The Glass Is Half Empty on Headline Numbers
The Positives for the Quarter Outnumber the Negatives
While revenues were flat on a reported basis, there were 160 bps of currency headwinds, which would have equated to revenues rising 2% YoY. On the bright side, the Levi's brand saw sales grow 5% YoY globally, the highest revenue growth in two years and a significant acceleration from the first half of 2024. Levi Strauss generated its highest gross margin at 60%, up 440 bps YoY, driven by lower product costs, brand mix, and favorable channels.
The Americas suffered a 1% sales decline primarily due to exiting the Denizen business. Backing that transaction out would have resulted in a 2% YoY revenue climb. Europe was a bright spot as net revenues climbed 6% on a reported basis and 7% in constant currency. It had positive growth in both the DTC and wholesale channels.
Levi Strauss Trims Inventories and Reaches Record Gross Margin
Dockers Is a Weak Link, But It May Be Sold
The weakness in Dockers sales has prompted Levi to consider a “strategic review," aka divesting the unit. Dockers was the big blemish on the report, tripping Levi’s revenue growth in the Americas. Selling Dockers would kill two birds with one stone by shedding its weakest brand and injecting new cash onto the balance sheet.
Levi Issues Lower Guidance Tipping the Scale Lower
Levi Strauss lowered its full-year 2024 revenue guidance while adjusting EPS estimates to a tighter range. The company expects adjusted EPS at the mid-point of its $1.17 to $1.27 prior guidance, which is lower than the $1.25 consensus estimates. Full-year 2024 revenue was lowered to $6.24 billion versus $6.32 billion consensus analyst estimates.
CEO Points Out the Three Areas of Softness
Levi Strauss Launches a Massive New Marketing Campaign Titled “Reimagined”
Their new marketing campaign, titled Reimagined on a massive scale, will continue through 2025. Gass commented, "The campaign features core products like 501 '90s, original Truckers and Essential T’s and pays homage to classic Levi’s ads through a modern reinterpretation focused on women and icons.”
Gass concluded, “We’ll be activating the campaign across more than 3,000 direct-to-consumer touch points and throughout our e-commerce channels around the world. We’re proud to see the celebration of two global icons come to life and look forward to connecting in new ways with our fans globally.”
LEVI Triggers an ABCD Reversal Pattern
An ABCD pattern is a harmonic reversal pattern comprised of two higher peaks and one higher low. The pattern resembles a rising lightning bolt. The reversal is often triggered by a market structure high (MSL) sell trigger.
Levi Strauss's average consensus price target is $22.75, and its highest analyst price target sits at $26.00. It has five analysts' Buy ratings and five Hold ratings. The stock trades at 15.72x forward earnings.
The article "Levi's Revenue Dips, But Record Margins Might Stitch Things Up" first appeared on MarketBeat.
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