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Levi’s Beats Q3 Expectations; Shares Pop After-Hours

American clothing brand Levi Strauss & Co. (LEVI) reported better-than-expected third-quarter results driven by the strength of the Levi’s brand, continued momentum in the business, as well as the company’s ability to fight macro headwinds. Shares popped 3.7% on the news in the extended trading session on October 6.

The company reported adjusted earnings of $0.48 per share, up a whopping 500% year-over-year, and significantly beat analysts’ estimates of $0.37 per share.

To add to that, net revenue climbed 41% year-over-year to $1.50 billion and also surpassed the Street’s estimate of $1.46 billion. (See Levi Strauss stock charts on TipRanks)

The company’s solid results are attributed to the growing momentum in its direct-to-consumer business and improved supply-chain network, which has enabled LEVI to execute firmly against macro headwinds.

Commenting on the results, Chip Bergh, President and CEO of the company, said, “Our future is bright given our iconic Levi’s® brand and the acquisition of Beyond Yoga, which establishes our position in the fast-growing, high-margin premium activewear market as we continue to capitalize on global casualization trends.”

The COVID-19 pandemic continues to affect Levi’s business, with around 10% of company-operated stores remaining shut during the third quarter, especially in Asia. Currently, about 4% of company-operated stores remain shut globally.  

Having said that, the company raised its fourth-quarter and full-year 2021 outlook based on pricing actions undertaken to mitigate inflationary pressures. Based on its third-quarter performance and confidence in its outlook, LEVI expects Q4 net revenue to grow by 20% – 21% compared to Q4FY20.

Additionally, Q4 adjusted earnings are forecast to fall in the range of $0.38 – $0.40 per share, versus the consensus of $0.39 per share. Full-year FY21 adjusted earnings are projected to be in the range of $1.43 – $1.45 per share.  

Guggenheim analyst Robert Drbul recently reiterated a Buy rating on the stock in anticipation of strong Q3 results and assigned a price target of $33, implying 36.1% upside potential to current levels.

Drbul expected LEVI to deliver solid results backed by its strong brand name and believed the company could continue to capture market share despite the challenging environment.

Drbul said, “While the reopening of the economy remains volatile, Levi’s should benefit from casualization trends occurring and ongoing denim cycle underway. We believe the seasoned and highly capable management team should adeptly guide this storied company through the many challenges present in today’s global landscape. Ahead of the results, we have updated our 3Q21 and 4Q21 estimates to reflect a more gradual, sequential recovery of revenues vs 2019 levels.”

With 10 unanimous Buys, the stock commands a Strong Buy consensus rating. The average Levi Strauss price target of $35.30 implies 45.6% upside potential to current levels. Shares have gained 56.5% over the past year.

Furthermore, Levi Strauss scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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