LEVI Q4 2024: Organic Sales Up 8% and DTC Margins Up 300bps
- Strong Holiday and Organic Growth: The call highlighted robust holiday season performance with November/December organic growth of 8% ("No-cember") and continued positive comps for over 11 consecutive quarters, supporting a narrative of consistent consumer demand and effective execution in both DTC and wholesale channels.
- Improving Profitability and Margin Expansion: Executives detailed significant improvements in DTC margins—with DTC profitability improving by over 300 basis points—and expect gross margins to expand by 100 basis points in 2025, driven by cost efficiencies and favorable mix benefits.
- Product and Brand Transformation: The discussion underscored efforts to evolve from a denim-bottom-focused brand to a comprehensive lifestyle apparel company. Growth in non-denim categories—like women's tops (up 8%) and overall women's business (up 12%)—along with a shift toward a more balanced tops-to-bottoms mix signals an expanded total addressable market.
- Rising SG&A and distribution costs: The call highlighted that SG&A expenses increased significantly (up 17% to $880 million in Q4) and distribution costs were up 21% due to logistics transitions and parallel operations. Persistently high costs in these areas could compress margins if not managed effectively.
- Conservative wholesale outlook amid channel volatility: Despite improvements in Q4, the guidance for wholesale remains flat over the full year due to prior volatility in the channel and cautious order book expectations. This prudence may signal challenges in maintaining robust revenue growth from wholesale.
- Risks from non-core business exits: The company is in the process of exiting businesses like Denizen and footwear—one exit expected to remove about $30 million from the portfolio—and is planning the sale of Dockers, a business that’s roughly $330 million in revenue with break-even margins. These transitional moves introduce near-term revenue disruptions and execution risks.
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Profitability Drivers
Q: What's wholesale outlook and DTC margin drivers?
A: Management highlighted 3% global wholesale growth and noted that DTC margins improved markedly—benefiting from better store productivity, refined labor incentives, and enhanced inventory management—setting the stage for continued margin expansion in 2025. -
Regional Growth
Q: What are organic growth expectations regionally?
A: They expect low to mid-single digit growth in the Americas, Europe, and Asia, underpinning a target of 3.5% to 4.5% organic revenue expansion through a focused DTC strategy. -
Holiday & SG&A
Q: How was the holiday performance and SG&A impact?
A: The holiday season delivered an 8% organic uplift, with SG&A rising due to higher volume, incentive pay, and normalized advertising costs—though SG&A is expected to stabilize near 50% of revenue and tax rates to normalize at about 23% next year. -
Asset Exits
Q: What is the status of Dockers, Denizen, footwear?
A: They are divesting non-core assets: Denizen is nearly complete, footwear will be phased out, and Dockers—generating approximately $330 million in revenue with breakeven margins—is slated for sale in 2025. -
Store Openings
Q: What are new store sizes and comp performance?
A: New stores typically range from 2,500 to 4,000 sqft, with plans to add 50-60 system doors primarily in Asia and Europe, supported by strong comp performance and disciplined rollouts. -
Distribution & Sourcing
Q: What’s driving distribution costs and sourcing mix?
A: Distribution expenses increased by about 21% due to expense transfers and DC transitions, with organic growth around 6% expected next year; sourcing into the U.S. includes roughly 5% from Mexico with minimal reliance on China. -
Product Assortment
Q: How are non-denim categories performing?
A: The product mix is broadening beyond jeans, with tops growing 8% and the ratio shifting from a historical 7:1 bottoms-to-tops mix to roughly 2:1, signaling a more diversified offering. -
Denim Market
Q: What's the outlook for the denim category?
A: Global denim grew by 1-2%, and Levi's is outperforming the market by leveraging strong brand positioning and pricing power in both men's and women's segments.
Research analysts covering LEVI STRAUSS &.