(Reuters) -Levi Strauss & Co cut its annual forecasts for the second time on Thursday after missing third-quarter sales estimate, as the denim maker reels from hefty promotions and falling sales at its wholesale channels in North America.
Shares of the company fell 5% in extended trading.
Gloomy consumer spending has hit retailers like Macy’s and Nordstrom as high prices and borrowing rates squeeze budgets, denting demand for its denims bottoms, tops and cargo pants.
Levi has struggled with declining sales at its overall wholesale business, particularly in North America, which has a higher exposure to the middle-income consumer.
Net revenue in Levi’s Americas segment decreased 5%, even as its direct-to-customer business, which serves a more affluent consumer, rose 12%.
Its margins were also hit by price cuts on certain denim bottoms sold to wholesale retailers like Macy’s and Nordstrom in a bid to boost sales among more price-sensitive shoppers.
Levi’s adjusted gross margins declined 130 basis points to 55.6% during the third quarter, also hurt by lower full-price selling and higher product costs.
“Given the ongoing uncertainty in the macro environment, we are taking a cautious approach to our outlook for the fourth quarter,” said Harmit Singh, chief financial and growth officer.
Analysts have said Levi might have to increase promotions and cut prices if wholesale channel sales continue to worsen, which could pressure its margins further.
Levi forecast revenue to be flat to up 1% in fiscal 2023, compared with prior estimate of 1.5% to 2.5% growth.
The company said it expects an adjusted profit at the low end of its prior estimated range of $1.10 to $1.20. Analysts on average were expecting $1.12.
Net revenue declined to $1.51 billion in the quarter ended Aug. 27 from $1.52 billion a year earlier, missing analysts’ estimate of $1.54 billion, according to LSEG data.
(Reporting by Savyata Mishra in Bengaluru; Editing by Maju Samuel)
