Dive Brief:
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Levi Strauss & Co. will lay off 10% to 15% of its global corporate workforce as part of a sweeping two-year “productivity initiative” dubbed Project Fuel, the brand said on Thursday.
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The goal is long-term profitable growth, with DTC at the forefront, per a company press release. In fiscal 2024 Levi’s estimates it will already generate net cost savings of $100 million. In Q1, the company expects restructuring charges of $110 million to $120 million.
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Levi’s also reported Q4 and full-year results. Net revenues in the quarter rose 3.4% year over year to $1.6 billion, with DTC up 11%. Wholesale fell 2%, and e-commerce rose 19%. Net income fell 15.8% to $126.8 million, with gross margin of 57.8% up 200 basis points from last year thanks to lower product costs. For the full year, revenues were flat, with net income plummeting 56% to $249.6 million.
Dive Insight:
Levi’s is joining other retailers and brands in slashing costs, including downsizing its workforce. And it joins Nike and others in focusing its marketing and the sales on the direct-to-consumer channel.
Reflecting on his tenure as chief executive, Chip Bergh, on his final earnings call Thursday, said that Levi’s is a different company than when he arrived 12 years ago.
“We evolved the company from being a predominantly U.S. men's bottoms wholesale business to being a much more diversified business today, with more than half of our sales coming from outside the U.S. and 43% of our sales coming from our own direct-to-consumer business,” he said.
In the holiday quarter, DTC sales were 42% of total net revenues, up from 39% in the year-ago quarter, per the company’s press release. For the full year, global DTC was up 13% to $2.6 billion, on top of 18% growth in the prior year, and was 43% of total global revenues, incoming CEO Michelle Gass told analysts.
While the growth strategy remains centered on DTC, executives also said that wholesale remains important and recovered somewhat in Q4. The U.S. wholesale business was up 5%, driving 3% growth in that channel globally, Gass said.
The company has mostly recovered from its supply chain problems of last year, and said its inventory position improved in the holiday quarter.
Net revenue from Levi’s other brands, Dockers and Beyond Yoga, fell 10.9% in the quarter, with Dockers down 18% and Beyond Yoga up 14%. For the year, those brands’ net revenue together grew 4.9%, per the release.
Wells Fargo analysts led by Ike Boruchow flagged the company’s DTC trends and better-than-expected gross margin as good news, but noted that the U.S. wholesale and macro headwinds in Europe led to a revenue miss.
“There's simply more bad than good,” Boruchow said in emailed comments, adding, “While the macro certainly is partly to blame, [Levi’s] has struggled for the past several quarters to achieve its growth plans and manage the model. Wholesale remains a problem, while Europe appears to be worsening.”
