Levi Strauss (LEVI), a garment industry classic, has fared well over the past year, gaining 56%.
The company released its third-quarter financial earnings yesterday. Following the announcement, the company’s stock rose 3.7% in Wednesday’s extended trading session but closed 5% lower on the day.
The resumption of economic activity has benefited Levi Strauss. Clothing is towards the top of the list of purchases as consumers get out and start replenishing personal belongings. As a consequence, both top and bottom-line numbers jumped on a year-over-year basis.
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Let’s Review the Results
Solid third-quarter earnings were driven by strong demand for the company’s new denim and a more diverse production approach.
Net revenues at Levi Strauss grew by 41% year-over-year to $1.5 billion. The company’s top-line performance was fueled by a rebound in denim demand.
If we look at revenue details, Global Wholesale revenue increased 45% year-over-year, owing to robust demand in the United States and Europe, while Direct-to-Consumer Sales increased 34%. Digital transactions, which accounted for around 20% of Levi’s overall sales, increased 10% year-over-year.
Meanwhile, adjusted earnings per share came in at $0.48 per share, up over 500% from the year-ago quarter.
Apart from impressive earnings numbers, the company’s balance sheet remained strong, with a total liquidity position of approximately $2.2 billion at the end of Q3. The company also announced a $200 million share buyback program, boosting its shareholder’s confidence.
In addition, the firm has been striving to improve its debt profile. The company’s leverage ratio was 1.6 in Q3, down from 4.5 in the year-ago quarter.
Strong Outlook
Investors were pleased with management’s outlook projections.
For Q4, revenues are expected to be in the range of $1.66-$1.68 billion, indicating a growth of 20%-21%. Adjusted earnings are expected to land between $0.38-$0.40 per share.
For full-year 2021, management predicts revenue growth of 28%-29% and EPS in the range of $1.43 to $1.45, up from a previous range of $1.29 to $1.33.
Despite macro challenges, Levi Strauss CEO Chip Bergh expects the firm to do well in the future. Levi has a “competitive advantage” due to its diverse sourcing approach, he writes, because its manufacturing activities are spread across nearly 24 countries, making it less vulnerable to production bottlenecks.
Bottom Line
The denim powerhouse’s stock has been adapting to shifting customer trends. In order to survive, it has extended its offerings beyond its initial jeans. The recent purchase of Beyond Yoga should help the company broaden its product line and grow its operations in the competitive activewear market.
Further, turning to the TipRanks Smart Score, the stock is a “Perfect 10.” The Smart Score, which comprises 8 unique data sets, indicates that the stock has strong potential to outperform market expectations. Furthermore, blogger sentiment on the company is 100% bullish.
Along with the perfect Smart Score, Levi Strauss also has a unanimous analyst consensus rating of Strong Buy, based on 8 positive ratings set in recent weeks.
As for price targets, the average Levi Strauss price target of $35.30 implies 45.6% upside potential to current levels.
Disclosure: On the date of publication, Shalu Saraf had no position in any of the companies discussed in this article.
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