Levi Strauss & Co (NYSE: LEVI): Innovation and Sustainability in Fashion

Levi Strauss & Co (NYSE: LEVI)., commonly known as Levi’s, is an iconic American clothing company renowned for inventing blue jeans. Founded in 1853 by Bavarian immigrant Levi Strauss in San Francisco during the California Gold Rush, the company initially sold dry goods before partnering with tailor Jacob Davis in 1873 to patent riveted denim pants, creating the original Levi’s® 501® jeans. Headquartered in San Francisco, Levi’s has grown into a global brand, offering a wide range of apparel, though jeans remain its signature product. Over the decades, Levi’s jeans have become a cultural symbol, embraced by workers for durability and by youth movements as a statement of individuality and rebellion. The company is also a leader in sustainability, with initiatives like Water<Less® technology to reduce water usage, recycling programs, and commitments to reducing greenhouse gas emissions. Operating in over 100 countries, Levi’s continues to influence fashion and culture while maintaining its legacy as a family-controlled.

Highlights and News Updates

• On 25^th, October 2024, Denim meets decarbonization: Levi’s unveils first climate transition plan. The denim manufacturer has committed to achieving net-zero emissions by 2050 and reducing scope 3 emissions 42% by 2030.

• On 2^nd, October 2024 Levi Cuts Revenue Outlook, Mulls Sale of Dockers Brand.

Key Data

Third Quarter Results

• Adjusted EPS was US $0.33, marking a 17.9% increase from US $0.28 in the same quarter the previous year.

• The company reported net revenues of US $1.52 billion, a slight increase from the same period last year.

• The company reported a net income of US $20.7 million for the quarter.

• There was a 6% decline in wholesale revenue during the quarter.

Financials

Levi Strauss & Co.’s financial performance over the past four years reflects consistent revenue growth but some challenges in profitability. Total revenue increased steadily from US $4.45 billion in 2020 to US $6.18 billion in 2023, signaling strong demand and recovery post-pandemic. Gross profit followed a similar trend, rising from US $2.35 billion in 2020 to US $3.52 billion in 2023, though it slightly dipped compared to US $3.55 billion in 2022. Operating expenses, particularly Sales, General, and Administrative increased from US $2.35 billion in 2020 to US $3.07 billion in 2023, impacting operating income, which fell sharply from US $646 million in 2022 to US $353 million in 2023. Net income peaked at US $569 million in 2022 but dropped significantly to US $250 million in 2023, reflecting higher costs and potential one-time expenses. Despite these challenges, Levi Strauss & Co.’s revenue resilience highlights its strong market presence, though managing rising costs will be key to sustaining profitability in the long term.

Levi Strauss & Co.’s recent quarterly performance shows fluctuations in revenue and profitability. Total revenue ranged from US $1.44 billion to US $1.64 billion, with the highest revenue of US $1.64 billion recorded in the quarter ending November 2023 and the lowest at US $1.44 billion in May 2024. Gross profit remained strong, averaging approximately $910 million per quarter, peaking at $950 million in November 2023.

Operating expenses, primarily Sales, General, and Administrative remained elevated, ranging from US $760 million to US $818 million, which, along with non-recurring items, significantly impacted operating income. Operating income dropped from US $151 million in November 2023 to US $30 million in August 2024, with a notable loss of US $4 million in February 2024. Net income followed a similar trend, peaking at US $127 million in November 2023 but dipping to a loss of US $10.6 million in February 2024 before recovering to US $20.7 million in August 2024. These results highlight the company’s steady revenue base but emphasize the importance of managing rising costs and addressing profit margin pressures.

Levi Strauss & Co.’s total debt has decreased overall from US $2.66 billion in 2020 to US $2.18 billion in 2023, reflecting a focused effort to reduce liabilities. The most significant drop occurred between 2020 and 2021, with a reduction of US $420 million. Debt continued to decline in 2022, reaching US $2.09 billion, but slightly increased to US $2.18 billion in 2023, possibly indicating new borrowing for operational or strategic investments.

Levi Strauss & Co.’s Earnings Per Share (EPS) shows a significant recovery from 2020 to 2023, despite recent challenges. In 2020, the EPS was US −$0.32, reflecting a loss during the pandemic. The company rebounded in 2021 with an impressive EPS of US $1.35, driven by strong post-pandemic demand and operational recovery. This momentum continued into 2022, with EPS slightly increasing to US $1.41, indicating stable profitability.

However, in 2023, EPS dropped sharply to US $0.62, suggesting pressures on profitability from rising costs.

Forecast

Right now, the company is trading at US $17.42 with a 1-year projected target of around US $22 and a low estimation of US $15.70; the average price target is US $20.

Technical Analysis

• The stock has corrected more than 28% and now it is taking on its support level.

• Right now, the RSI (49.60) indicator is giving us a bullish divergence.

• The stock has the potential to bounce back up to 15%-26% from the current market price. Analysts are bullish on this stock.

Indicators Summary – Buy

• The price action analysis of the stock indicates a positive uptrend in the stock. Market sentiments are bullish.

• MACD (0.06) indicator is going to give a bullish signal.

• VWAP (17.34) indicator is also going to give us a bullish signal on the stock.

• The moving averages are also giving us a bullish signal.

Risk Factors

Levi Strauss & Co. faces several key risk factors that could impact its business operations, financial performance, and market position:

• The apparel industry is highly competitive, with intense pressure from established brands and emerging players. Levi’s must continually innovate and adapt to stay relevant.

• As a discretionary consumer goods company, Levi’s is sensitive to economic downturns, inflation, and changing consumer spending habits, which can directly affect sales.

• The company relies on a global supply chain, making it vulnerable to disruptions caused by geopolitical tensions, transportation delays, or natural disasters.

• Failing to keep pace with e-commerce and digital marketing advancements could weaken Levi’s competitive edge in a rapidly evolving retail landscape.

• As a heritage brand, Levi’s is highly reliant on its reputation. Any negative publicity related to labor practices, environmental impact, or product quality could harm its image.

• A significant portion of revenue comes from specific regions, such as the U.S., making Levi’s vulnerable to localized economic or political issues in those markets.

• Rising costs of raw materials like cotton, as well as labor and manufacturing expenses, can reduce profit margins.

• Compliance with labor laws, environmental regulations, and trade policies in multiple countries poses ongoing challenges.

Stock Recommendation

Levi Strauss & Co. is a strong stock to consider due to its iconic brand reputation, global presence, and strategic focus on innovation and sustainability. As a leader in the apparel industry with a rich history, the company benefits from a loyal customer base and diversified product offerings that align with shifting consumer preferences. Its commitment to ethical practices, sustainable sourcing, and eco-friendly initiatives enhances its appeal to environmentally conscious consumers. Additionally, Levi’s investments in digital transformation and e-commerce position it well for adapting to the evolving retail landscape. The company’s geographic diversification and focus on emerging markets further provide opportunities for long-term growth, making it an attractive choice for investors.

MarketFacts gives a “Buy” rating on the stock at the closing price of US $17.42 as of January 13th, 2025.

CMP (US)  (January 13, 2025)	$17.42
Target Price	$22
Recommendation	Buy

Disclaimer:

The information provided in this document and the resources available for download are intended for informational purposes only and should not be interpreted as financial advice. While the content is based on thorough research and is accurate to the best of our knowledge, it is not a substitute for professional financial guidance. We strongly recommend consulting with a financial advisor to discuss your specific situation and obtain tailored advice before making any financial decisions.