Levi Strauss stock falls 5% as outlook is cut following inventory issues

Levi Strauss & Co. shares fell in the extended session Thursday after the jeans maker cut its forecast for the year while topping the Wall Street earnings by a penny a share.

Levi Strauss

shares fell more than 7% after hours, following a 0.8% rise to close the regular session at $14.23. Shares are down 8.3% for the year while the S&P 500 index

is up 15%.

The company said it expects revenue to grow by 1.5% to 2.5% year over year, compared with a previous forecast of 1.5% to 3% growth, with adjusted earnings of $1.10 to $1.20 a share, down from the previous forecast of $1.30 to $1.40 a share.

The outlook “also assumes no significant worsening of macro-economic pressures on the consumer, inflationary pressures, supply-chain disruptions or currency impacts,” the company said.

Analysts, on average, were calling for $1.29 a share on revenue of $6.33 billion, or a 2.6% increase.

Chief Financial Officer Harmit Singh told analysts on a conference call following earnings that peak inventory was behind the company, and that three “fairly equal” factors drove the cut in its outlook.

“First, a slightly lower revenue expectation and the resulting fixed-cost deleverage,” Singh said. “Second, lower expected H2 gross margin, mainly due to our targeted pricing actions. And third, non-operating FX losses and a higher tax rate for the year in reported dollars.”

The company reported a second-quarter loss of $1.6 million, or break-even per share, compared with net income of $49.7 million, or 12 cents a share, in the year-ago period.

Adjusted earnings, which exclude stock-based compensation costs and other items, were 4 cents a share, compared with 29 cents a share in the year-ago period.

Revenue fell to $1.34 billion from $1.47 billion in the year-ago quarter. Analysts surveyed by FactSet had forecast 3 cents a share on revenue of $1.34 billion.

Not only have higher inflation and a slowing economy impacted Levi’s wholesale business, inventory issues have restricted production, Chief Executive Chip Bergh told analysts on the call.

Read from April: Levi’s stock suffers worst day on record as earnings show inventory issues continuing

“As we have mentioned for several quarters, our inventory backlog created supply-chain challenges in our U.S. distribution centers, resulting in our inability to fulfill all demand,” Bergh said.

“Importantly, we are not taking price reductions in U.S. mainline full-price stores, nor the vast majority of our U.S. wholesale assortment, including the 501 and women’s fashion fits, which are all less price sensitive,” he said. “Finally, we are not taking any price reductions on our international businesses, where we continue to demonstrate strong pricing power as seen by the results.”

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