(Reuters) - Levi Strauss & Co (LEVI.N) reported a 4% drop in third-quarter profit on Tuesday, as the denim apparel maker struggled to grow its wholesale business in its highest revenue-generating market, the Americas.
Reduced shipments to off price stores and the impact of a delayed acquisition of a South American distributor drove net revenue down about 3% in the region, the first fall since the 165-year-old company went public in March.
“U.S. wholesale was challenged... particularly the legacy department stores and chain stores, where (the) much publicized traffic declines have negatively impacted our business,” Chief Executive Officer Chip Bergh said in an interview with Reuters.
The deteriorating retail landscape has forced longstanding brick-and-mortar chains, including J.C. Penney Co Inc (JCP.N), to explore options, as they struggle to boost their e-commerce business to compete with the likes of Amazon.com Inc (AMZN.O).
Bergh said Levi’s has been focusing on selling directly to customers through its stores and online than through off price retailers.
Levi’s teamed up with model Chanel Iman and New York Giants player Sterling Shepard during the quarter to create an exclusive drop, launching limited merchandise, for e-commerce retailer Amazon.com Inc’s (AMZN.O) fashion line.
“We only sell to that (off price) channel... the distressed inventory that we’re trying to clear. We don’t think its good for the brand,” Bergh said..
Jane Hali & Associates analyst Jessica Ramirez said in the long run, Levi’s direct-to-consumer model would yield results, but issues in the wholesale business remain a concern.
Revenue from the direct-to-consumer business in the United States rose 7% in the quarter ended Aug. 25, driven by the strength of Levi’s flagship brand, while that from wholesale declined 4%.
Overall, the wholesale business grew only 1%, drawing strength from Europe and Asia.
Net income attributable to the company fell to $124.5 million, or 30 cents per share from $130.1 million, or 33 cents per share, a year earlier.
Revenue and profit came above Wall Street estimates, as the blue-jeans maker also benefited from a resurgence of the denim trend.
Excluding one-time items, the company earned 31 cents per share, 3 cents above expectations. Net revenue rose 3.8% to $1.45 billion, compared with the average estimate of $1.44 billion projected by analysts, according to IBES data from Refinitiv.
Shares of the company, which have fallen about 14% since its market debut, were down 0.2% in extended trading.
Reporting by Nivedita Balu in Bengaluru; Editing by Shinjini Ganguli