Levi Strauss & Co. (LEVI) is an American apparel company that owns some of the most iconic brands like Levi’s, Dockers, Signature, and Brand Yoga. Its products are sold in the US and other countries through its retail partners.
It has also ventured into direct-to-consumer (DTC), where it sells its clothes in its company-operated stores and its websites. Its websites account for about 10% of its total annual revenues.
Levi’s business has been growing gradually over the years, with its annual revenue rising from $5.76 billion in 2019 to over $6.17 billion in 2023. This growth has been because of higher volumes and pricing, with the average price of its apparel rising by over 10% in the past few years.
Levi’s launched its initial public offering in 2019. Its stock started trading at $20, fell to $8.25 during the pandemic, and reached a record high of $28 in 2021. It has now erased all those gains and moved below its IPO price. It was trading at $18.72, while the HypeIndex metric rose to 363%, making it a strong buy.
Positive hype
Levi Strauss & Co. has attracted positive hype because of its relatively strong performance at a time when most apparel companies are struggling.
Its recent results, published on October 3, showed that its net revenues were flat at $1.5 billion even as it faced a 160-basis negative impact on forex.
Most of its revenue growth was in Europe, which helped to offset a 1% decline in the Americas business. Its European business generated over $407 million in sales compared to the US, which made $757 million.
The company’s DTC approach is working, with its revenues increasing by 10% in the second quarter. This segment helped to offset a big dive in the wholesale business.
Management believes that Levi’s is relatively undervalued, and is therefore, repurchasing its stock in a bid to boost its earnings per share. It boosted share repurchases to $69 million in the last quarter and still has $621 million remaining in its authorization.
Analysts are relatively bullish on the company, with their revenue estimate for the year being $6.24 billion. The average stock estimate is $22.49, 22% higher than the current $18.7.
A potential catalyst is that the company is focused on continuing to expand its operating and gross margins.
It is also a fairly undervalued company trading at 15 times forward earnings, which is lower than the S&P 500 average of 22.
Negative hype
Levi’s business could struggle as inflation remains a big challenge to many customers globally. While the headline CPI has retreated to almost 2%, the reality is that prices remain much higher than where they were four years ago.
The company lacks any clear positive catalyst that could boost its revenue growth in the coming years.
It is facing strong competition from companies like Lululemon Athletica (in its Brand Yoga business), PVH Corp, Ralph Lauren, VF Corp, and American Ragle Outfitters.
Summary of Levi Strauss & Co. stock
Levi Strauss & Co stock peaked at $24.15 in June and has now dropped by 22%, meaning that it has moved into a bear market.
The stock has moved below the 50-day and 100-day Exponential Moving Averages (EMA), while the MACD and the Relative Strength Index (RSI) have tilted downwards.
Therefore, the short-term outlook for the stock is relatively bearish, with the next potential level to watch being at $16.53, its lowest swing on August 15.
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