Levi's Latest Results Confirm Denim Is Still a Good Idea

On Wednesday, Levi Strauss & Co LEVI revealed its fiscal third-quarter earnings and sales exceeded analysts' expectations as consumer demand picked up during the back-to-school season and received an additional boost as shoppers looked for the latest denim trends.

Fiscal Third-Quarter Figures

For the quarter that ended on August 29^th, net income rose from $27 million, or 7 cents a share, a year earlier to $193 million, or 47 cents per share. Excluding one-time items, Levi Strauss earned 48 cents per share, topping analyst expectations of 37 cents per share as more goods were sold directly to consumers and at full price points, as opposed to needing to rely on promotions to clear the shelves.

Revenue jumped 41% from last year's quarter's $1.06 billion to $1.5 billion, slightly exceeding estimates of $1.48 billion, despite taking a hit of roughly $10 million from supply chain issues.

Wholesale revenue grew 45% YoY, driven by strong demand in the U.S. and Europe. Compared to 2020 levels, direct-to-consumer sales rose 34% as store traffic improved but when looked at a two-year basis, the increase amounts to 3%. What now seems to be a never-ending health crisis kept 10% of its company-operated stores closed during the latest quarter, primarily in Asia with roughly 4% still being shut.

As for digital sales, they were up 10% YoY and 76% on a two-year basis, accounting for approximately 20% of Levi's total sales.

Supply Chain

Restrictions that aim to combat the new surge in covid cases are forcing retailers across the globe to rethink their manufacturing hubs and entire supply chains. Fortunately for Levi's, less than 4% of its global volume comes from Vietnam which has been heavily hit by plant shutdowns. This scenario made Levi's supply chain into the company's competitive advantage with CEO Chip Bergh confirming to CNBC that the denim brand is moving its product around with a lot of agility.

A Bright Outlook

For its fourth quarter, management is expecting YoY revenue growth of 20% to 21%, while analysts had been calling for a 22% increase. The company cautioned its outlook is based on the assumption that the health crisis won't dramatically worsen. Fourth-quarter adjusted earnings are expected between 38 cents and 40 cents per share, with analysts agreeing on 40 cents.

As for the full year, Levi expects adjusted earnings somewhere between $1.43 to $1.45 per share, higher than $1.33 per share that Wall Street expected. This guidance translates to full-year revenue growth of more than 27%, which means sales would be close to 2019 levels.

As Always, Christmas Will Be the Best Time of the Year

Although apparel companies across the globe have been heavily hit with supply chain disruptions, Levi has done remarkably well compared to its peers due to its diversified manufacturing. The company's expectation for the holiday quarter is pretty good as Bergh said that the company is chasing demand from a supply chain standpoint, to make sure that everybody will have their Levi under their Christmas tree.

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