Levi Strauss (NYSE: $LEVI) is one of the world’s biggest apparel companies and a global leader in denim wear. Famous for its blue denim Levi’s jeans, it also makes additional tailored products like jackets, slacks, skirts, hats, belts, and shirts.
On April 3, 2024, Levi released its results for Q124, which came in above expectations to a positive market reception.
First Quarter Results
Levi Strauss delivered a better-than-expected performance in Q124 despite reporting a net loss of $11 million, a stark contrast to the $115 million net income in Q123. However, the iconic jeans maker surpassed analyst estimates by posting net revenues of $1.6 billion, an 8% year-over-year decline but higher than the projected $ 1.447 billion.
The company demonstrated operational resilience, reporting an adjusted EPS of $0.26, exceeding the anticipated $0.11. This positive surprise can be attributed to Levi’s strategic focus on direct-to-consumer (DTC) channels and cost-cutting measures. The DTC segment, comprising company-owned stores and e-commerce platforms, emerged as a driving force, with net revenues rising by an impressive 7%, including a 13% surge in e-commerce sales.
Levi’s strong performance was further bolstered by an expansion in gross margin, which increased by 240 basis points to 58.2%, driven by lower product costs and a favorable product mix shift. The company’s balance sheet remained solid, with $517 million in cash and cash equivalents and total liquidity of approximately $1.5 billion. Additionally, inventory levels decreased by 14%, reflecting efficient working capital management.
Levi Strauss Full-Year 2024 Guidance
Buoyed by its first quarter results, Levi Strauss has raised its full-year 2024 adjusted diluted EPS guidance range to $1.17-$1.27, up from the previous range of $1.15-$1.25. The company reaffirmed its expectation for a 1-3% year-over-year increase in net revenues, expressing confidence in its ability to return to mid-single-digit topline growth in the second half of the fiscal year.
Chief Financial and Growth Officer Harmit Singh expressed confidence, stating, “We are encouraged by trends in our business, around the world, including in Europe. As a result, we are confident in our ability to return the topline to mid-single-digit growth in the second half of this year and are increasing our full year EPS expectations.”
Cost Cutting Initiative Pays Off
Michelle Gass, President and CEO of Levi Strauss, expressed confidence in the company’s strategic priorities, stating, “We started the year strong, delivering results above expectations, underscoring the power of the Levi’s brand and the progress we are making on our strategic priorities.” Gass, the former CEO of Kohl’s, has implemented a series of cost-cutting initiatives and a renewed focus on direct-to-consumer (DTC) sales since taking the helm in January.
Direct-to-Consumer: The Driving Force
Levi’s DTC channel, which includes its own stores and e-commerce platform, accounted for a record 48% of total net revenues in the first quarter, up from 42% in the previous quarter. This strategic shift towards DTC sales has proven to be a crucial growth driver for the company as it seeks to mitigate the challenges faced by some of its wholesale partners, such as department store chains Macy’s and Kohl’s.
“The momentum in our global DTC business continues, with DTC up in all segments,” said Gass, highlighting the company’s commitment to strengthening its direct-to-consumer channels.
Cost Control and Restructuring Efforts
In addition to the DTC strategy, Levi’s has implemented a global productivity initiative called “Project Fuel” to streamline operations and improve profitability. The company recorded restructuring charges of $116.2 million in Q1, primarily related to severance and post-employment benefit charges.
Harmit Singh, Chief Financial and Growth Officer, expressed confidence in the restructuring efforts, stating, “Our global productivity initiative, Project Fuel, is progressing well and improving the profitability of the company.”
Market Reaction and Analyst Perspectives
Levi’s shares surged nearly 20% to a more than two-year high on Thursday as investors cheered the better-than-expected results and raised guidance. Wall Street analysts also reacted positively, with some terming it an “encouraging start” to the year.
“We note a clear change in tone, and business trajectory, and following a tough 12-24 months, there are now growing signs of optimism,” said Wells Fargo analyst Ike Boruchow, raising the price target to $20 from $17.
Citigroup analyst Paul Lejuez, while acknowledging the positive inflection, cautioned about potential risks, stating, “The risk is that Europe does not improve as expected in H2.”
Levi Strauss Stock Performance
Levi Strauss shares surged +17.09% to $21.85 in early trading hours, reaching a new 52-week high of $22.39 at one point, and a new two-year high since February 2022. The impressive rally adds to Levi’s solid year-to-date performance. By the late afternoon trading session, the gain had narrowed to 15.70%, at $21.59 per share as of 02:27 PM EDT.
Technically, LEVI is trading above the 200-day Moving Average with a bullish Relative Strength Index (RSI) of 71.66, indicating an overbought market sentiment for the shares or a continuation of the current trend.
Should You Buy LEVI Stock?
The improved Q124 results, raised guidance, and the positive market reaction suggests Levi Strauss could be an attractive investment opportunity. Its direct-to-consumer strategy, cost-cutting initiatives like Project Fuel, and brand recognition position it well to navigate headwinds.
However, risks remain, including potential challenges in Europe and broader macroeconomic pressures. Investors should carefully evaluate Levi’s fundamentals, growth prospects, and valuation metrics against their investment objectives.
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