during the year for marketing promotional supply-chain enhancements and other activities to support growth in the future.
After its quarterly results, the company revised its full-year guidance for adjusted diluted earnings to between $1.54 and $1.56 a share from a previous range of $1.46 to $1.52. Levi Strauss also raised its full-year organic revenue growth outlook to around 6%, which was the higher end of its prior guidance.
“We’re very optimistic for the holidays. Our business trends have improved and our direct-to-consumer business is on pace to grow mid-single digits this quarter, ” Levi Strauss CEO Chip Bergh said on the company’s third-quarter earnings call. The company intends to reinvest some of the tariffs refunds into increased promotional marketing support and improved value in key holiday selling weeks.
But there were some setbacks this quarter. Direct-to-consumer comparable sales were flat while the U.S. business felt some strain due to inflationary pressures on consumers. The company also said the back-to-school campaign was not as effective with bringing traffic and demand as it had anticipated. Management noted that consumer preferences have moved to low-rise fits, while the campaign had focused on looser fits.
Levi Strauss is reacting by changing its product and marketing to focus on the softer side of denim. Women’s products have now become an important growth business, driven by the popularity of baggy jeans. It is also broadening its range of denim (tops, skirts, and dresses) to make its brand less reliant on jeans alone.
International and wholesale helped out in Q. Revenue grew 4% on a reported basis and 5% organically in Europe, while the company said international and wholesale grew strongly. China also remained a meaningful long-term opportunity for the company and revenue there grew in the quarter.
The company currently anticipates an adjusted EBIT margin of around 12.1% for the full year, with gross margin reflecting the refund of tariffs, lower product costs and other improvements.
Levi Strauss announced plans to launch a $100 million accelerated share repurchase program, providing another method for the company to return capital to shareholders while maintaining investment in its brands and operations.
