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Denim enthusiasts are increasingly turning to Levi Strauss & Co for their new jeans, but the company is facing challenges with its Dockers brand, which it is now considering selling off, as announced on Wednesday. Levi’s brand saw a 5% increase in sales during the fiscal third quarter, the largest gain in two years, but overall revenue remained flat, falling below Wall Street’s expectations. Levi’s shares dropped over 8% in after-hours trading on Wednesday.

In terms of financial performance compared to analyst forecasts, Levi’s reported adjusted earnings per share of 33 cents, surpassing the expected 31 cents, while revenue came in at $1.52 billion, falling short of the anticipated $1.55 billion.

The company’s net income for the quarter ending August 25 was $20.7 million, or 5 cents per share, compared to $9.6 million, or 2 cents per share, in the previous year. Excluding one-time items, Levi’s reported earnings of $132 million, or 33 cents per share. Revenue for the quarter reached $1.52 billion, slightly up from $1.51 billion the year before.

Looking ahead to the full fiscal year, Levi reaffirmed its adjusted earnings per share guidance of $1.17 to $1.27, aligning with expectations. However, the company revised its revenue outlook, now anticipating a 1% growth compared to the previous range of 1% to 3%, falling below analysts’ expected 2.3% growth.

Levi’s is considering parting ways with its Dockers brand, which has underperformed in recent years. Sales for Dockers declined by 15% to $73.7 million in the quarter, while Beyond Yoga, an athleisure brand acquired in 2021, experienced a 19% sales growth to $32.2 million. The company believes that divesting Dockers will enhance overall margins and reduce volatility in revenue growth.

Furthermore, Levi’s is enhancing its profitability by focusing on direct-to-consumer sales. The company’s gross margin increased by 4.4 percentage points in the quarter, attributed to its direct-selling strategy, lower cotton costs, and improved product offerings that do not require markdowns. Direct sales accounted for 44% of total revenue, and Levi’s aims to raise this figure to 55%.

Despite challenges in certain regions such as China, Levi’s remains optimistic about its long-term prospects and is committed to expanding its global presence. Sales in Europe surpassed expectations, while the Americas and Asia saw lower-than-expected revenues. The company is addressing issues in these regions and remains confident in its ability to capture market opportunities.

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