07:23 AM EDT, 06/27/2024 (MT Newswires) -- Levi Strauss (LEVI) kept its outlook for full-year revenue growth, but said the result is now expected in the middle of the range after the outcome in the second quarter missed estimates, despite growing 8% year over year.

The jeans and clothes company expects reported revenue growth to be "at the midpoint of our range of 1% to 3% year-over-year growth with revenue in constant currency trending closer to the upper end of our range," Chief Financial Officer Harmit Singh said during a late Wednesday earnings call, according to a Capital IQ transcript. The current consensus on Capital IQ is for revenue of $6.32 billion.

The company's adjusted earnings per share guidance was held at $1.17 to $1.27, despite a $0.05 impact from a new distribution and logistics strategy, higher marketing spending in the second half and foreign-exchange headwinds. The Street is looking for normalized EPS of $1.25.

"Headwinds from foreign exchange have recently increased, especially with the euro and Mexican Peso, creating a wider divergence between reported and constant currency performance," Singh said. Shares of the company maker dropped 15% premarket.

Levi Strauss also expects a "transitory increase" in near-term distribution costs, as it shifts to a distribution and logistics network in the US and Europe that is more balanced between owned and third-party logistics providers.

For the three-month period ended May 26, revenue advanced 8% to $1.44 billion, but was just shy of analysts' $1.45 billion estimate. The direct-to-consumer channel saw sales move 8% higher, reflecting gains of 12% and 7% in the US and Europe, respectively, while e-commerce jumping by 19%. Wholesale net revenue increased 7%, according to the company.

Adjusted EPS inclined to $0.16 from $0.04 the year before, topping the Street's view for $0.11. Gross margin expanded by 180 basis points on a yearly basis to 60.5% during the second quarter, boosted by lower product costs and favorable mix shift. Selling, general and administrative expenses widened to $794.7 million from $767.8 million.

Levi Strauss forecasts revenue to continue improving sequentially in the ongoing quarter, with the topline to be up by low-single digits, Singh told analysts. Currency is projected to be a headwind of more than 100 basis points. In the subsequent quarter, revenue growth will "inflect upward to mid-to-high single digits" on a reported basis, including a foreign-exchange impact of 60 basis points, he said.

"The improvement in (the fourth quarter) versus (the third quarter) is driven by the fact that the majority of store openings are skewed to the fourth quarter, and there is the benefit of the 53rd week," Singh said.

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