Denim looks good on Michelle Gass, who is increasingly putting her mark on Levi Strauss & Co.
After just over a year as chief executive officer, Gass turned in a second quarter on Thursday that topped both sales and profit expectations and led the denim leader to boost its outlook for the full year.
That’s a good turn in a retail world that’s been worked over by President Donald Trump’s trade war and is scrambled by any number of consumer uncertainties.
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In an interview with WWD, Gass credited the strength to the Levi’s brand — bolstered by a new Nike collaboration, an ad campaign with Beyoncé Knowles-Carter and more — and the company’s continuing reinvention.
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“It is this transformation that is underway to become a best-in-class [direct-to-consumer], denim-first lifestyle retailer,” the CEO said. “It’s becoming our reality. [DTC] is now 50 percent of our business — and we talk about our growth rate at 9 percent overall, DTC was up 10 percent.
“The Levi’s brand is stronger than ever,” Gass said. “It’s resonating around the world. For decades and decades we’ve been a jeans brand and we’re pivoting to become a head-to-toe denim lifestyle brand that sells lots more than jeans. That is resonating with the consumer, driving innovation and newness. Our pipeline has never been deeper. I would argue to say that we are well on our way to fulfilling our ambition to become a $10 billion company.”
To hit the target, Levi’s would have to add another $3.5 billion-plus to its top line.
Right now, it’s working with some momentum.
Second-quarter revenues rose 6 percent to $1.4 billion, a 9 percent increase on an organic basis.
That top-line growth led to net income of $80 million from continuing operations. Adjusted earnings rose 39 percent to $89 million, or 22 cents a diluted share.
The bottom-line result was more than Wall Street was hoping for with EPS 9 cents ahead of the 13 cents analysts had penciled in, according to Yahoo Finance. Investors gave the quarter the thumbs-up and pushed shares of the company up 7.3 percent to $21.16 in after-hours trading.
Importantly, Levi’s growth in the quarter came from both sides of its business.
The direct-to-consumer side saw organic revenues rise 10 percent with strength around the world. And Levi’s wholesale business pushed organic sales up 7 percent.
“It’s a dynamic, uncertain time,” Gass acknowledged. “That said, given the strength of our business, our consumer continues to be resilient. We continue to have the number-one market share around the world [in denim]. And then, we’re long on the denim category as we should be…it’s about how we’re going to drive this business over the long term. We see a lot of potential in the denim category as well as broadening our appeal through denim lifestyle.”
The consumer’s staying power and first-half results were strong enough for Levi’s to boost its outlook for the year.
Organic revenues are now slated to show growth of 4.5 percent to 5.5 percent, up from the 3.5 percent to 4.5 percent range given previously.
The forecast for adjusted earnings per share was pushed up 5 cents to a range of $1.25 to $1.30.
Levi’s forecast does not include the Dockers business, which is set to be sold to Authentic Brands Group. It also assumes that the trade war tariffs will stay at 30 percent on China and 10 percent for the rest of the world.
At those tariff levels Harmit Singh, chief financial and growth officer, said the gross impact on Levi’s would be $25 million to $30 million or 50 points in gross margin.
“Our belief is we’ll continue to have strong momentum despite the tariff uncertainty,” Singh said.
As tariffs become, let’s say fluid, Singh said Levi’s has been negotiating with its vendors, focusing on full-price sales, managing costs and enjoying the benefits of a business that gets 60 percent of its revenues from international markets.