Levi Strauss: Short-Term Pressure Expected, Long-Term Outperformance Predicted - Analyst

Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on the shares of Levi Strauss & Co LEVI with a price target of $24.

LEVI will report 2QF23 (ended May) results on Thursday, July 6, after the market close.

For the quarter, the analyst estimates EPS of $0.03 versus $0.29 last year and sales to decrease 9.9% year-on-year to $1.33 billion.

The analyst’s sales growth forecast assumes a 16% decline in the Americas and a 10% decline in Europe, offsetting Asia's 2% YoY growth and Other Brands' 10% expansion.

Following pressure in Q2, gross margins should improve over the course of the year as LEVI laps elevated product and transportation costs, as well as lower full-price selling and an FX headwind last year in H2, said the analyst.

Last quarter, despite an uncertain and challenging global macro environment, LEVI delivered a solid start to FY23, with a top and bottom-line beat in the first quarter.

The analyst added that DTC had remained strong and offset slower growth in the wholesale channel as inventory rebalancing continued, particularly in Europe.

Consumers in both the Americas and Europe are under pressure and taking a measured approach to spending, though that tightness had not been seen in China through mid-April.

The analyst expects pressure in the second quarter given the enterprise resource planning system (ERP) implementation and its impact on shipping product within the U.S. but sees it to be short-term in nature.

Price Action: LEVI shares are trading lower by 2.16% at $14.28 on the last check Wednesday.

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