Updated: Jun 1
"An incredible iconic brand that just had a great quarter so is it worth owning LEVI at current prices, read and see for yourself."
Allan R. Kirby
Levi Strauss & Co (LEVI)
Dividend Rate (0.06).
Levi Strauss & Co is an American clothing company that has its roots all the way back to 1853 when it was founded by German immigrant Levi Strauss. It's known worldwide for its incredible brand of denim jeans, which almost every person has likely owned once in their lifetimes.
Levi's began trading on the New York Stock Exchange just two years ago with an initial public offering of $17 and a first-day opening price of $22.22, March 21st, 2019, which was a good start. Unfortunately covid-19 pandemic happened and the stock quickly nose-dived all the way down to around $9. Basically, after just a year on the stock market, Levi was faced with a difficult situation with the pandemic resulting in a 62% drop in revenue during fiscal Q2 2020 while also ringing up a net loss of $364 million. This was in part due to the $242 million, pre-tax, restructuring charges and inventory costs, and other charges recorded in connection with COVID-19 business disruptions. It did not look good, with stores closed, no one buying, and worse, an unknown future with the pandemic.
A quick turn around
What no one was expecting during the early days of the pandemic was the incredible turnaround Levi's would make in such a short period of time. However, this should not have been a surprise because Levi's, luckily was already laying down the foundations that would help them through the pandemic. First, they were already expanding their direct-to-consumer strategies including the accelerated rollout of the ship products from stores for faster delivery. Secondly, Levi's was developing NextGen Stores, which are smaller-sized (2,500 square feet), more capital-efficient stores and equipped with machine learning to help with inventory, and drive sales. These initiatives along with acting quickly to cut around 700 corporate jobs, control expenses, and improve inventory left Levi's in a better position than others to adjust to the "new normal".
Great Quarterly results for LEVI
Levi Strauss & Co. quick action and initiatives were reflected in the latest quarterly results. Although Levi's reported a double-digit sales decline for its fiscal first quarter of 2021 due of course to the Covid pandemic; the company still provided a bullish outlook by boosting its profit and sales outlook for the first half of the year and increased the second-quarter dividend. The following Provides some of the highlights:
Reported Net Revenues of $1.3 Billion were down 13 percent
Diluted EPS was $0.35; Adjusted Diluted EPS was $0.34 vs. 25 cents expected.
Operating margin was 14 percent; Adjusted EBIT margin was 13 percent
Company raises second-quarter dividend to $0.06 per share and raises first half outlook.
Reported gross margin increased 250 basis points to 58.2 percent, a record high for the company. Source
The deep expense cutting is showing up, with selling, general, and administrative (SG&A) expenses coming in at $583 million, around 2019 levels and a 12% declined compared to the first quarter of 2020. The $78 million decline in expenses reflects the company's cost savings actions, net of continuing to invest in its omnichannel, A.I., and digitization initiatives.
“We are very pleased to have exceeded our revenue, margins, and EPS expectations during the quarter,” said Harmit Singh, the chief financial officer of Levi Strauss & Co, he continues to say“ We are banking the outperformance and our outlook going forward has improved based on the strong demand signals we are seeing in the marketplace. We're delivering substantial gross margin expansion while holding our cost base in line with 2019 and investing to accelerate growth.
The company raised its fiscal first-half 2021 reported net revenues outlook to 24-to-25 percent growth compared to the first half of 2020 and raised its first-half adjusted EPS estimate to 41-to-42 cents.
What we liked with Levi's
Looking at the data you can see the company's e-commerce sites as well as the online business of its pure-play and traditional wholesale customers, grew approximately 41 percent compared to the same period in the prior year, and comprised approximately 26 percent of first-quarter 2021 net revenues, up from approximately 16 percent in the first quarter of the prior year.
Levi’s is also expanding its partnership with Target, bringing its denim jeans collection to 500 Target stores by the Fall of 2021. Target had added the brand to 140 stores last year as a test run and it appears results were good enough for the expansion to around 25% of the Targets 1900 stores. Adding new sales points is a win for both Levi’s and Target, which will also help Levi's bottom line.
“Levi's has positioned itself to start expanding its footprint, enter new markets and benefit from casual fashon trends over the long term.”
Is Levi's stock a buy?
This is an iconic powerhouse that is well-positioned to expand its footprint and grow sales. Levi's recently mentioned, they want to add more stores to its current 40 stores and 200 outlet locations in the U.S. in order to boost its direct-to-customer operations. As CEO Chip Bergh told CNBC’s Jim Cramer on CNBC, expansion "represents a huge opportunity especially with the, you know, the commercial real estate tsunami that is happening right now,” Expansion plus the rollout at Target represents new sales points that will help drive sales and growth over the longer term. With a focused on low cost small footprint stores, A.I. as well as ship direct to consumer options, there is a lot to like with this company.
We believe this is a company that has come out stronger since the pandemic. Levis is well-positioned to succeed over the long term and could be a stock to add to your portfolio. However shares have appreciated significantly but could be a great buying opportunity on any dips over the next year.
Apparel Stocks to Buy
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 socially 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.
1. Smart well informed modern Investors desire to understand a company’s long-term value creation plan that is highly focused on Environmental, Social, and Governance (ESG) Issues. This means investors are searching for companies that are clearly showing how their products and services contribute to sustainable development. We help Investors by ensuring that when mysmallbank.com reviews a stock we look at the Impact investments companies are making to address social and/or environmental issues. We strive to ensure that readers only invest in socially responsible companies that improve the environment and our lives.
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