Levi Strauss & Co (NYSE:LEVI) stock fell 7.02% (As on July 7, 11:14:01 AM UTC-4, Source: Google Finance) after the company cut its annual profit forecast, in a sign that higher costs were weighing on the denim clothing maker’s margins as it struggles with falling sales at its wholesale channels in North America. The apparel maker posted a net loss of $1.6 million for the second quarter, compared with a net income of $49.7 million a year earlier. During the quarter, DTC revenues increased 13% and were driven by growth in both company-operated stores and online sales. E-commerce revenue increased 20% in the quarter.
LEVI in the second quarter of FY 23 has reported the adjusted earnings per share of 4 cents, beating the analysts’ estimates for the adjusted earnings per share of 3 cents, based on a survey of analysts by Refinitiv. The company had reported 9 percent fall in the adjusted revenue to $1.34 billion in the second quarter of FY 23, which is inline with the analysts’ estimates for revenue of $1.34 billion.
Levi’s now expects adjusted profit to be between $1.10 and $1.20 per share for 2023, compared to its prior forecast of $1.30 to $1.40. Adjusted gross margin is predicted to contract approximately 90 basis points from prior year’s 57.6% compared to the 50 basis points decline previously anticipated. The company is also planning on taking price reductions on about a half dozen of its more price sensitive items, such as its 502 and 512 jeans, moves that will cut into its margins in the quarters ahead. The jeans will drop in price from $79.50 to $69.50 but are still higher than their pre-pandemic price of $59.50. Levi is also planning for a higher tax rate in the second half of the year, a trend it said contributed to the lower outlook. Levi’s effective tax rate during the quarter was 78.4%, compared to 36.1% in the year-ago period.
The annual reported net revenue is expected to increase 1.5% to 2.5% from a year earlier, the apparel maker said, narrowing its previous forecast range of 1.5% to 3%. Analysts had expected growth of 2.6%, according to Refinitiv. The dismal outlook was attributed to a number of factors but was driven by an expected slowdown in U.S. wholesale revenues, which plunged 22% in the quarter.