Levi Strauss Plans to Cut 15% of Corporate Jobs as Guidance Falls Below Expectations

Levi, with a focus on direct-to-consumer sales rather than wholesale, disclosed a fresh multi-year "productivity initiative" featuring cost reductions and operational simplifications. Levi anticipates that the resulting job cuts will lead to restructuring fees ranging from $110 million to $120 million during the first quarter, as indicated in its earnings report.

Following this announcement, the company's shares dipped by nearly 5.9% in after-hours trading in New York. At market close on Thursday, the stock had experienced a 4.8% drop so far this year, surpassing the decline in the Nasdaq US Small Cap Index during the same period.

“Our goal is to transform into a more streamlined and agile firm that supports our trajectory as a DTC retailer,” stated incoming CEO Michelle Gass in an interview. She was referring to sales from stores owned by Levi and its online platform. On January 29, Gass will replace outgoing CEO Chip Bergh.

Levi forecasts for fiscal 2024 show projections of adjusted earnings per share from $1.15 to $1.25, trailing the average projection of $1.33 from analysts. Net revenues are anticipated to go up by a maximum of 3% from the prior year, also not meeting Wall Street's expectations.

Gass explained that the conservative forecast is due to Levi's "preparing for the unpredictable and changeable landscape ahead in our wholesale business." The planned productivity initiative is set to span two years, generating net cost savings of $100 million in 2024 and driving "sustained profitable growth."

The fiscal fourth quarter earnings per share of the company just exceeded the mean analyst estimate. The revenue for the period ending on November 26 fell just short of expectations.

The November and December holiday period showed stronger than expected sales with a slight increase compared to the previous year, CFO Harmit Singh said.

More than 40% of the total business was made up of direct-to-consumer revenue, which rose by 11% during the quarter. Singh stated that this sector would generate 55% of sales in five to six years.

Denim skirts, dresses, and jackets, the new product offerings from Levi, are predicted to enhance DTC business, according to Gass. A more than 50% increase in sales of denim skirts and dresses was observed in the fourth quarter.

The fourth quarter saw a 2% decrease in wholesale revenue, generated by other retailers. This reflects a slight improvement from the prior period but continues to dampen overall results. Gass said Levi plans to adjust its mix of wholesale partners, making the company less dependent on off-price retailers that typically sell at lower prices.

Levi also plans to discontinue its Denizen brand, sold exclusively in Target Corp.'s stores and a few other retailers. Gass stated that Target was in favour of the decision regarding Denizen. The company will continue to retail other products at Target stores.