Levi Strauss, known for generations for its jeans, doesn't expect to rely on them as much for sales growth this year, as it banks more on tops and clothes that aren't made from denim. ...

Financial Data and Key Metrics Changes - For Q3 fiscal 2025, the company reported sales of $235 million, down from $263.8 million in the prior year, reflecting a decline of 10.5% [15][16] - Adjusted EBITDA was $9.8 million, representing a margin of 4.2%, compared to $19.6 million and a margin of 7.4% a year ago [18] - Net loss for the quarter was $6.4 million, or $0.06 per share, compared to a net loss of $1.2 million, or $0.01 per share last year [18] Business Line Data and Key Metrics Changes - Strong performance was noted in denim, non-denim, dresses, and intimates, all generating positive comparable growth, while tops and jackets categories faced significant challenges [5][6] - Tops accounted for approximately half of the year-over-year sales miss, with a shift towards fashion-forward designs impacting core assortments [5][6] - The footwear category experienced an estimated $12.5 million in lost sales due to a strategic pause, with plans to scale back to historical sales levels of approximately $40 million in 2026 [8][9] Market Data and Key Metrics Changes - Comparable sales declined by 8.3%, with the tariff-related pause in the shoe category contributing approximately 400 basis points to this decline [16] - The company noted that 70% of demand is now originating online, reflecting a shift in consumer preferences towards digital channels [19] Company Strategy and Development Direction - The company is focused on enhancing product offerings through sub-brands and an opening price point strategy to increase market share and customer acquisition [9][10] - A comprehensive review of the spring-summer 2026 buying strategy has been completed, with a commitment to balance investments across categories [7][10] - The store optimization strategy remains a cornerstone of the company's transformation, with plans to close approximately 180 stores in fiscal 2025 [13][19] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with overall performance but highlighted corrective actions being taken to address assortment issues [4][5] - The company expects to see sequential improvement in knit and woven performance by the end of Q4, with confidence in returning categories to growth [7][10] - Full-year net sales are now expected in the range of $995 million to $1.002 billion, with Adjusted EBITDA projected between $59 million and $62 million [20] Other Important Information - The company has implemented enhanced guardrails in the merchandising process and is actively addressing near-term assortment gaps [6][7] - Marketing investments increased by $2.7 million to $15.7 million, supporting customer acquisition and brand visibility [17] Q&A Session Summary Question: Can you elaborate on some of the product missteps? - Management identified tops as the primary area of revenue miss, with corrective actions being implemented to address the issue [22][23] Question: What changes are being made to ensure a balanced assortment? - The company is embedding a balanced approach into the assortment architecture, focusing on both opening price points and core products [33][35] Question: What is the outlook for sub-brands? - The sub-brand strategy remains unchanged, with positive momentum expected to continue into 2026 [42][45] Question: How will store closures impact the leverage profile? - Store closures are expected to create a more flexible expense profile, leading to substantial EBITDA margin expansion in 2026 [46][47] Question: What are the competitive landscape observations? - Management noted that the challenges faced were largely self-inflicted, with opportunities to recapture customer interest through improved product offerings [56][57]

Financial Data and Key Metrics Changes - For Q3 fiscal 2025, the company reported net sales of $235 million, down from $263.8 million in the prior year, reflecting an 8.3% decline in comparable sales [14][15] - Adjusted EBITDA was $9.8 million, representing a margin of 4.2%, compared to $19.6 million and a margin of 7.4% a year ago [17] - The net loss for the quarter was $6.4 million, or $0.06 per share, compared to a net loss of $1.2 million, or $0.01 per share last year [17] Business Line Data and Key Metrics Changes - Strong performance was noted in denim, non-denim, dresses, and intimates, all generating positive comparable growth, while tops and jackets categories faced significant challenges [5][6] - Tops accounted for approximately half of the year-over-year sales miss, with shoes and jackets contributing 40% and 10% respectively [23][26] - The footwear category was paused due to tariff pressures, resulting in an estimated $12.5 million in lost sales for the quarter [8][9] Market Data and Key Metrics