Market Anticipates Evidence of Growth from New Strategies
Analyst Jim Duffy from Stifel highlighted the market’s expectations of accelerated growth resulting from new strategies. He stated, “Ultimately, the market will be looking for evidence new strategies can drive accelerated growth.” As Levi’s new product direction takes hold in the marketplace throughout 2024, consumer response will determine the success of these initiatives.
Duffy cautioned that the introduction of more product categories will require increased investment and inventory management. If sales falter, Levi’s may face challenges associated with fashion-oriented products and potential markdowns. However, the company’s ongoing two-year plan, Project FUEL, seeks to save costs and strengthen direct-to-consumer sales through its own e-commerce platform and physical stores, reducing reliance on external retail chains.
Layoffs and Leadership Transitions
In its efforts to streamline operations and achieve cost savings, Levi’s announced plans to lay off 10% to 15% of its global corporate staff during the first half of the year, with anticipated savings of $100 million. These layoffs are part of Project FUEL and coincide with the departure of Chief Executive Chip Berg, who will be succeeded by Michelle Gass on January 29.
The announcement of these changes negatively impacted Levi’s shares after hours, compounded by a full-year profit forecast that fell below expectations.
Direct-to-Consumer Success and Wholesale Challenges
Despite the aforementioned challenges, Levi’s direct-to-consumer sales increased by 11% in the fourth quarter, accounting for 42% of overall sales. The company has prioritized direct sales to gain deeper insights into consumer preferences and exert greater control over marketing and sales strategies.
On the other hand, the wholesale segment, which involves selling Levi’s products through external retailers, experienced a 2% decline in sales. Over the past two years, retailers have grappled with clearing excess inventory and reducing prices due to restrained consumer spending.
Michelle Gass, speaking on the earnings call, expressed cautious optimism regarding the U.S. wholesale channel, acknowledging the challenges faced throughout the year and the volatility that impacted the market and Levi’s performance.