beat earnings and issued guidance for 2023 that came in ahead of Wall Street’s expectations, sending the stock higher in after-hours trading.
The company estimated that net revenue could range between $6.3 billion and $6.4 billion for fiscal 2023, higher than projections for $6.27 billion. Adjusted earnings will be between $1.30 and $1.40 per share in fiscal 2023, in line with consensus calls for $1.35, according to FactSet.
The outlook dovetails Levi’s (ticker: LEVI) solid fourth-quarter performance. Fourth-quarter adjusted earnings were 34 cents a share, topping projections for 29 cents, while revenue of $1.6 billion came in above expectations for $1.57 billion, even though it contracted 6% compared with the same quarter last year.
For fiscal 2022, adjusted earnings per share were $1.50, beating estimates for $1.44. Sales grew by 7% year over year to $6.2 billion, also narrowly ahead of projections for $6.15 billion.
Levi’s stock jumped 7.6% to $17.75 in after-hours trading.
Fourth-quarter gross margins fell 2.3 percentage points year over year to 55.8%, following a 0.6 percentage point contraction in the previous quarter. Margins for fiscal 2022 declined 0.3 percentage points from 2021. Margins were hit by unfavorable currency exchange rates, higher commodity costs, and an increase in discounting activity, the company said.
Discounting has been a problem lately for retailers, including Levi’s. In the fourth quarter, total inventories increased 58% from a year earlier, prompting the company to discount heavily to clear its shelves. Levi’s also sold off a good chunk of its inventory to the off-price channel, a move that also bit into margins, Harmit Singh, chief financial and growth officer, told Barron’s.
Earlier this month, BofA analyst Christopher Nardone downgraded the stock to Neutral from Buy, saying he expected markdown activity to “remain elevated in an uncertain demand environment,” which could hurt margins.
Singh expects gross margins will remain pressured in the first half of the year, but sees them expanding by up to 0.3 percentage points in fiscal 2023, as business conditions improve in the second half of the year.
“We’re cautiously optimistic as we step into a very tough macro environment especially in the first half of ’23,” Singh said.
Levi’s returned $350 million to shareholders in fiscal 2022, up 84% from the previous year, the company said. This includes $176 million of share repurchases.
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