Levi Strauss Announces Job Cuts Amid Forecasting Lower Sales and Profit for 2024

Iconic denim brand Levi Strauss & Co is grappling with a challenging outlook for 2024, leading to significant job cuts. The company anticipates both sales and profit to fall short of analyst predictions, which has propelled them to reduce their global corporate workforce by 10% to 15%. This decision is a part of Levi Strauss's effort to control expenses in the face of a declining wholesale business sector.

Confronting Economic Challenges

The denim giant linked its downward forecast to a few key factors. These include the discontinuation of the Denizen brand, a reduction in off-price sales, adverse foreign currency exchange rates, and the winding down of operations in Russia. Weakness in their wholesale enterprise has been further exacerbated by an inventory surplus from the previous year and inflationary pressures affecting consumer spending. Despite these obstacles, the company's direct-to-consumer (DTC) segment has seen some positive developments.

Leadership's Perspective on the Strategy Ahead

In a statement to investors, Michelle Gass, the soon-to-be CEO of Levi Strauss, acknowledged some improvement in the U.S. wholesale business with expectations of growth in the latter part of 2024. However, given the instability of consumer demand, a cautious stance is being maintained for future planning. As part of their strategic refocusing, the company also plans to phase out the lower-margin Denizen brand to concentrate on more profitable product categories, including lightweight denim and athletic wear.

Furthermore, Chief Financial and Growth Officer Harmit Singh revealed operational difficulties such as shipping delays due to ongoing disruptions in the Red Sea area. To alleviate this, Levi's has rerouted some shipments to avoid these problematic zones.

In response to these announcements, Levi's shares experienced a 1.7% dip in after-market trading. Despite these challenges, the planned job cuts and a more DTC-centric approach are expected to save approximately $100 million in costs during 2024.

Financial Projections and Market Reactions

For the fiscal year 2024, Levi Strauss projects a modest net revenue growth of 1% to 3%, a figure that falls beneath the analyst forecast of a 4.7% increase. The company's adjusted earnings per share expectations are likewise lower than the market's estimate. Industry analysts interpret these cost-reduction measures as a response to subdued demand and a strategy to streamline expenses given the less-than-optimistic revenue outlook.

The job reductions will take place in the first half of 2024, with the company planning to take a charge of $110 million to $120 million in the current quarter in connection to these cuts.

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