Levi Strauss & Co has reported a 4% decline in its third quarter profit as it struggled to expand its wholesale business in the Americas.
The profit decrease reported by Levi Strauss has been attributed to reduced shipments to off price stores and the delayed acquisition of a South American distributor. This is the first decline posted by the company since its IPO in March.
In an interview with Reuters, Levi's chief executive officer (CEO) Chip Bergh said: "U.S. wholesale was challenged... particularly the legacy department stores and chain stores, where (the) much publicized traffic declines have negatively impacted our business."
Bergh added that the company has shifted its focus on selling directly to customers via its stores and online rather than through off price retailers. He pointed out:Â "We only sell to that (off price) channel... the distressed inventory that we're trying to clear. We don't think its good for the brand."
During the quarter, Levi's worked with model Chanel Iman and New York Giants player Sterling Shepard for an exclusive drop, launching limited merchandise, for e-commerce retailer Amazon.com Inc's fashion line.
According to Jane Hali & Associates analyst Jessica Ramirez, the company's direct-to-consumer model would yield results in the long run but the wholesale business will continue to be a challenge. Contrary to the 4% drop in revenue from wholesale, direct-to-consumer business in the US surged by 7% in the quarter, due to the strength of Levi's flagship brand.
Net income also fell from $130.1 million or 33 cents per share in 2018 to $124.5 million or 30 cents per share this year. However, the company's revenue and profit numbers were still above analysts' estimates as the company benefited from a resurgence of the denim trend.
IBES data from Refinitiv indicated that Levi's earned 31 cents per share, 3 cents above expectations while its net revenue rose by 3.8% to $1.45 billion, compared with the average estimate of $1.44 billion.
