Levi Strauss cuts 2022 profit forecast on softening demand, strong dollar

By Ananya Mariam Rajesh

(Reuters) -Levi Strauss & Co cut its full-year profit forecast after missing third-quarter revenue on Thursday, as softening demand and a strengthening U.S. dollar adds to worries alongside higher costs, sending shares down 6% in extended trading.

Consumers are shifting their focus away from higher-priced products and clothes to essentials due to decades-high inflation, affecting Levi’s (NYSE:) and other apparel makers.

The company is more cautious about its business in Europe as the consumer in the region is impacted by much higher inflation as well as steeper energy costs, Chief Executive Officer Charles Bergh said in an earnings call.

“The consumer in the U.S. is also having quite a difficulty with inflation and the thought of recession,” said Jessica Ramírez, analyst at Jane Hali and Associates, adding people are going to be more concerned about where their dollars are spent heading into the holiday season.

The Dockers and Denizen brands’ owner, like other U.S. companies such as Nike Inc (NYSE:) and Coca-Cola (NYSE:) Co, has flagged global currency headwinds.

The rapidly strengthening dollar and higher product costs also caused Levi’s to post adjusted gross margin of 56.9%, down 60 basis points, compared with a year earlier.

The jeans maker, which has been battling supply chain disruptions since the pandemic began, now further strained due to the Russia-Ukraine war, has been raising prices of its denims to battle rising costs.

The company now expects full-year 2022 adjusted profit of $1.44 to $1.49 per share, compared to prior forecast of $1.50 to $1.56.

Levi’s expects full-year reported net revenue growth of 6.7% to 7.0%, representing 11.5% to 12% net revenue growth on a constant-currency basis. Earlier, the company forecast a net revenue growth of 11% to 13%.

Excluding items, it earned 40 cents per share in the third quarter, beating estimates of 37 cents, according to Refinitiv data.

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