Levi Strauss slashes guidance as wholesale revenue drops

Levi Strauss on Thursday drastically cut its profit outlook for the year after the apparel retailer reported a steep drop off in wholesale revenues and soft sales in the U.S., its largest market. 

The blue jean seller saw bright spots, however, in its direct-to-consumer sales and China market.

Here’s how the company did in its fiscal second quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Earnings per share: 4 cents, adjusted, vs. 3 cents expected
• Revenue: $1.34 billion vs. $1.34 billion expected

The company’s reported net loss for the three-month period that ended May 28 was $1.6 million, or 0 cents per share, compared with a net income $49.7 million, or 12 cents a share, a year earlier. During the quarter, Levi reported adjusted earnings of 4 cents per share.

Sales dropped to $1.34 billion, down 9% from $1.47 billion a year earlier. 

Halfway through its fiscal year, Levi slashed its full year profit outlook. It now expects adjusted earnings per share of $1.10 to $1.20, compared to a previous range of $1.30 to $1.40.

Levi also tightened its revenue outlook for the year. The retailer now expects sales to grow between 1.5% to 2.5% compared to a prior range of 1.5% to 3%.

The dismal outlook was attributed to a number of factors but was driven by an expected slowdown in U.S. wholesale revenues, which plunged 22% in the quarter, Levi’s chief financial and growth officer Harmit Singh told CNBC.

The company is also planning on taking price reductions on about a half dozen of its more price sensitive items, such as its 502 jeans, and planning for a higher tax rate. Levi’s effective tax rate during the quarter was 78.4%, compared to 36.1% in the year-ago period.

“Our outlook on U.S. wholesale, even with the pricing moves that we’re taking and everything else, we’re being cautious about it,” CEO Chip Bergh told CNBC during an interview. “Just in light of the recent performance, and the current macro headwinds, and just the consumer dynamics in this market.”