Levi Strauss drops 8% after cutting annual guidance on macro pressure; analysts lower numbers

Investing.com — Levi Strauss (NYSE:) cut annual guidance on Thursday, after second-quarter  beat Wall Street expectations, but sales were pressured by a drop in wholesale revenue.

Shares of the denim retailer fell nearly 8% in premarket Friday.

The company cut its guidance on adjusted diluted EPS for 2023 to a range of $1.10 to $1.20 from $1.30 to $1.40 and said it now expects revenue of growth of between 1.5% and 2.5% from 1.5% and 3% previously.

The weaker guidance comes as the company reported a beat on the bottom line as higher margins offset a drop in revenue, driven by a fall in wholesale revenue amid a shift to a direct-to-consumer model.

“Wholesale net revenues decreased 22% on reported and constant-currency bases as strong growth in Asia and Latin America was offset by declines in North America and Europe,” the company said.

Levi reported fiscal Q2 adjusted EPS of $0.04, beating estimates of $0.03, while revenue of $1.34 billion was in line with expectations.

Direct-to-consumer net revenue was up 13%, driven by “broad-based growth in both company-operated mainline and outlet stores and e-commerce,” the company said.

Total inventories increased 18% in Q2 year-on-year, with the company touting further improvement in inventory levels expected to drop below prior year levels by year end.

Wall Street analysts lowered numbers on LEVI following the guidance cut. BofA analysts moved to $14 per share on the Neutral-rated LEVI stock.

“We reiterate Neutral on LEVI as we think the stock’s current valuation (10x F24 P/E and 7x EV/EBITDA) fairly reflects the combination of a softening wholesale outlook and encouraging direct to consumer (DTC) and int’l trends.”

Similarly, Wells Fargo analysts cut the target to $15 per share, but remain Overweight-rated.

“2Q was another tough quarter for LEVI — as mounting pressure in US wholesale drove lowered 2H revs, but more notably a much larger margin/EPS cut due to needed promos and strategic pricing actions. [This] print keeps LEVI in the penalty box,” the analysts said in a note.

(Additional reporting by Senad Karaahmetovic)