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Levi Strauss (NYSE:LEVI) Is What A Retail Winner Looks Like

Monday, October 12, 2020 | Thomas Hughes
Levi Strauss (NYSE:LEVI) Is What A Retail Winner Looks LikeThe Upgrades Are Already Rolling In For Levi Strauss

Levi Strauss (NYSE:LEVI) reported earnings about a week ago and blew away the consensus. The company proved that established brands with a healthy eCommerce presence are well-positioned for the pandemic. The company saw its revenue fall nearly 27% on a YOY basis, not something to brag about, but it beat the consensus by nearly 23% which is.

"..we exceeded our expectations for Q3, our total digital business has doubled as a share of total net revenues, and Levi’s remains the global leader in denim, where our women’s business continues to take market share. And the brand has gotten even stronger during the pandemic," said president & CEO Chip Bergh.

Levi Strauss, eCommerce Looks Good In Denim

Levi Strauss reported net consolidated revenue of $1.06 billion dollars. This is down 26.9% from the previous year but beat the consensus by $0.2375 billion or roughly 23%. The strength was driven by sales in the eCommerce channels which management says doubled as a contributor to total revenue. eCommerce, as a segment, grew 52% on a YOY basis to account for 24% of total revenues.

Margins, notably, increased more than 100 basis points which is not ubiquitous among those shifting to digital channels. Levi Strauss is in an advantageous position where its DTC and omnichannel revenue streams come with a higher margin than wholesale. That fact, coupled with management’s quick response to the pandemic, helped drive EPS to a YOY gain. Adjusted and GAAP EPS both defied expectations for a loss to come in at $0.08 and $0.07 and beat by $0.30 and $0.34.

Looking forward, the company only expects results to improve and be led by the eCommerce channels. Guidance for 2021 expects revenues to return to pre-COVID levels by the 2nd half of the year.

"We still believe a return to pre-COVID revenues will occur at some point in the second half of 2021," noted CEO Hermit Singh. "Beyond 2021, we anticipate our strategies and execution will drive a structurally stronger business. More than half of our total business will come from DTC and franchise channels with structurally sound economics.

The Analysts Warm To Levi Strauss

The analysts were already bullish on Levi Strauss but there have been three noteworthy upgrades since the earnings were released. The latest comes from Morgan Stanley who upgraded the stock from Equal Weight to OverWeight. The anslysts there cite management’s quick response in a difficult retail environment and the outlook for strong revenue growth. Morgan Stanley has not issued a price target but Citigroup and Telsey Advisory Group have. These two maintained their buy rating but raised their targets. The targets were raised to $19 and $20, both of which are still well below the Wall Street high. The consensus is $19.50, worth about 28% with shares trading near $15.

The Technical Outlook: Levi’s May Be Ready To Break Out

Shares of Levi’s made a strong move higher post-earnings but failed to break resistance. The stock pulled back to what looks like a fairly strong support level and may be ready to move higher once again. The caveat is support. If support at the $15 level fails we could easily see this stock fall back to $14, $13, or even $12 but I don’t see that in the tea leaves. Assuming that support holds I think that the $19.50 target is the least of what investors should expect.

Levi Strauss (NYSE:LEVI) Is What A Retail Winner Looks Like

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Levi Strauss & Co. (LEVI)1.4$16.82flatN/A-70.08Buy$20.00
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