Citi maintains neutral stance on Levi stock amid sales concerns

On Thursday, Citi reaffirmed its Neutral stance on Levi Strauss & Co. (NYSE:LEVI), maintaining a price target of $21.00. The apparel company reported earnings that surpassed expectations, but sales did not meet the consensus forecast.

Levi's management adjusted its annual earnings per share (EPS) guidance to $1.22, which is the midpoint of the previously stated range of $1.17 to $1.27. This figure falls below the consensus estimate of $1.25 and implies a fourth-quarter EPS of $0.47, contrary to the anticipated $0.52.

Direct-to-consumer (DTC) sales continue to exhibit robust growth globally, with a 12% increase, matching the growth rate in the United States. However, the wholesale segment is still experiencing challenges, albeit with a slight improvement from a 6% decline in the second quarter to a 3% decline in the third quarter. Gross margin outperformed both the company's guidance and the consensus, benefiting from stronger full-price sales, reduced average unit costs, and a favorable mix of channels, products, and regions.

The quarter's results were deemed satisfactory, bolstered by the strength of the Levi brand as evidenced by the positive DTC trends. Despite this, the market had higher expectations, partly due to the launch of a new advertising campaign featuring Beyonce and ongoing favorable fashion trends. The sales figures and guidance provided by Levi Strauss & Co. did not live up to these heightened expectations.

In other recent news, Levi Strauss & Co. reported third-quarter adjusted earnings per share of $0.33, surpassing estimates of $0.30, despite weaker sales in the Americas wholesale sector. BofA Securities maintained a neutral rating on Levi's stock with a steady price target of $22.00.

TD Cowen reduced its price target for Levi Strauss from $26 to $25, maintaining a Buy rating, while Stifel also maintained a Buy rating with a $28 price target. Citi reaffirmed its Neutral rating and a $21 price target.

Levi Strauss is exploring options for its Dockers brand, including a potential sale, as the company shifts its focus to its core denim products. This comes after a decrease in quarterly revenue and a 15% drop in sales for the Dockers brand, which still accounted for approximately 5% of Levi's quarterly revenue of $1.52 billion.

In an executive transition, Tracy Layney, Executive Vice President and Chief Human Resources Officer, is set to leave her role in October 2024. The company has yet to announce a successor. Furthermore, Levi Strauss adjusted its timeline for achieving its revenue goal of $9 billion to $10 billion, initially set for 2027, without providing a new timeline or reasons for this delay.

Lastly, potential supply chain disruptions due to political unrest in Bangladesh, a significant clothing exporter, may impact the company's trajectory.

InvestingPro Insights

To complement the analysis of Levi Strauss & Co.'s (NYSE:LEVI) recent performance, InvestingPro data offers additional context. Despite the challenges in the wholesale segment, LEVI's revenue growth remains positive, with a 7.81% increase in the most recent quarter. This aligns with the robust direct-to-consumer sales growth mentioned in the article.

The company's financial health appears stable, with InvestingPro Tips indicating that LEVI operates with a moderate level of debt and has been profitable over the last twelve months. This could provide some reassurance to investors concerned about the company's ability to navigate current market conditions.

Interestingly, while the article notes that Levi's earnings guidance fell below consensus estimates, an InvestingPro Tip suggests that analysts still predict the company will be profitable this year. This could indicate that despite short-term challenges, there's confidence in LEVI's long-term prospects.

For investors seeking a deeper dive into LEVI's financials and future outlook, InvestingPro offers 7 additional tips that could provide valuable insights for decision-making.

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