Levi Strauss considers possible sale of Dockers brand, shares Tank with 10%

By Ananya Mariam Rajesh

(Reuters) – Levi Strauss said on Wednesday it is considering a sale of its underperforming Dockers brand and forecast fourth-quarter sales below expectations, sending shares down 10% in extended trading.

The denim maker, looking to bolster growth at its namesake brand Levi's and activewear category Beyond Yoga, has announced a strategic review of Dockers, a maker of chinos and khakis that has been hit by cautious spending in Europe and the US

“We are narrowing our focus to realize the full potential of the Levi's brand and advance Beyond Yoga. Accordingly, we are conducting an assessment of strategic alternatives for the global Dockers business,” CEO Michelle Gass said in a post-earnings conference call.

Levi is in the midst of a turnaround strategy aimed at primarily offering a narrower assortment focused on core denim apparel and generating big sales through its full-price, direct-to-consumer stores.

The company had already pulled out of underperforming businesses in some regions, such as the Denizen brand and its footwear category, as part of its cost-cutting plans, which included layoffs.

That helped the company post adjusted earnings per share of 33 cents in the third quarter, beating expectations of 31 cents, according to analyst estimates compiled by LSEG.

As part of Dockers' strategic review process, the company retained Bank of America as financial advisor and has not set a deadline or final timeline for completion.

Docker sales fell 15% in the third quarter. The brand contributed about 5% of total revenue of $1.52 billion in the reported quarter, missing analysts' estimates of $1.55 billion.

But Levi's sales are enjoying a boost as it expands its direct-to-consumer channel, with the segment seeing a 10% increase in sales driven by strong demand for women's clothing, particularly denim dresses and jumpsuits, most of which are sold at full price.

“Dockers is a brand that has been out of step with consumer trends for some time… She (Gass) is making Levi Strauss stick with what she does best,” said eMarketer analyst Zak Stambor.

Levi said it expected fourth-quarter revenue to grow in the mid-single digits, compared with estimates of 7.36% growth, due to weakness at Dockers and a decline in consumer spending in China.

The company, which ships most of its products from Asia to the United States via the East Coast, said it had made alternative plans to ensure shipments arrived in time for the holiday season. Ports on the US East and Gulf Coasts are currently on a strike that is now in its second day, halting deliveries.

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Levi said it has shifted routes to the U.S. West Coast, prioritized certain ports and switched to air freight.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Alan Barona)