Levi Strauss Sales Rise as Retail Sector Grapples With Growing Inventories

Levi both operates its own stores and sells its products through larger retailers such as

Target Corp.

TGT 3.56%

,

Walmart Inc.

WMT 0.15%

and

Macy’s Inc.

M 2.16%

Executives have said the company has benefited from growth in denim sales in the U.S., expanding its product line and bringing more premium products to market. Price increases on some products last year and earlier this year haven’t damped demand, executives said in April.

Company leaders said during an earnings call that Levi has also benefitted from a more casual dress code as people opt for jeans over slacks in post-pandemic office settings.

The jeans maker is also attempting to bolster its direct-to-consumer business, with plans to accelerate investments in stores and online platforms.

Levi’s revenue gains come as a range of retailers grapple with excess inventory that could restrain orders from suppliers. Target, a major Levi customer, in June issued a profit warning amid a glut of inventory, which is causing it to cancel orders with vendors and offering large discounts on unwanted items.

Still, Chief Executive

Chip Bergh

said Levi’s business with Target is doing well despite retail headwinds.

“We feel really, really good about our position right now in wholesale. We haven’t seen any signs of cracks, and I think, again, that speaks to the strength of the Levi’s brand,” Mr. Bergh said during the earnings call.

Target and Levi have bolstered their partnership, with the chain adding the denim wear to another 300 stores last spring, up to 800 stores in total.

Inventories are rising across a range of retailers. Factory closures, shipping delays and long production cycles prompted companies to place orders with overseas factories further in advance, making it more difficult to match supply with rapid changes in consumer demand.

At Levi, inventories rose 29% in the second quarter from a year earlier and 11% from the first quarter. The company said that the growth was in line with expectations and reflected efforts to reduce supply-chain risk and meet consumer demand. Executives said during the earnings call that they are comfortable with on-hand inventory levels.

Some shoppers are now shifting their spending to travel and entertainment, as well as dressier clothes and accessories. That has caught some retailers off guard with piles of unwanted products that were in demand during the height of the pandemic, such as electronics, casual wear and home goods. At the same time, inflation is pushing up costs of necessities such as food and gas, leaving less money for discretionary spending.

For the quarter ended May 29, Levi posted earnings of $50 million, or 12 cents a share, compared with $65 million, or 16 cents a share, a year earlier. Adjusted per-share earnings were 29 cents, ahead of analysts’ expectations of 23 cents.

Profits were hurt by higher product and freight costs as well as the impairment of its assets in Russia, the company said. Levi halted its Russian operations in March in response to the war in Ukraine.

Levi shares, which ended Thursday’s regular session up 4% at $16.41, gained an additional 4% in after-hours trading. The stock is down roughly 34% so far this year.

On Thursday the company also approved a new $750 million share-buyback program and raised its quarterly dividend to 12 cents a share from 10 cents a share.

Levi both operates its own stores and sells its products through larger retailers such as

Target Corp.

TGT 3.56%

,

Walmart Inc.

WMT 0.15%

and

Macy’s Inc.

M 2.16%

Executives have said the company has benefited from growth in denim sales in the U.S., expanding its product line and bringing more premium products to market. Price increases on some products last year and earlier this year haven’t damped demand, executives said in April.

Company leaders said during an earnings call that Levi has also benefitted from a more casual dress code as people opt for jeans over slacks in post-pandemic office settings.

The jeans maker is also attempting to bolster its direct-to-consumer business, with plans to accelerate investments in stores and online platforms.

Levi’s revenue gains come as a range of retailers grapple with excess inventory that could restrain orders from suppliers. Target, a major Levi customer, in June issued a profit warning amid a glut of inventory, which is causing it to cancel orders with vendors and offering large discounts on unwanted items.

Still, Chief Executive

Chip Bergh

said Levi’s business with Target is doing well despite retail headwinds.

“We feel really, really good about our position right now in wholesale. We haven’t seen any signs of cracks, and I think, again, that speaks to the strength of the Levi’s brand,” Mr. Bergh said during the earnings call.

Target and Levi have bolstered their partnership, with the chain adding the denim wear to another 300 stores last spring, up to 800 stores in total.

Inventories are rising across a range of retailers. Factory closures, shipping delays and long production cycles prompted companies to place orders with overseas factories further in advance, making it more difficult to match supply with rapid changes in consumer demand.

At Levi, inventories rose 29% in the second quarter from a year earlier and 11% from the first quarter. The company said that the growth was in line with expectations and reflected efforts to reduce supply-chain risk and meet consumer demand. Executives said during the earnings call that they are comfortable with on-hand inventory levels.

Some shoppers are now shifting their spending to travel and entertainment, as well as dressier clothes and accessories. That has caught some retailers off guard with piles of unwanted products that were in demand during the height of the pandemic, such as electronics, casual wear and home goods. At the same time, inflation is pushing up costs of necessities such as food and gas, leaving less money for discretionary spending.

For the quarter ended May 29, Levi posted earnings of $50 million, or 12 cents a share, compared with $65 million, or 16 cents a share, a year earlier. Adjusted per-share earnings were 29 cents, ahead of analysts’ expectations of 23 cents.

Profits were hurt by higher product and freight costs as well as the impairment of its assets in Russia, the company said. Levi halted its Russian operations in March in response to the war in Ukraine.

Levi shares, which ended Thursday’s regular session up 4% at $16.41, gained an additional 4% in after-hours trading. The stock is down roughly 34% so far this year.

On Thursday the company also approved a new $750 million share-buyback program and raised its quarterly dividend to 12 cents a share from 10 cents a share.