Levi Strauss & Co. Moves Up On Successful Price Pass-Through
Shares of Levi Strauss & Co. (NYSE: LEVI) are moving higher in the wake of the Q1 earnings report because of a successful price pass-through that is indicative of the selling environment in general. Demand for Levi Strauss & Co. products is so high the company was able to leverage its pricing power in more ways than one. Not only were there some price increases, but there were also far fewer discounts, fewer promotions, and an increase in sell-through that helped to drive wider margins. The most telling detail of the report, however, is that revenue could have been as much as 380 basis points of growth higher if not for supply chain constraints. In our view, those sales will be recouped in the current and future quarters and have the company set up to outperform its own guidance.
“The increase in gross margin reflects a higher proportion of sales in our DTC channel, lower promotions, a higher share of full-price sales, and price increases, partially offset by higher product costs.”
Institutional activity suggests this news was anticipated by the market and we are not surprised. The company has a winning and well-recognized brand and a healthy DTC channel that includes eCommerce. eCommerce sales grew another 10% YOY this quarter and accounted for 25% of the net. As for the institutions, they’ve been net buyers for the last 5 consecutive quarters and have put a bottom in share prices. Their purchases amount to 9.85% of the market cap with LEVI trading at $19.40 and having total ownership near 70%. If the Q1 results are any indication, this trend will continue into the 2nd quarter of 2022.
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Levi Strauss & Co. Maintains Guidance
Levi Strauss & Co. had a great quarter and was able to maintain its guidance despite headwinds in the economy. The company reported $1.59 billion in net revenue for a gain of 21.4% over last year. The revenue was driven by strength in all geographic categories and beat the consensus estimate by 260 basis points. The DTC channel led with a gain of 35% was underpinned by a 48% increase in in-store sales. Wholesales grew by a smaller 15% while on a geographic basis Asia led with a gain of 49%.
Moving down to the earnings, the company reported a 170 basis point improvement in adjusted gross margin and a 160 basis points improvement in the adjusted EBIT margin. This left the adjusted EBIT margin at 14.9% and helped to drive outperformance on the bottom line as well. On the bottom line, the company reported $0.46 in adjusted EPS which is up 35% from last year, and beat the consensus estimate by $0.04 or 950 basis points.
Looking forward, the guidance is good and might be cautious given a general expectation for economic conditions and specifically the supply chain to improve in the back half of the year. In that scenario, we see the company not only catching up with back orders but capitalizing on the momentum and driving revenue and EPS above target. Until then, the revenue and EPS are in line with the consensus estimates predicting about 12% of top-line growth and EPS in the range of $1.50 to $1.56.
The Technical Outlook: LEVI Is Bouncing From Support
Price action in LEVI fell back to a key support line that is consistent with an institution-driven break-out shortly after the IPO. Price action is now moving higher after confirming support at that level, the $18.00 level, and may be ready to reverse. The next hurdle for the market to cross is the short-term moving average at $20.41, if that can be surpassed we see the stock moving up toward the $30 level where the analyst consensus has it valued.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Levi Strauss & Co. (LEVI) | $15.97 | +1.1% | 3.26% | 42.03 | Moderate Buy | $22.75 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
