Dive Brief:
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With help from Beyoncé and Shaboozey, Levi Strauss & Co. flexed top- and bottom-line strength in Q2. Net revenues rose 6.4% year over year to $1.4 billion, with e-commerce up 13%.
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Gross margin expanded by 140 basis points to 62.6%, thanks mostly to lower product costs and favorable channel mix. Net income nearly tripled, rising more than 270% to $67 million.
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The brand made progress in its effort to sell more directly to customers, as DTC net revenues rose 11%, the 13th straight quarter of growth. Wholesale rose 3%. Beyond Yoga net revenues rose just over 12% to $37 million.
Dive Insight:
Speaking to analysts Thursday, Levi’s CEO Michelle Gass extolled the virtues of what she called “quiet western, an evolution of the full Western theme we saw take off last year but with a more subtle twist.”
“Quiet western is perfect for the Levi’s denim lifestyle aesthetic and a natural place for us to lead,” she said.
As she also noted, however, the brand is getting a push from heavy hitters like Beyoncé and Shaboozey, whose manifestations of western vibes have hardly been subtle. Levi’s last year enlisted Beyoncé for an extensive marketing campaign, and during this week’s conference call Gass said the brand is creating “custom one-of-a-kind looks for her Cowboy Carter tour.”
Outside the Western aesthetic, a collab with Nike dropped Thursday and Gass said that, “based on the lines out the doors this morning, we think this Nike collaboration is going to be a really big hit.”
The company is expanding its DTC channel and growing its Beyond Yoga brand. Executives reiterated plans to open 50 to 60 net new stores, including 16 net new doors in Q3; Beyond Yoga is on on track to open six more stores this year, bringing its total store count to 14.
But the company is also benefitting from the tighter focus it has achieved by unloading its Denizen value brand, and, more recently, its Dockers business, according to CFO Harmit Singh.
Despite ongoing uncertainty of U.S. trade policy and negative impact of tariffs, Levi’s raised its sales guidance for the year. The company now expects net revenue to grow 1% to 2%, up from its previous expectation of a 1% to 2% drop. Due to tariffs, however, gross margin growth will likely be less robust: the company expects gross margin to expand 80 basis points rather than 100. This assumes that U.S. tariffs on goods from China will remain at 30% and from the rest of the world at 10% for the rest of the year, per Levi’s press release.
The strength is welcome news, Wells Fargo analysts led by Ike Boruchow said in a Thursday research note.
“At a time when [Levi’s] needed it most … the company smashed 2Q earnings, which is likely to help relieve investor doubts,” Boruchow said, calling the period an “all-around solid Q, with momentum expected to carry through to 3Q.”