(Reuters) – Levi Strauss & Co forecast annual sales above Wall Street estimates on Wednesday, in a sign that demand for its jeans is holding up better than feared even as consumers shift to purchase more non-denim and office-friendly clothing.
The San Francisco-based jeans maker also got a boost from strong performance at its other brands, including Dockers and Beyond Yoga, helping it cushion a 5% drop in revenue from the Americas region.
With shoppers now buying more non-denim bottoms such as formal trousers and cargo pants, analysts have flagged uncertainty around denim demand in the near-term, with Coresight Research forecasting a decline in the U.S. jeans market in 2023.
However, Levi’s said it saw more consumers shopping at its stores in the Americas and Asia, boosting its direct-to-consumer business.
The direct-to-consumer business accounts for 36% of the company’s total revenue, according to UBS analyst Jay Sole.
That, coupled with higher prices of its jeans, helped Levi’s project net revenues between $6.3 billion and $6.4 billion for fiscal 2023, compared with analysts’ average estimate of $6.27 billion, according to Refinitiv IBES data.
Net revenue from Levi’s other brands jumped 28% to $127 million in the reported quarter, helping the company cushion a blow from an 18% slump in sales in Europe, stemming from macroeconomic pressures in the region and the suspension of business in Russia.
Despite higher prices, Levi’s adjusted gross margin fell 230 basis points to 55.8% in the fourth quarter, owing to currency pressures, higher product costs and holiday promotions.
The company said it now expects full-year adjusted profit between $1.30 and $1.40 per share, in line with analysts average estimate of $1.35 per share.
Levi’s net revenue declined about 6% to $1.59 billion in the fourth quarter, edging past estimates of $1.57 billion.
(Reporting by Deborah Sophia in Bengaluru; Editing by Maju Samuel)