Levi Strauss & Co. has recently made headlines with its latest quarterly results, revealing a mixed performance that has raised eyebrows among investors. The iconic denim manufacturer, known for its classic jeans, has announced its intention to explore the sale of its Dockers brand, a move that highlights the challenges faced by this once-popular line of khakis.

In the fiscal third quarter, Levi’s brand experienced a notable sales increase of 5%, marking the most significant growth in two years. However, this positive trend was overshadowed by a flat overall revenue figure that fell short of Wall Street’s expectations. Following the release of these results, Levi’s shares plummeted by over 8% in after-hours trading.

Analysts had anticipated stronger performance from the company, based on a survey conducted by LSEG. The key financial metrics revealed that:

• Earnings per share: Adjusted earnings were reported at 33 cents, slightly above the expected 31 cents.
• Revenue: Total revenue reached $1.52 billion, which was below the anticipated $1.55 billion.

Levi’s net income for the three-month period ending August 25 stood at $20.7 million, translating to 5 cents per share. This represents a significant increase from the $9.6 million, or 2 cents per share, reported in the same quarter last year. Excluding one-time items, the company posted adjusted earnings of $132 million, or 33 cents per share.

Sales figures indicated a slight increase from $1.51 billion a year earlier, but the overall performance prompted the company to revise its revenue guidance downward. Levi now expects sales to grow by 1%, a reduction from the previous forecast of 1% to 3%. This is notably below the 2.3% growth that analysts had predicted.

The Dockers brand, which Levi Strauss launched in 1986 as a stylish alternative to denim, has seen a decline in popularity in recent years. Once a staple in many wardrobes during the 1990s and 2000s, khakis have lost their appeal, leading to a 15% drop in sales for Dockers during the latest quarter, which totaled $73.7 million. This decline has prompted Levi’s to consider divesting the brand as it seeks to streamline operations and focus on its more successful lines.

Levi Strauss owns several brands, including its flagship Levi’s line and Beyond Yoga, but the struggles of Dockers have significantly impacted the overall performance of the company. The overlap between Dockers and the expanding Levi’s lifestyle brand has created challenges in differentiating the two, prompting the company to rethink its strategy.

Despite the challenges faced by Dockers, Levi’s remains optimistic about its future. The company reaffirmed its full-year adjusted earnings per share guidance, projecting a range of $1.17 to $1.27, which aligns with the expectations of $1.25 from analysts. Levi’s anticipates that earnings per share will fall at the midpoint of this range.

As the company approaches the final quarter of its fiscal year, it continues to focus on enhancing its direct-to-consumer sales strategy. The shift towards direct selling, coupled with a decrease in cotton costs, has contributed to a 4.4 percentage point increase in gross margin, showcasing Levi’s ability to adapt to changing market conditions.

In summary, while Levi Strauss & Co. has successfully navigated some challenges by capitalizing on the popularity of its namesake brand and Beyond Yoga, the ongoing struggles of the Dockers line have prompted significant strategic considerations. As the company explores the potential sale of Dockers, it remains committed to strengthening its core offerings and improving overall financial performance.