Changes - The company is experiencing a shift in consumer preferences, with a noted decline in purchases from loyal customers, particularly in the tops category [39] - Approximately 70% of demand is now originating online, indicating a significant shift in consumer shopping behavior [18] Company Strategy and Development Direction - The company is focused on enhancing product offerings through sub-brands and an opening price point strategy, aiming to increase market share and customer acquisition [9][10] - A comprehensive review of the spring-summer 2026 buying strategy has been completed, with a commitment to balance investments across categories [7] - The store optimization strategy continues, with 15 stores closed in Q3, bringing the total to 74 closures year-to-date, with an expectation of approximately 180 closures for the full year [12][18] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with overall performance but emphasized that execution issues are within their control and are being addressed [4][5] - The company expects to see sequential improvement in knit and woven performance by the end of Q4, with a more disciplined approach to the footwear category anticipated to recapture lost sales [7][9] - Full-year net sales are now expected in the range of $995 million to $1.002 billion, with Adjusted EBITDA projected between $59 million and $62 million [19] Other Important Information - The company has implemented enhanced guardrails in the merchandising process to avoid future missteps and is actively addressing near-term assortment gaps [6][25] - Marketing investments increased by $2.7 million to $15.7 million, focusing on customer acquisition and brand visibility [16] Q&A Session Summary Question: Can you elaborate on some of the product missteps? - The merchandising missteps were primarily in the tops category, which accounted for about half of the total revenue miss for the quarter [23][24] Question: What caused the higher promotional activity in the digital channel? - The accelerated promotional activity was correlated to the miss in the tops space, leading to pressure on average unit retail [27][28] Question: What changes are being made to ensure a balanced assortment? - The company is embedding a balanced approach into the assortment architecture, with a focus on core products and solution-oriented items [34][35] Question: Have there been shifts in customer demographics? - Performance has remained consistent across demographics, but the most loyal customers have pulled back, particularly in the tops category [39] Question: What updates are there on the sub-brand strategy? - The sub-brand strategy remains unchanged, with positive momentum expected to continue into 2026 [44][45] Question: How will store closures affect the leverage profile? - Store closures will lead to a more flexible expense profile, with substantial EBITDA margin expansion expected in 2026 [46][47] Question: Can you elaborate on the expected EBITDA margin expansion? - The company anticipates significant EBITDA margin expansion due to cost reductions from store closures and improved operational efficiency [50][51]

Financial Data and Key Metrics Changes - Total revenue for the second quarter was $1,280,000,000, marking a 1% decline compared to the previous year, but it was the second highest revenue ever posted for this quarter [6][22] - Operating income improved by 2% to $103,000,000, exceeding expectations, with diluted EPS increasing by 15% year-over-year [9][22] - Gross profit dollars were $500,000,000, reflecting a gross margin of 38.9%, up from 38.6% last year [23] Business Line Data and Key Metrics Changes - Aerie experienced a comp growth of 3%, driven by strong demand in intimates, soft dressing, sleepwear, and activewear [6][15] - American Eagle saw a decline in comps but improved in key categories such as women's jeans and tops as the quarter progressed [17][19] - The overall traffic was positive across brands and channels, with significant momentum building through the second quarter [7][22] Market Data and Key Metrics Changes - The company reported a strong customer acquisition, with over 700,000 new customers attributed to recent marketing campaigns [20] - The campaigns generated approximately 40,000,000,000 impressions, indicating a significant reach and engagement [33][36] Company Strategy and Development Direction - The company is focused on strengthening its brands, improving growth runway, and managing for higher profitability [5][9] - There is a commitment to operational efficiencies and supply chain improvements, particularly in response to tariff impacts [10][26] - The company plans to open approximately 30 Aerie and offline locations and remodel 40 to 50 AE stores, while closing 35 to 40 American Eagle locations by year-end [28][29] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the early results