Levi Strauss surges on profit forecast raise as cost cuts pay off

Shares of Levi Strauss & Co jumped 20 per cent to a more than two-year high on Thursday as the jeans maker raised its annual profit forecast, powered by new CEO's cost-cutting initiatives and a focus on direct-to-customer (DTC) sales.
 

The company has turned to own stores and its website to drive sales as some of its wholesale partners such as department store chains Macy's and Kohl's struggle to attract customers.
 

The DTC channel accounted for nearly half of the total revenue in the first quarter ended Feb. 25, up from 42 per cent in the prior quarter.

CEO Michelle Gass, the former top boss at Kohl's who took charge in January, has cut jobs to rein in costs against the backdrop of a pressured wholesale channel and unpredictable consumer demand.
 

"The jeans category has stabilized in the U.S., now flat to prior year, after several years of volatility," Gass said on Wednesday.

The latest earnings drew positive reaction on Wall Street, with some analysts terming it as an "encouraging start" to the year.

"We note a clear change in tone, and business trajectory, and following a tough 12-24 months there are now growing signs of optimism," Wells Fargo analyst Ike Boruchow wrote, raising the price target to $20 from $17.

The company's shares were up 19.8 per cent at $22.34, on pace to post their second biggest percentage gain on record.
 

Levi highlighted increased popularity for loose fits, with sales of baggy styles for women's launched in the quarter jumping 50 per cent.

Gass said "positive inflection in our wholesale order book in the second half gives us confidence that Europe will grow in H2," on the earnings conference call.
 

"The risk is that Europe does not improve as expected in H2," Citigroup analyst Paul Lejuez said.
 

Levi's forward price-to-earnings multiple, a common benchmark for valuing stocks, is at 14.23, compared to peers Under Armour and Gap Inc at 11.48 and 17.97, respectively.