Levi slumps after cutting its full-year revenue outlook

(Bloomberg) — Denim maker Levi Strauss & Co. narrowed its full-year sales outlook to the lower end of its previous range, sending shares sharply lower in extended trading.

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Net sales are expected to increase about 1% in the company's current fiscal year, compared to a previous range of 1% to 3%. Sales in the fiscal third quarter ended Aug. 25 fell slightly short of the average analyst estimate, while Levi's Americas division reported a decline in sales in the period.

Shares fell 9.7% in extended New York trading as of 5:44 p.m. The stock was up 27% this year through Wednesday's close, outpacing the S&P Total Market Index's gain over the same period.

Levi is pushing to generate more sales through its own channels, and while the company is making progress on that front, its wholesale business is deteriorating, falling 6% year-over-year in the most recent quarter. The company wants shoppers to visit Levi's-owned stores, website and app to sell as department stores, traditionally crucial to major clothing brands, decline in popularity.

Chief Executive Officer Michelle Gass said the company's namesake brand was gaining ground and touted “another big quarter of strength” for the direct-to-consumer segment. This division, which includes Levi's own website and stores, saw growth of 10%.

“The loss of sales is causing knee-jerk pressure on the stock, but the core Levi's brand has performed well,” Adam Crisafulli, an analyst at Vital Knowledge, wrote in a research note. He added that the margins, which exceeded expectations, were “a bright spot.”

In the company's conference call with analysts, Chief Financial Officer Harmit Singh said the lower-than-expected quarterly sales were due in part to weakness in the Mexican peso against the dollar, as well as weak performance in China and the impact of the June cybersecurity incident.

He also pointed out weaknesses in the Dockers brand. Levi said Thursday it is exploring options for Dockers “that could include a potential sale or other strategic transaction” and has hired Bank of America as financial adviser. The brand's revenue fell 15% to $73.7 million in its most recent quarter. Gass told analysts that Dockers “has been underperforming for some time” and the company wants to increase its focus on its namesake brands and the Beyond Yoga brands.

The San Francisco-based company wants to make a splash by partnering with Beyoncé. The pop star brought the brand unexpected attention earlier this year with a song titled “Levii's Jeans” on her latest album.

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(Corrects name of underperforming brand in eighth paragraph.)

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