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01/11 03:21
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlighted strong financial performance, with increased EPS, DTC, and e-commerce growth. Positive developments in women's business, Asia, and LatAm markets were noted. Despite tariff impacts, gross margins showed resilience. Q&A insights revealed strong demand in Europe and wholesale channels, alongside effective inventory management. Management's avoidance of specific EBIT margin timelines was a minor concern. Overall, the positive financial results and optimistic guidance suggest a positive stock price movement in the near term.
Net Revenue Grew 7% year-over-year, driven by international markets contributing 75% of the growth and the U.S. contributing 25%. This reflects the power of a diversified business model.
Gross Margin Achieved a record 61.7% of net revenues, expanding 110 basis points year-over-year. This was driven by a favorable business mix shift towards higher-margin DTC, International, and Women's categories, targeted pricing actions, higher full-price selling, reduced promotions, and a 50 basis point benefit from foreign exchange.
Adjusted EBIT Margin Reached 11.8%, supported by robust gross margin and disciplined SG&A management. This reflects a focus on profitability and operational efficiency.
Adjusted Diluted EPS Increased to $0.34, up approximately 25% year-over-year, driven by strong revenue growth and margin expansion.
Direct-to-Consumer (DTC) Sales Increased 9%, fueled by high single-digit comp growth, higher UPT, AUR, and full-price selling. Productivity initiatives resulted in over 400 basis points of margin expansion.
E-commerce Sales Grew 16%, driven by increased traffic across all segments, highlighting its position as the fastest-growing channel.
Wholesale Channel Revenue Increased 5%, reflecting growth across all segments, including a 2% increase in the U.S. Levi's brand.
Women's Business Grew 9% in Q3 and contributed approximately 40% of the company's growth. This reflects a strategy to capture greater share in the underpenetrated higher gross margin Women's segment.
Men's Business Grew 5%, contributing the balance of the company's growth, supported by momentum in the category.
Asia Revenue Accelerated to 12% growth, with double-digit growth in key markets like India, Japan, Korea, and Turkey. Operating margin increased 50 basis points year-over-year.
U.S. Revenue Grew 3%, marking the fifth consecutive quarter of strong growth. DTC grew 6% and now represents over 40% of the U.S. market.
LatAm Revenue Achieved double-digit growth, up 23%, driven by broad-based strength across the region.
Europe Revenue Increased 3%, with all key markets delivering growth, led by strong performance in the U.K. Operating margin grew 80 basis points year-over-year.
Inventory Reported inventory dollars increased 12%, driven by investments ahead of the holiday season and higher product costs due to tariffs. In unit terms, inventory was up 8% year-over-year.
Women's Business: Delivered outsized growth, up 9% in Q3, driven by diversified fit portfolio and new product launches like Baggy Dad Barrel and low-rise collections.
Men's Business: Grew 5% in Q3, supported by strong growth in bottoms and new product innovations.
Tops: Continued notable growth, up 9%, with seasonally relevant assortments and fabric innovations.
Blue Tab Collection: Rolled out to Europe after successful launches in Asia and the U.S., merging Levi's iconic aesthetics with refined quality.
Collaborations: Introduced joint collections with Nike and Toy Story, enhancing brand appeal and reaching new consumers.
Asia Expansion: Achieved double-digit growth in key markets like India, Japan, Korea, and Turkey, with Japan transitioning to 75% DTC.
U.S. Market: Grew 3%, with DTC representing over 40% of the market and new distribution partnerships with Boot Barn and Cavender's.
International Business: Comprises nearly 60% of total business, with significant growth opportunities, particularly in Asia.
DTC Strategy: Global DTC sales up 9%, driven by higher UPT, AUR, and full-price selling, with e-commerce growing 16%.
Store Optimization: Enhanced in-store merchandising and labor scheduling, improving consumer experience and operational efficiency.
Supply Chain Improvements: Focused on end-to-end efficiencies, including assortment planning and life cycle management.
Denim Lifestyle Focus: Pivoting to a head-to-toe denim lifestyle retailer, expanding addressable market and driving growth.
Women's Segment: Targeting underpenetrated, higher-margin segment to capture greater market share.
DTC-First Approach: Accelerating shift towards DTC and international markets for higher-margin growth.
