LEVI STRAUSS said on Wednesday it was considering a sale of its underperforming Dockers brand and forecast fourth-quarter revenue below expectations, sending its shares down 10 per cent in extended trading.
The denim maker, which is looking to bolster growth of its namesake Levi's brand and activewear category Beyond Yoga, has announced a strategic review of Dockers, a maker of chinos and khakis, which has been hurt by cautious spending in Europe and the US
"We are narrowing our focus to realise the full potential of the Levi's brand as well as accelerate Beyond Yoga. Accordingly, we are undertaking an evaluation of strategic alternatives for the global Dockers business," CEO Michelle Gass said on a post-earnings call.
Levi is in the midst of a turnaround strategy to operate mainly by offering tighter assortment that focuses on core denim clothing and achieve major sales through its direct-to-consumer stores at full prices.
The company had already exited businesses that have not fetched much, such as the Denizen brand and its footwear category, in some regions as part of its cost cut plans, which also included layoffs.
This helped the company post third-quarter adjusted profit per share of 33 cents, topping expectations of 31 cents, according to analysts' estimates compiled by LSEG.
As part of the strategic review process of Dockers, the company has retained Bank of America as its financial adviser and has not set a deadline or definitive timetable for its completion.
Sales of Dockers saw a 15 per cent decline in the third quarter. The brand contributed about 5 per cent to the reported quarter's total revenue of US$1.52 billion, which missed analysts' estimates of US$1.55 billion.
But Levi's sales are seeing a boost from its direct-to-consumer channel push with the segment posting a 10 per cent jump in sales, driven by strong demand for women's clothing, particularly denim dresses and jumpsuits, sold mostly at full prices.
"Dockers is a brand that has been out of step with consumer trends for some time ... She (Gass) is positioning Levi Strauss to stick to what it knows best," said eMarketer analyst Zak Stambor.
Levi said it expects fourth-quarter revenue to grow in the mid-single-digit percentage range, compared to estimates of a 7.36 per cent growth owing to weakness in Dockers and a pullback in consumer spending in China.
The company, which gets most of its products into the United States through the East Coast from Asia, said it had made alternate plans to ensure shipments arrived in time for the holiday season. The US East and Gulf Coast ports are currently in a strike that has entered its second day and halted shipments.
Levi said it had shifted routes to the US West Coast, prioritised certain ports and switched to air freight.