By Ananya Mariam Rajesh
(Reuters) -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% 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 U.S.
"We are narrowing our focus to realize 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% decline in the third quarter. The brand contributed about 5% to the reported quarter's total revenue of $1.52 billion, which missed analysts' estimates of $1.55 billion.
But Levi's sales are seeing a boost from its direct-to-consumer channel push with the segment posting a 10% 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 (NYSE:LEVI) 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% 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 U.S. 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 U.S. West Coast, prioritized certain ports and switched to air freight.