Levi Strauss raised its full-year earnings guidance after collecting tariff refunds, even as it trimmed its revenue growth outlook following a quarter that fell short of Wall Street's sales estimate. Third-quarter profit beat expectations, but U.S. direct-to-consumer sales continued to lag ahead of the holiday season.
Levi Strauss posted third-quarter earnings that beat expectations, even as it saw benefits from tariff refunds that lifted its profit outlook for the year. The denim maker reported adjusted earnings of 48 cents per share, compared with Wall Street's estimate of about 36 cents, according to data compiled by LSEG.
Tariff refunds boost profit guidance
Levi raised its adjusted earnings-per-share guidance for the fiscal year to between $1.54 and $1.56, up from a previous range of $1.46 to $1.52. Analysts had expected a range of $1.52 to $1.59, according to LSEG. The company said it received $79 million in tariff refunds during the quarter ended August 30, paid under the International Emergency Economic Powers Act, and plans to redeploy about $60 million of that this year on promotions and marketing.
The refunds also lifted profitability. Operating margin rose to 13.8% from 10.8% a year earlier, with tariff refunds contributing 4.9 percentage points to both operating margin and gross margin. Levi said the refunds added a 16-cent benefit to earnings per share, of which five cents were redeployed back into the business.
Revenue growth guidance trimmed
Even as profit guidance rose, Levi lowered its net revenue growth guidance for the full year to 7%, the bottom of its previous range of 7% to 7.5%. Quarterly net revenue rose 4% to $1.61 billion from $1.54 billion a year earlier, just below the $1.62 billion analysts expected.
Direct-to-consumer net revenue increased 2% for the quarter, though comparable sales were roughly flat, and the segment made up 45% of total net revenue. Wholesale revenue, by contrast, increased 6%.
CEO Michelle Gass said the direct-to-consumer business fell short of expectations, with sales falling in the U.S. as shoppers contended with higher inflation. According to CNBC, Gass said: "we moved quickly to address the shortfall", pointing to strength building into the holiday season.
Americas growth masks U.S. softness
Net revenues in the Americas increased 4% for the quarter, though revenue in the U.S. itself decreased 1%. Still, the company's women's line has emerged as a bright spot, driven by demand for baggy jeans and a push beyond denim into tops, skirts and dresses.
Net income for the quarter fell to $168.6 million, or 43 cents per share, down from $218.1 million, or 55 cents per share, a year earlier. Levi shares were roughly flat in extended trading after initially rising. The stock has fallen about 5% so far this year.
Sources: CNBC, Investing.com
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