Levi Strauss Takes a Beating After Mixed Q3 Results As Dockers Drama Ensues (Shares Fall -11%)

Well, it’s definitely not every day you see a brand as iconic as Levi Strauss take a 10% nosedive after hours. But here we are. After Wednesday’s closing bell, Levi’s dropped its highly anticipated Q3 earnings report, and let’s just say the market gave the stock a nasty “thanks, but no thanks”. 

(Source: Giphy) 

First off, let’s start this off with the silver lining because, after writing about Humana’s sh*t show yesterday, I think we all need some positivity, right? Right. In short, Levi Strauss posted earnings of 33 cents per share, beating analyst expectations by a whole 2 cents. Not exactly a mic drop moment, but a win is a win. 

(Source: Yahoo Finance) 

Michelle Gass, CEO of Levi Strauss, probably had a mini fist pump over that one as she noted that the core Levi’s brand is "getting stronger," with global growth hitting 5% in Q3—the highest in two years.

Additionally, Levi’s Direct-to-Consumer (DTC) segment was the real MVP, posting an impressive 10% jump in sales (12% on a constant-currency basis). Apparently, people are still willing to pay full price for denim dresses and jumpsuits—who knew? Levi’s U.S. and European markets also chipped in, with DTC revenue up 12% and 9%, respectively. Sooo yeah, that’s the good part...

(Source: Giphy) 

The bad part? Well as it turns out, the blistering knockout came when quarterly revenue of $1.516 billion was reported, missing Wall Street’s estimate of $1.55 billion. Close, but no cigar. Whether it was cautious spending or just the fact that everyone’s been living in sweatpants for the past three years, this revenue miss didn’t sit well with investors. The stock dropped 6.22% after-hours, on top of a 2.86% dip during regular trading. 

(Source: Yahoo Finance) 

The real issue when it came to Levi’s numbers was none other than its Docker Brands. Now I’m sure we all remember when Dockers was the go-to for every Dads barbecue grilling in 1995 right? Well, those days are long gone, and Dockers have been more of a drag on Levi’s earnings than your old pair of saggy chinos. 

(Source: Imgflip) 

For instance Dockers revenue dropped a whopping 15% year-over-year, and has now prompted Levi’s to consider some “strategic alternatives” for the arm going forward (aka fancy way of saying they may amputate to save the rest of the company). 

What’s interesting here is that Levi’s did not hesitate even for a second as they’ve already retained Bank of America to help explore options for Dockers. And while there’s no timeline on when (or if) a sale will happen - this will no doubt be a mercy killing at this point. The brand is so out of touch with what anyone actually wants to wear, it’s like trying to sell a flip phone to a Gen Z kid. RIP, Dockers. No one’s gonna miss you. 

(Source: Reuters) 

With that said though, even if Levi gives Dockers the boot, the company isn’t exactly painting a rosy picture for the future, either. The company cut its full-year revenue growth forecast to the low end of its prior range, now expecting just 1% growth, down from the previous 1-3%. And while they’re still gunning for an EPS midpoint of around $1.22 for the year, that’s a hair below analysts’ projections of $1.25. 

(Source: Investing.com) 

In other words, the market reacted about how you’d expect: Levi’s shares tanked more than 10% in extended trading, which adds up to a pretty rough day for Levi’s investors. But hey, the stock is still up almost 30% YTD, so it’s not all bad - unless you legit just bought in. And if that’s the case, well, my condolences go out to you.  

(Source: Giphy) 

So, in the end, what’s the takeaway here? Well, it’s no secret Levi’s  is in the middle of a massive overhaul, trimming the fat and trying to focus on what actually works—namely, their core denim products. They’ve already axed underperforming segments like the Denizen brand and some footwear lines, and now Dockers might be next on the chopping block.

Meanwhile, Levi’s is pushing hard on its DTC strategy, trying to get more people to spend their hard-earned cash on full-priced jeans from their own stores and website. At least that seems to be working. But their wholesale business is still fumbling the ball more than Boeing, down 6% compared to last year. Meaning, retailers aren’t exactly knocking down doors to stock their shelves with Levi’s, especially as China consumers have been spending less and less over the past quarter. 

(Source: Giphy) 

So at the end of the day, Levi’s still has the brand power to weather the storm. But in the short term? The revenue miss and Dockers’ slow-motion trainwreck aren’t exactly confidence boosters, even though their DTC growth is promising. 

In the meantime, expect some heavy volatility as we all wait to see what Dockers fate will be, and as always stay safe and stay frosty, friends! Until next time… 

P.S. 54% short interest, and a 648.5% borrow fee?! Once this catalyst hits this little known stock… we could be going to the moon! Of course, we’ll be dropping the ticker symbol sometime soon… so click here ASAP to upgrade to premium so you don’t miss out on this seismic opportunity! 

Stocks.News does not hold positions in companies mentioned in the article.