Clothing manufacturer and retailer Levi Strauss (NYSE:LEVI) has been a hot stock as of late, rising some 12% this week and 28% 12 months so far (YTD) to around $21 per share.
The maker of Levi’s jeans and other types of apparel released its first-quarter earnings results this week, and the outcomes were higher than expected. Looking ahead, the company sees its strong performance continuing, which boosted investor confidence. Let’s take a have a take a look at why Levi Strauss is up and if it’s an incredible buy.
Fueling growth
Levi Strauss is taken into account one in all the first corporations to post its first-quarter earnings results, but its quarter ended Feb. 25, a month before the outcomes we’ll start seeing next week for Q1. Essentially the most recent quarter also includes the holiday month of December, so Levi Strauss might be not a bellwether for other retailers.
Nonetheless, investors should be pleased that the company beat earnings and revenue estimates in its first fiscal quarter. It’d even have gotten a bit little bit of a bounce from the exposure it’s getting from a recent Beyonce song called “Levii’s Jeans,” but let’s stick with the numbers.
Levi Strauss’ revenue fell 8% 12 months over 12 months to $1.56 billion, nevertheless it came in higher than the $1.55 billion estimate. Two features limited the company’s revenue. One was a shift in wholesale shipments from the second quarter to the first quarter of 2023, which made the year-over-year numbers in Q1 2024 look worse. The other was a revenue hit from the company’s decision to exit its lower-priced Denizen brand. Levi Strauss’ revenue would have been roughly flat otherwise.
Revenue through its wholesale business, which is selling through third parties, was down 19% 12 months over 12 months and would have still been down 9% without the Q1 2023 shift. Nevertheless, direct-to-consumer (DTC) sales jumped 7% overall and 10% throughout the U.S. DTC now accounts for a record 48% of Levi’s revenue.
Weekly Global Top Songs — Beyoncé
7. Texas Hold ‘Em — 36,383,223 (+7)
13. II MOST WANTED — 24,775,825
20. JOLENE — 20,528,094
33. BODYGUARD — 16,778,787
48. LEVII’S JEANS — 14,790,840
50. AMERIICAN REQUIEM — 14,595,101
55. BLACKBIIRD — 13,991,860
56. DAUGHTER — 13,778,883
58.… pic.twitter.com/CgSERrDP2J
— Beyoncé on Spotify (@Beyonce_data) April 5, 2024
On the underside line, the company had a net lack of $11 million, down from net income of $115 million a 12 months ago. Adjusted net income was $103 million or 26 cents per share, down 24% 12 months over 12 months. Nevertheless, this result beat the consensus estimate of 21 cents per share. Of note, Levi Strauss was in a position to in the reduction of its cost of products sold by 13% to $651 million, improving its gross margin by 240 basis points to 58.2%.
The expansion in DTC sales and expense reductions are key components of a productivity initiative the company rolled out in January called Project FUEL. The multi-year strategy is designed to fuel DTC revenue and generate profitable growth by reducing costs, optimizing operations and redesigning processes.
Levi’s anticipates $100 million in cost savings from this plan in fiscal 2024, which contains a ten% to fifteen% workforce reduction in the first half of the 12 months. Nevertheless, the savings also added $116 million in restructuring expenses in the first quarter, which hurt the company’s bottom line.
An optimistic outlook
The productivity initiative has already began to bear fruit, and the company expects it to proceed through fiscal 2024 and beyond. Together with the fee savings, Levi Strauss reduced its inventory by 14% throughout the quarter.
For the second fiscal quarter, the company expects net revenue growth to be up throughout the high single digits, with adjusted EPS anticipated to be about 10 cents in Q2, up 150% 12 months over 12 months.
For the entire fiscal 12 months, Levi Strauss expects revenue to be up by 1% to 3% with gains throughout the mid-single digits throughout the second half of the 12 months. Based on its productivity improvements, the company raised its adjusted earnings guidance for fiscal 2024 to between $1.17 and $1.27 per share, up from the previous projection of $1.15 to $1.25 per share. The adjusted EPS was $1.10 per share at the highest of fiscal 2023, so it’s a 6% increase on the low end. On the high end, the guidance is best than analysts had predicted.
The company’s gross margin might be estimated to be up one other 150 basis points at the highest of the 12 months from its 58.2% level now, management said on the Q1 earnings call.
Is it a buy?
Levi Strauss also improved its liquidity by increasing its money to $517 million in Q1, as compared with $399 million at the highest of its Q4, and boosting its free money flow to $214 million from a $271 million deficit the previous quarter.
The stock has a forward P/E ratio of 17, which is inexpensive. Levi Strauss also received a slew of price-target upgrades after posting earnings and its updated outlook.
The company looks to be in pretty good condition, but after a 28% run-up already, I’m undecided how much higher it should go, given its solid-but-muted growth potential. It’s going to all depend on how Levi Strauss continues to execute on its plan. It is perhaps smart to regulate it to see if it settles down a bit before considering it.
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