By Senad Karaahmetovic
Shares of Levi Strauss (NYSE:) are up nearly 5% in premarket trading Friday after the clothing company reported better-than-expected Q2 adjusted earnings.
The maker of popular Levi’s denim jeans Q2 adjusted EPS of 29c, up from the 23c in the year-ago period and above the consensus estimates of 23c per share. Net revenue came in at $1.47 billion, up 15% YoY and above the analyst consensus of $1.43 billion. Levi Strauss reported a Q2 adjusted net of $117 million, while analysts were looking for $92.6 million.
For the full fiscal year, the San Francisco-based company expects adjusted EPS in the range of $1.50 to $1.56, compared to the consensus projection of $1.55 per share. Net revenue is expected to range between $6.4 billion and $6.5 billion for the year, while analysts were estimating $6.44 billion. Levi Strauss still expects FY net revenue growth in the range of 11% to 13%.
“Although the operating environment remains dynamic, the diversity of our business is providing the resilience and flexibility needed to drive solid financial results in fiscal year 2022, while progressing us on our path to achieve net revenues of $9 to $10 billion and adjusted EBIT margin of 15% by fiscal year 2027,” said CFO Harmit Singh.
The company said total inventories rose 29% relative to the end of the corresponding year-ago quarter, which was in line with consensus estimates.
Levi Strauss raised its quarterly dividend by 20% to 12c per share from 10c per share, which is also what analysts expected.
Citi analyst Paul Lejuez said the results showed that the Levi Strauss brand remains strong.
“The strength of the brand continues to be evident in the strong sales of its core 501 product (+40%) and the balanced growth in units and price (showing that demand for the brand remains robust despite price increases). The US business remains strong overall and mgmt raised revenue guidance slightly, but for the first time the company saw a decline in its more moderate product line sold through the mass channel. Although a small part of the LEVI business (~8% in F21), this is another data point highlighting weakness in the lower income consumer,” Lejuez wrote.
Evercore ISI analyst Omar Saad paid special attention to CEO Bergh’s comments that Levis is enjoying the strongest demand environment in the past 10 years.
“While we understand the recent market selloff of Softlines at a gut/macro level (i.e., that fashion is traditionally among the most discretionary components of consumer spend and therefore the most at risk entering a recessionary environment), Levi’s results were a great reminder that there is significant nuance to this downcycle, including pent-up demand post-COVID, the casualization and sneaker phenomenon, accelerating DTC, the rise of data & analytics, et al,” Saad wrote in a client note.
The analyst also cut the price target to $30 from $40 to reflect “a broad valuation re-rating of softlines stocks over the past few months due to macro concerns.”