Levi cuts annual guidance as wholesale revenue slides in Q2; Shares drop

Investing.com -- Levi Strauss cut annual guidance on Thursday, after second-quarter earnings beat Wall Street expectations, but sales were pressured by a drop in wholesale revenue.     

The denim retailer reported (NYSE:LEVI) fell 7% in after-hours following the news.

The company cut its guidance on adjusted diluted EPS for 2023 to a range of $1.10 to $1.20 from $1.30 to $1.40 and said it now expects revenue of growth of between 1.5% and 2.5% from 1.5% to 3% previously.

The weaker guidance comes as the company reported a beat on the bottom line as higher margins offset a drop in revenue, driven by a fall in wholesale revenue amid a shift to a direct-to-consumer model. 

"Wholesale net revenues decreased 22% on reported and constant-currency bases as strong growth in Asia and Latin America was offset by declines in North America and Europe," the company said.

Levi reported fiscal Q2 adjusted EPS of $0.04, beating estimates of $0.03, while revenue of $1.34 billion was in line with expectations. 

Direct-to-consumer net revenue was up 13%, driven by "broad-based growth in both company-operated mainline and outlet stores and e-commerce," the company said. 

Total inventories increased 18% in Q2 year-on-year, with the company touting further improvement in inventory levels expected to drop below prior year levels by year end.