Levi Strauss had another quarter of strong sales, helped in part by higher prices, and direct-to-consumer sales accounted for more than half of its overall revenue — a milestone for a company that has long relied on wholesalers.
The denim maker’s revenue rose 14%, while DTC sales in Levi’s stores and website jumped 16%, bringing total DTC sales to 52% of overall revenue.
In an interview with CNBC, CEO Michelle Gass said she expects DTC revenue to account for more than half of overall sales for the duration of the year, even as its more traditional wholesale channel continues to grow.
This growth is not only the result of increased sales volume: Levi benefits from higher prices and positive exchange rate factors. Chief Financial Officer Harmit Singh, who announced his plans to retire on Tuesday, said about half of Levi’s growth was tied to recent price increases and the other half to units actually sold.
Given its first-quarter performance, Levi raised its guidance. It now expects full-year adjusted earnings per share to be between $1.42 and $1.48, lower than expectations of $1.47 per share at the low end, according to LSEG.
The group expects an increase in sales of between 5.5 and 6.5%, well above estimates of 5.6%, according to LSEG.
Here’s how the clothing maker performed in its fiscal first quarter compared to what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: 42 cents adjusted versus 37 cents expected
- Revenue: $1.74 billion versus $1.65 billion expected
The company’s reported net income for the three months ended March 1 was $175.8 million, or 45 cents per share, compared with $135 million, or 34 cents per share, a year earlier.
Sales reached $1.74 billion, up about 14% from $1.53 billion a year earlier.
Levi’s DTC strategy comes with higher margins, but also higher costs in the short term as it changes its distribution system, which has weighed on its profits. However, Singh said his sales are becoming more profitable as DTC scales.
He also noted that Levi’s forecast could increase later in the year. Currently, he is banking on a 20 percent global tariff, although President Donald Trump has so far set a 10 percent tariff on U.S. imports after the Supreme Court struck down so-called reciprocal tariffs earlier this year. If that 10% tariff remains in place, it could increase annual earnings by $35 million, or 7 cents per share. The company could also be reimbursed up to $80 million after the Supreme Court overturned Trump’s previous global tariff policy, Singh said.
While that could boost its profits, Levi could face weaker sales in the coming months as consumers digest rising gas prices and consider opting out of nice-to-haves, like new clothes. Gass told CNBC that she hasn’t seen a drop in spending so far and that the company is segmented to reach a wide range of consumer demographics.
For example, Levi’s Signature value brand saw sales increase 16% during the quarter and its mid-tier Red Cap line grew 9%, while its high-end Blue Tab line is also growing, Gass said.
“We’ve talked about it over the last couple of years, we’ve taken some big, bold steps, like selling Dockers and other brands and businesses. Now we’re really focusing on segmenting around the Levi’s brand,” Gass said. “We feel like we’re really covered to serve consumers across all demographic and psychographic cohorts and I think the other piece is when we think about our business globally, 60% of our business is outside of the United States, which gives us some really nice diversification as well. So we’re watching that closely, but overall we feel good about the consumer.”