Levi Strauss Lowers Outlook, Shares Fall

by Warren Seah

Shares of Levi Strauss (ticker: LEVI) experienced a decline on Friday as the renowned jeans maker adjusted its outlook for the year. The company cited concerns about the spending power of low- and middle-income consumers as the reason for this change.

Levi Strauss now expects revenue to grow between 1.5% and 2.5% this year, a decrease from their initial projection of up to 3% revenue growth. Similarly, the anticipated earnings per share (EPS) range has been revised to $1.10-$1.20, down from the previous estimate of $1.30-$1.40.

Chip Bergh, Levi’s chief executive, addressed these developments during a call with analysts, stating, “The macro effects of higher inflation and a slowing U.S. economy has put increased pressure on the price-sensitive consumer.” Particularly, low- and middle-income shoppers are feeling the burden of these circumstances.

Additionally, Levi Strauss continues to grapple with supply-chain backlogs that have made it challenging to meet demand, which has further impacted their full-year outlook.

Despite these difficulties, Levi slightly surpassed analysts’ expectations for the quarter ending May 28, with EPS reaching 4 cents instead of the consensus of 3 cents. However, the company’s overall business performance has suffered due to faster inflation, weak economic growth, and supply-chain issues. Net revenue declined by 9% year over year to $1.3 billion, primarily driven by a significant 22% decrease in wholesale revenue.

In an effort to counteract the decline in wholesale revenue, Levi intends to introduce “surgical price reductions” on select products within its Red Tab Tier 3 offerings.

Stabilizing Business and Driving Market Share Gains

Levi Strauss, a renowned clothing company, has been taking proactive measures to stabilize its business and achieve market share gains. Despite the challenges faced in the U.S. wholesale market, the company remains confident in its ability to navigate through these headwinds and is as optimistic as ever about its future.

Share Price Decline

Following the recent developments, Levi Strauss shares experienced a decline of 5.2% and are now valued at $13.48, marking a decrease of 15% since the beginning of this year.

Assessing LEVI’s Performance

In a note to clients, Wells Fargo analyst Ike Boruchow expressed his perspective on LEVI’s recent quarter. He highlighted the mounting pressure in the U.S. wholesale sector, which led to lower revenue in the second half. Particularly, a significant cut in margin and earnings per share (EPS) was observed due to strategic pricing actions and necessary promotions. As a result of these concerns, Boruchow stated that LEVI remains “in the penalty box.” However, he maintained an Overweight rating on the stock, but adjusted the price target to $15 from $18.

On the other hand, Guggenheim analyst Robert Drbul offered a more positive evaluation of Levi’s performance in this quarter. He emphasized that the majority of Levi’s U.S. wholesale offerings, including its most popular products, will not be subjected to discounts. Drbul reiterated his Buy rating and retained a price target of $19 in light of the earnings report. He further emphasized the strength and excellent management of the Levi brand, while acknowledging its track record of market share gains. Drbul’s assessment instills confidence in the company’s ability to navigate the challenging environment expected in 2023.

In conclusion, Levi Strauss is committed to stabilizing its business and attaining market share growth. Despite experiencing some setbacks, the company’s strong brand, capable management team, and history of success provide reassurance for its future prospects.

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