Tariff Increases: Higher tariffs, including 30% for China and approximately 20% for the rest of the world, are expected to impact gross margins and adjusted diluted EPS. This poses a financial challenge for the company.
Macroeconomic Uncertainty: The company acknowledges an increasingly uncertain external backdrop, which could impact consumer demand and overall business performance.
Supply Chain Challenges: The transition of U.S. distribution centers and higher product costs due to tariffs are creating operational inefficiencies and inventory challenges.
Dependence on International Markets: While international markets drive 75% of growth, reliance on these markets exposes the company to geopolitical and economic risks.
Wholesale Channel Risks: Although wholesale revenues grew, the company faces challenges in maintaining growth and profitability in this channel, especially as it transitions to a DTC-first strategy.
Inventory Management: Inventory levels are up 12%, driven by higher product costs and holiday preparation, which could lead to overstocking or inefficiencies if demand does not meet expectations.
Regulatory Risks: Higher tariffs and potential changes in trade policies could further impact costs and operational strategies.
Revenue Growth: The company has raised its full-year revenue growth expectations to approximately 3% on a reported basis and 6% on an organic basis, reflecting strong business momentum.
Gross Margin: Gross margin is expected to expand by 100 basis points for the full year, despite a 70 basis point headwind from tariffs. For Q4, gross margin is expected to contract by approximately 100 basis points due to tariffs and the absence of the 53rd week.
Adjusted EBIT Margin: For the full year, adjusted EBIT margin is expected to be in the range of 11.4% to 11.6%. For Q4, adjusted EBIT margin is projected to be between 12.4% and 12.6%.
Adjusted Diluted EPS: The company has raised its full-year adjusted diluted EPS guidance to a range of $1.27 to $1.32, up $0.02 from prior guidance. For Q4, adjusted diluted EPS is expected to be in the range of $0.36 to $0.38.
Direct-to-Consumer (DTC) Growth: DTC sales are expected to continue growing significantly, with e-commerce projected to become 15% of total business, up from 9% currently.
International Expansion: International markets, particularly Asia, are expected to drive significant growth, with continued expansion in key markets like India, Japan, Korea, and Turkey.
Women's and Tops Segments: The company expects continued outsized growth in the Women's and Tops segments, which are key focus areas.
Holiday Season Outlook: The company is well-positioned for the holiday season with the right merchandise assortment and marketing campaigns, expecting strong performance despite an uncertain macroeconomic environment.
2026 Outlook: The company anticipates another strong year in 2026, supported by several tailwinds, including strategic initiatives and market opportunities.
Dividend Declaration: For Q4, a dividend of $0.14 per share was declared, which is an 8% increase compared to the prior year.
Accelerated Share Repurchase Program: The company implemented a $120 million accelerated share repurchase program, retiring approximately 5 million shares, with the remaining shares to be settled by Q1 2026.
Year-to-Date Shareholder Returns: The company has returned $283 million to shareholders year-to-date, which is substantially higher than their annual cash payout target.
The earnings call summary highlights strong financial metrics, including increased revenue and EPS guidance, and gross margin expansion. The Q&A section reveals positive developments such as effective marketing, growing brand awareness, and strategic store expansions. Despite some SG&A pressure, the company's proactive investments in technology and distribution are seen as long-term positives. Overall, the sentiment is positive, with optimistic guidance and strategic growth plans likely to boost the stock price in the short term.
The earnings call highlighted strong financial performance, with increased EPS, DTC, and e-commerce growth. Positive developments in women's business, Asia, and LatAm markets were noted. Despite tariff impacts, gross margins showed resilience. Q&A insights revealed strong demand in Europe and wholesale channels, alongside effective inventory management. Management's avoidance of specific EBIT margin timelines was a minor concern. Overall, the positive financial results and optimistic guidance suggest a positive stock price movement in the near term.
The earnings call presents a positive outlook with strong growth in DTC and wholesale, expansion in international markets, and a strategic shift to a full lifestyle brand. The gross margin is at a record high, supported by strategic initiatives, and the guidance remains optimistic. Despite some unclear responses, overall sentiment is positive, with strategic growth initiatives and a strong brand position likely to positively impact the stock price.
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