In a move to enhance operational efficiency, Levi Strauss & Co. revealed plans to cut up to 15% of its corporate workforce, triggering a decline in its stock value. The renowned denim manufacturer is steering towards prioritizing direct-to-consumer (DTC) sales over wholesale channels, marking a strategic shift in its business model.
The company’s newly introduced “productivity initiative” encompasses cost-cutting measures and streamlining operations over the next two years. This initiative, aimed at creating a leaner and more agile organization, is anticipated to yield net cost savings of $100 million in 2024.
The job cuts, constituting the first phase of the global productivity initiative, are anticipated to incur restructuring charges of $110 million to $120 million in the first quarter of the fiscal year. Levi Strauss hopes that these reductions will pave the way for sustained long-term profitable growth.
Shares of Levi Strauss dipped by as much as 5.9% in extended New York trading after the announcement, contributing to a 4.8% decline in the stock value for the year. This underperformance, when compared to the Nasdaq US Small Cap Index, reflects the market’s response to the workforce reductions and the company’s 2024 outlook falling short of Wall Street’s expectations.
Incoming CEO Michelle Gass, set to take over from current CEO Chip Bergh on January 29, expressed the company’s commitment to becoming a more efficient DTC retailer. Gass highlighted the importance of planning for uncertainties in the wholesale business in the upcoming year.
Levi Strauss projects adjusted earnings per share for fiscal 2024 to range between $1.15 and $1.25, below the average analyst estimate of $1.33. Net revenues are expected to increase by up to 3% from the prior year, falling short of Wall Street’s expectations.
The fiscal fourth-quarter results revealed a slight beat on earnings per share but revenue slightly below expectations. Notably, direct-to-consumer revenue, constituting over 40% of the overall business, rose by 11% in the quarter, indicating the company’s focus on strengthening this segment. Levi Strauss aims for the DTC division to contribute to 55% of sales over the next five to six years.
As part of the restructuring, Levi Strauss will discontinue its Denizen brand, a wholesale offering sold at Target Corp.’s stores and other retailers. Michelle Gass affirmed that this decision was mutual with Target, emphasizing the company’s commitment to optimizing its product mix and reducing reliance on off-price retailers.
The company’s fiscal 2023 revenues remained flat at $6.2 billion, with gross margin at 56.9%. For fiscal 2024, Levi Strauss forecasts a 1-3% year-over-year growth in net revenues and adjusted diluted EPS in the range of $1.15 to $1.25. The restructuring is expected to generate net cost savings of $100 million in the current fiscal year.
Levi Strauss, a company with about 20,000 global employees, anticipates the layoffs to take place in the first half of 2024. The weakened foreign currency exchange rates, liquidation of its Russia business, and the exit from the Denizen brand were cited as contributing factors to the company’s cautious fiscal outlook.
In light of the ongoing disruptions in the Red Sea causing transit delays, Levi Strauss is navigating unpredictable consumer demand and taking a conservative approach to future projections. Michelle Gass emphasized the company’s optimism for future growth, citing a strong pipeline of new products and innovations planned for the year. Levi Strauss remains committed to becoming a leading denim apparel lifestyle business, driving international growth, and leading with DTC under the new leadership of Michelle Gass.