Levi's Continues To Be Best In Brand Despite Week Outlook, Say Analysts

J.P. Morgan analyst Matthew Boss reiterated a Neutral rating on the shares of Levi Strauss & Co LEVI and lowered the price target from $21 to $20.

LEVI reported second-quarter adjusted EPS of $0.16 with 11.2% gross profit dollar growth driving a 150 basis points EBIT margin beat versus consensus, noted the analyst.

The management reiterated FY24 adjusted EPS of $1.17 – $1.27 based on revenue growth at the midpoint of the +1-3% range.

The quarter’s +11% DTC growth c/c accelerated by 300 basis points sequentially vs. first quarter’s +8% c/c growth, including +12% DTC growth in the U.S. and +7% DTC growth c/c in Europe.

Hence, according to the analyst, the global DTC revenue accelerated with expanded total addressable market.

On the expense front, SG&A increased by +4.3% y/y, equating to SG&A leverage of ~190bps y/y, reflecting benefits from costs savings program, partially offset by additional incentive accrual, said the analyst.

While continues to view Levi’s as a best in class brand, the analyst sees the risk/reward as more balanced today at ~8x the analyst’s CY24 EBITDA, with FY24E operating margins roughly flat relative to pre-pandemic (despite top-line growth of +10% vs. 2019) with bottom-line flow through partially constrained by increased investment within the direct-to-consumer channel.

BofA Securities analyst Christopher Nardone reiterated a Neutral rating and raised the price target from $19.00 to $22.00.

The analyst thinks the current valuation balances improving sales trends with longer-term secular challenges in U.S. wholesale.

The analyst is encouraged by the continued momentum in the Levi’s brand, with sales being driven by a combination of strong denim trends and non-denim assortments like tops and dresses.

The analyst is positive about the momentum in the women’s business and the company’s expanded product assortment heading into 2H.

LEVI can achieve its 2H sales guidance, which embeds improvement compared to 1H, said the analyst. Though the guidance includes slightly higher freight costs, the analyst thinks this will be manageable.

Price Action: LEVI shares are trading lower by 16.4% at $19.33 at last check Thursday.

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