The Michelle Gass era at Levi Strauss & Co. is starting with workforce cuts as the former Kohl’s Corp. chief executive officer looks to supercharge the company’s direct-to-consumer evolution.
Gass, who’s been president of the company for just over a year, officially takes the helm from outgoing CEO Chip Bergh on Monday. But her impact is already being felt.
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As Levi’s reported fourth-quarter increases in sales and adjusted earnings on Thursday, it also laid out its immediate path ahead with a “a multiyear global productivity initiative.” The plan was backed by the company’s board and dubbed Project Fuel, as in “fueling long-term profitable growth” by focusing on being brand-led and DTC first.
The first step in the two-year plan will include a 10 to 15 percent reduction in the company’s global corporate workforce in the first half. Levi’s has around 20,000 employees, with about one-quarter of them holding corporate roles. That means roughly 500 to 750 people will be impacted by the job cuts.
The program is expected to lead to restructuring charges of $110 million to $120 million in the first quarter while generating cost savings of $100 million in 2024.
Bergh — who over the past 12 years turned around an ailing Levi’s and took the firm public — had already pushed the company toward a more DTC-first footing.
Gass is now looking to go the rest of the way.
“This is a really important initiative for the company and it’s largely about our pivot and operating as a DTC first company,” she told WWD of the Project Fuel initiative.
“That includes many things, including our operating model as a company, our go-to-market process — tightening and shortening that — improving the productivity in our very important DTC channel, because that’s where we’re making our big bets,” Gass said.
While Levi’s stores and websites make up just over 40 percent of the business, the company is planning to get to 55 percent or higher.
“Our business model today is not set up to be a DTC-first company,” Gass said. “We grew up as a wholesale-oriented company. And while we have a healthy DTC business today, we have really got to make that pivot.”
Levi’s enjoyed a renaissance over the past decade as it evolved into more of a modern positioning, but the firm slipped in the aftermath of the pandemic, ordering too much inventory as it tried to sidestep supply chain challenges.
Now the inventory balance is better, but the consumer has also become cautious and Levi’s wholesale business — which it plans to keep as DTC grows — has taken a hit.
Levi’s fourth-quarter net income fell by 16 percent to $127 million from $151 million a year earlier. However, adjusted earnings per share rose by 10 cents to 44 cents, coming in 1 cent ahead of the 43 cents analysts projected, according to FactSet.
Sales for the quarter ended Nov. 26 rose 3 percent to $1.6 billion. That result was led by a 6 percent gain in the Americas, to $888 million, while the business in Europe rose 2 percent to $379 million and Asia was up 4 percent to $262 million.
While the Levi’s brand accounts for most of the company’s business, it also owns Dockers and Beyond Yoga. Together the two brands saw sales fall 11 percent to $113 million in the quarter, with a 14 percent increase at Beyond Yoga being outweighed by the 18 percent drop at Dockers.
Gass noted that DTC and international continued to do well, while wholesale declines moderated.
“The real important highlight there is that the U.S. Levi’s business in wholesale inflected to growth at plus-5 percent,” Gass said.
“We feel good about the momentum as we head into 2024,” she said. “But with that said, we believe the environment will continue to be volatile and hence we’re taking a cautious approach with our guidance for the year.”
For the full year, Levi’s net income fell 56 percent to $250 million, while adjusted earnings were down a lesser 27 percent to $441 million, or $1.10 a diluted share. Sales were flat at $6.2 billion.
This year, Levi’s is projecting that adjusted EPS will rise to a range of $1.15 to $1.25. Revenues are slated to grow by 1 to 3 percent — including a 2-point hit from the exit of the Denizen business at Target as well as planned reductions in off-price sales.
Denizen is a value spin-off of Levi’s that Target has sold for years, but the mass merchant is now selling the brand’s flagship Red Tab looks.
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