Levi Strauss (NYSE: $LEVI) Continues To Rise Despite Weak 2024 Guidance

Levi Strauss & Co. (NYSE: $LEVI)

Levi Strauss (NYSE: $LEVI) is the world’s biggest maker of pants, famous for its blue denim Levi’s jeans. It also makes other tailored products like jackets, slacks, skirts, hats, belts, and shirts. The company released its Q4 earnings report on Thursday, January 25, 2024, to an overall positive reception.

Levi Strauss Q4 Earnings Report

According to its fourth-quarter results for the fiscal year 2023, Levi Strauss saw a net revenue increase of 3% year-over-year to $1.6 billion. Its gross margin increased by 200 basis points to 57.8%. The company reported a diluted EPS of $0.32. Its adjusted EPS was $0.44, representing a 29% increase from the previous year.

For Q423, the company had an operating margin of 9.2%, an increase from the 8.6% operating margin reported in Q422. Adjusted EBIT margin for the quarter rose by 320 basis points to 12.2% from the 9.0% reported in Q422.

Its net quarterly income was $127 million, a huge increase from the $151 million reported in Q422. The adjusted net income totaled $179 million compared to the $137 million reported in Q422.

The company had a net revenue of $6.2 billion for the whole year, representing flat growth compared to FY22 on a constant-currency basis. Its gross margin for FY23 was 56.9%, while adjusted gross margin was up 70 basis points, also to 56.9%.

The best-performing region for the quarter was the Americas, which brought in $888 million in net revenues, representing a 6% increase from the $840 million reported in Q422.

Levi Strauss reported an operating margin of 5.7% for FY23. It had an adjusted EBIT margin of 9%, compared to 11.6% reported in FY22. The company’s FY23 net income was $250 million, and the adjusted net income was $441 million, a decrease from the $604 million reported in FY22. Its diluted EPS for FY23 was $0.62, while adjusted EPS was $1.10, a decline from the $1.50 reported in FY22.

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Levi Strauss Balance Sheet

The company ended the year with cash and cash equivalents of $399 million, with a total liquidity of around $1.3 billion. Its leverage ratio at the end of FY23 stood at 1.4, compared to 1.1 at the end of 2022. Total inventories fell 9% for the year and 17% on a comparable basis. It had a long-term debt of $1 billion at the end of the year.

Weak Guidance for 2024

Despite positive numbers reported in the fourth quarter, Levi Strauss’ FY24 guidance was weaker than expected. The company expects net revenue to rise 1%-3% for FY24. It forecasts an adjusted diluted EPS of $1.15-$1.25. The forecast is below the estimate of 4.7% growth in revenue to $6.49 billion and $1.33 in adjusted EPS, according to data for LSEG.

Its guidance is based on the expected loss of revenue from exiting the Denizen business, planned lower off-price sales, and the impact of FX. Additionally, it is expecting a higher normalized tax rate compared to 2023.

Shareholder Returns

For 2023, Levi Strauss returned $199 million in capital to its stockholders. The company plans to return $48 million to stockholders for Q423, as dividends are at $0.12 per share, a 1% increase from 2022. Dividends for FY23 totaled $191 million at $0.48 per share.

Levi Strauss also bought back $8 million in shares throughout the year. As of the end of the fourth quarter, the company still has $680 million remaining under the existing share buyback scheme, which has no expiry date.

Levi Strauss Announces Workforce Cuts

The company announced a new initiative called the Global Productivity Initiative. This initiative will include cutting 10%-15% of its global workforce. It is expected to generate up to $100 million in net cost savings for fiscal 2024.

Also, according to the announcement, the company could incur restructuring charges of $110-$120 million in Q124. As the initiative progresses, it could lead to further charges. The initiative will be overseen by Michelle Gass, President and new CEO. Gass officially replaced the outgoing CEO, Chip Berg, on January 29, 2024.

Stock Performance

Since the earnings report’s release, LEVI stock has increased more than 5%, closing Monday’s session at $16.50 per share. In the past four months, investors have seen returns of as much as 31.09%

Levi Strauss (NYSE: LEVI)

Stock Forecast

Levi Strauss stock is rated a moderate buy by stock analysts. They project a broad range for the stock, with a high of $23 and a low of $14.

Should You Buy LEVI Stock?

Levi Strauss had a good quarter compared to the overall apparel industry. However, its 2024 guidance was disappointing to investors. Amidst high-interest rates and rising inflation, consumer cyclical stocks have been the hardest hit.

Consequently, investors should only opt for stocks in the segment with the strongest performance relative to the industry. Thus far, LEVI stock has been one of the better-performing stocks. Based on its recent performance and long-term initiative to save on costs, we would not be surprised if the company exceeds analysts’ moderate estimates.

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