of actions taken to reignite performance, despite a dynamic consumer backdrop [5][9] - The third quarter is off to a better start, with consolidated comps up in the mid-single digits, and a positive outlook for the remainder of the year [29][30] - Management acknowledged the challenges posed by tariffs but emphasized ongoing efforts to mitigate their impact [10][30] Other Important Information - Year-to-date, the company has returned $276,000,000 to shareholders through dividends and share repurchases [11] - The company expects to incur approximately $20,000,000 in tariff costs in the third quarter and $40,000,000 to $50,000,000 in the fourth quarter [30][40] Q&A Session Summary Question: Can you tell us more about how you keep the momentum going with the new customers attracted by the campaigns? - The campaigns have generated unprecedented new customer acquisition, and the focus is on converting this buzz into repeat business [35][37] Question: Can you provide more details on the comp metrics, transaction ticket, and tariff impacts? - AUR was down mid-single digits, but traffic was healthy, and the team managed to offset some of the declines through effective markdown management [50][52] Question: What percentage of sales does intimates represent for Aerie, and how is the strategy to recapture share? - Intimates account for roughly one-third of Aerie's business, and the company is focused on launching new collections to regain market share [59][61] Question: Are there any product categories not performing well at Aerie? - The shorts category was identified as a challenge, but overall, the company is seeing positive trends in intimates and soft apparel [74][75] Question: What are the expectations for gross margin in the back half of the year? - The company anticipates a decline in gross margin due to tariff impacts, with ongoing efforts to manage expenses and optimize pricing strategies [78][80] Question: How will the marketing spend be allocated for the back half of the year? - Advertising expenses are expected to increase in the third quarter to support ongoing campaigns, while the fourth quarter may see a stabilization in SG&A expenses [100][101]

Industry Overview - The Retail - Apparel and Shoes industry is facing challenges due to fluctuating consumer confidence and inflationary pressures, leading to weakened demand for apparel and footwear [1][4] - Retailers are experiencing rising operational costs, including increased wages and higher prices for goods, which are straining margins and impacting the industry's near-term outlook [1][5] - The industry requires continuous product innovation and effective marketing to attract customers, while also facing fierce competition and price sensitivity [3] Key Trends - Soft demand is expected to impact revenues, with consumer purchasing power being strained by rising prices, as indicated by a decline in the Consumer Confidence Index from 98.4 in May to 93.0 in June [4] - Pressure on margins is likely to persist as companies invest heavily in digital infrastructure and marketing, which increases operational costs [5] - Companies are focusing on brand enhancement and capital discipline by deepening consumer engagement through innovative products and improved operational efficiency [6] Growth Strategies - Diversification and digitization are crucial for growth, with companies integrating in-store and online operations, enhancing supply chains, and investing in digital technologies [7][8] - Retailers are developing omnichannel capabilities and implementing loyalty programs to adapt to evolving consumer shopping behaviors [7] Market Performance - The Zacks Retail - Apparel and Shoes industry ranks 212, placing it in the bottom 13% of over 250 Zacks industries, indicating bleak near-term prospects [9][10] - The industry's earnings estimate has declined by 14.1% since February 2025, reflecting a negative outlook for earnings growth [11] Stock Performance - The industry has underperformed compared to the broader Zacks Retail-Wholesale sector and the S&P 500, with an 11.6% increase over the past year compared to 17.3% for the S&P 500 and 23.7% for the broader sector [13] Valuation - The industry is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 18.26X, lower than the S&P 500's 22.74X and the sector's 25.50X [16] Notable Companies - **Levi Strauss & Co.** is focusing on direct-to-consumer strategies and has a Zacks Consensus Estimate suggesting a 4% growth in EPS from the previous year [19][20] - **Urban Outfitters, Inc.** is leveraging a diversified brand portfolio with an expected growth of 8.5% in sales and 22.2% in EPS [23][24] - **Stitch Fix, Inc.** is showing signs of a turnaround with a projected 71.7% growth in EPS [27][28] - **Boot Barn Holdings, Inc.** is experiencing strong performance with an expected growth of 11.8% in sales and 7.6% in EPS [31][32]