Levi Strauss & Co. Faces Share Drop as Reduced Outlook

by Warren Seah

Levi Strauss & Co. faced a significant drop in shares on Friday, which analysts attribute to the company’s reduced outlook. The decreased outlook is said to align with the weak consumer spending reported by other companies earlier this year. However, this adjustment in the outlook has not affected Levi’s long-term growth prospects.

Levi’s shares, identified as LEVI, fell by as much as 9% to an intraday low of $12.96. In contrast, the S&P 500 experienced a minimal increase of less than 1%. For the year, Levi’s shares are down by just over 15%, while the S&P 500 has shown a modest increase of a little more than 15%.

The company recently reduced its outlook for the year but assured Wall Street that it had overcome previous struggles with “peak inventory.” UBS analyst Jay Sole, who holds a buy rating and a $22 price target for Levi’s shares, commented that the lowered outlook was not unexpected. He emphasized that this report does not alter Levi’s long-term growth potential.

Sole reminded investors that Levi’s last provided an outlook on April 6, before the full extent of the slowdown in U.S. consumer spending was realized by the industry. The current outlook incorporates changes that occurred in April and May, which have already been discussed by other softline companies reporting in mid-to-late May.

In April, Levi’s shares experienced their worst day since returning to public markets in 2019 due to ongoing inventory issues affecting earnings.

Read: Levi’s stock suffers worst day on record as earnings show inventory issues continuing

Levi Strauss: Positioning for Long-Term Growth

Levi Strauss, the renowned American clothing company, is confident that its direct-to-consumer sales and international sales will be the driving force behind its future earnings-per-share growth, particularly after 2023. Despite the current challenges in the U.S. consumer spending environment, Levi’s continues to be a strong brand with a strategic management approach that positions the company for above-average long-term growth.

Analysts have weighed in on Levi Strauss, with 11 experts covering the company. Of these analysts, six have provided buy-grade ratings, while five have given hold ratings. However, it is worth noting that several analysts have reduced their price targets recently, resulting in an average target price of $16.45 compared to the previous $18.18.

Jim Duffy, an analyst from Stifel, believes that the margin drivers leading into fiscal 2024 offer considerable upside potential for the stock. Although there are concerns about softer U.S. wholesale trends and susceptibility to price competition, Duffy emphasizes that Levi’s mismanaged these issues with overly ambitious pricing. Despite this setback, Duffy points out that the positive outlook still remains intact, primarily due to the growth potential in international and direct-to-consumer segments.

It is clear that Levi Strauss remains determined to overcome short-term obstacles and focus on its long-term growth strategy. The company’s strong brand identity coupled with an emphasis on international and direct-to-consumer sales provides a solid foundation for future success.

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