Levi Strauss Tumbles as Soft Second-Half Sales Forecast Offsets Q2 Earnings Beat

Levi Strauss shares traded sharply lower Wednesday after the iconic blue jeans maker posted stronger-than-expected second quarter earnings but indicated sales would likely slow into the second half of the year.
By Martin Baccardax ,

Levi Strauss & Co. (LEVI) - Get Report shares traded sharply lower Wednesday after the iconic blue jeans maker posted stronger-than-expected second quarter earnings but indicated sales would likely slow into the second half of the year.

Levi Strauss said earnings for the three months ending on May 26, the company's fiscal second quarter, came in at 7 cents a share, down 65% from the same period last year, thanks in part to costs linked to its March listing on the New York Stock Exchange. Adjusting for that cost, Levi Strauss earned 17 cents per share, beating the Street consensus forecast of 15 cents per share. Group revenues, Levi Strauss said, rose 5.4% to $1.312 billion, edging just ahead of analysts forecasts.

Looking into the 2019 fiscal year, which will end prior to the November Black Friday shopping even, Levi Strauss said it sees net revenues growing at the high end of the mid-single digit range, compared to a 6% advance over the first half of the year, as well as an adjusted profit margin that is "slightly up in the range of 10 basis points."

"While underlying business trends remain positive, they're a few reasons we expect second half sales growth to moderate relative to the first half, particularly in the United States," CFO Harmit Singh told investors on a conference call late Tuesday. "First, the lack of a Black Friday in Q4, which we expect will adversely impact the second half by roughly 100 basis points."

"Additionally, we anticipate that pressure in the wholesale channel will adversely impact us by roughly 200 basis points in the second half due to the bankruptcies and door closures since a year ago, the overall softening," he added. "U.S. wholesale environment and the lower off-price channel sales, reflecting our healthier inventory position."

Levi Strauss shares were marked 10% lower at the start of trading Wednesday to change hands at $21.30 each, a move that would take the stock into negative territory since its first closing price on March 22.

Higher advertizing and marketing costs, as well as its push to drive online sales growth, lifted expenses by around 7% to $638 million, the company said, while costs related to its March IPO were tabbed at $29 million. 

China sales, where Levi Strauss is just starting to get penetration, rose 3%, but CEO Charles Bergh said the company should see "accelerated growth in the next 12 months" in the world's biggest economy.

CFO Singh, however, noted the company has taken steps to insulate the business from potential tariffs on China-made goods coming into the United States, adding that "should additional tariffs be enacted on imports to the U.S. from China and Mexico, we can mitigate the financial impact to our business over the near term."

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