Updated: Aug 14, 2020
"An incredible 167 year old iconic brand that is highly ESG rated and could be worth owning at current prices."
Levi Strauss & Co. (NYSE:LEVI) is an American clothing company that has it's roots all the way back to 1853 when it was founded by German immigrant Levi Strauss. Known worldwide for its denim jeans and other clothing apparel. It has a long history, incredible brand name and in fact I do not know of one person who has not owned at least one pair of Levi's jeans in their lives.
Although Levi's has a 167 year history it has only recently started publicly trading after 34 years being held privately. The Company began trading on the New York Stock Exchange with an initial public offering of $17 and a first day opening price of $22.22, March 21st 2019.
By the end of the year and starting 2020 was looking really good for Levi's, they had plans to expand their direct to consumer strategies including the accelerated rollout of the ship from stores. Additionally Levi's was looking at a smaller footprint and more capital efficient stores to help drive sales. CEO, Chip Bergh and many analysts were very positive on the company heading into the start of the second years as a publicly traded Company.
Today we now see Levi's stock languishing under $13 after hitting a 52 week low of almost $9 back in early March. Unfortunately the early enthusiasm seen at the IPO has dissipated due to the COVID-19 pandemic , which has really hit the apparel company's earnings. Levi's in fact saw a 62% drop in revenue during fiscal Q2 and rang up a "net loss of $364 million. This was in part due to the $242 million, pre-tax, in restructuring charges and inventory costs and other charges recorded in connection with COVID-19 business disruptions. The adjusted net loss of $192 million was primarily resulting from the temporary closures of company-operated, franchise and wholesale customer third-party retail locations." Add a suspension to their share repurchase program and dividend, it's definitely a quarter to forget. This is why we have seen significant pressure on Levi's share price.
Levi's is not sitting ideally by, they will cut around 700 corporate jobs, roughly 15% of its corporate workforce, in areas that are seeing a revenue drop. This will generate annualized savings of around $100 million. Secondly as Chip Bergh, president and CEO of Levi Strauss highlighted in Q2 earnings, “the pandemic is accelerating retail landscape shifts and consumer behavior in ways that play to the strength of Levi's brand. And we are doubling down on our digital transformation, incorporating the power of AI and data science, and leveraging our iconic brands to have an even stronger focus on Gen Z and sustainability. We believe this will enable us to further grow our market leadership position and emerge from this crisis a stronger company.” Additionally Levi's increased total liquidity to $2 billion, reduced Adjusted SG&A by $157 million and managed inventories to only a ten-percent increase over prior year.
Although hurt due to the pandemic, there is no evidence to be concerned with this company over the long term. They are making the right moves by investing in technology, keeping inventory low, plus the company did get a boost from a 25% increase in e-commerce sales during the quarter. This is net positive and shows the company can continue to improve its direct to customer sales. Plus smart investing prior to the pandemic set the company up well for success and has better enabled them to adapt to the acceleration of the work from home environment
“Levi's is a stock potential investors should take a look at. It's an iconic brand well positioned to flourish over the long term.”
Is Levi's a stock a buy?
This is an iconic power house that is not terribly indebted and has plenty of cash. Unlike other apparel brands it has held up reasonably well and was in a strong position when the pandemic hit. It never hurts when you are going into a pandemic while experiencing double-digit sales growth in smaller categories, such as women's wear and tops. Additionally we find management has taken prudent steps such as keep inventory lean in order to match current demand. Also they are also making the tough decision such as cutting around 700 corporate jobs, roughly 15% of its corporate workforce.
We take pride in ensuring that we look at ESG when reviewing Consumer Discretionary stocks . When looking at Levi Strauss & Co (LEVI) We found them to be a highly focused ESG company. They have done a number of social responsible initiatives to improve customers and workers alike over the past few years. One such initiative aimed to improve life for garment workers. As a result Barons recently ranked Levi 13th on social responsibility metrics out of 100 top ESG companies. When it comes to LGBTQ efforts, Levis has taken serious action as shown on their website. We encourage investors to always take a look at companies efforts to improve their Environmental, Social and Governance.
This is a company that will easily survive the current pandemic and will be well positioned to succeed over the long term. This could be a stock worth buying at current prices and potential investors should take the time and see if LEVI's should be added to their portfolio.
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