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Levi Strauss (LEVI) Stock Sinks 10% on Reduced Guidance

  • Levi Strauss (LEVI) stock is slipping more than 10% today.
  • The company produced decent results for its third-quarter report but had to reduce forward guidance.
  • LEVI stock may still perform better than other apparel investments due to product flexibility.
a stack of white t-shirts with the Levi's (LEVI) logo on them
Source: Papin Lab / Shutterstock.com

Famous apparel maker Levi Strauss (NYSE:LEVI) beat profitability expectations for its third-quarter earnings report. However, the company also admitted to macroeconomic headwinds, thus necessitating a full-year 2022 downgrade. LEVI stock is now down more than 10% as of this writing.

For Q3, Levi Strauss generated $1.52 billion in revenue, up 1% year-over-year (YOY) or 7% YOY when excluding currency fluctuations. FactSet analysts had anticipated $1.6 billion in sales. However, Levi reported “supply-chain disruptions,” leading to missed sales of between $30 million and $40 million.

On the bottom line, Levi posted adjusted net income of $161 million or 40 cents per share. This tally beat the consensus target for adjusted net income of $148 million or 37 cents per share. However, the figure also represented an 18% decline on a YOY basis.

Notably, Levi entered the Q3 disclosure maintaining its outlook for fiscal 2022. But this distinction changed for the worse, with management admitting to macroeconomic pressures. As a result, it now anticipates net revenue growth of between 6.7% and 7%. This is down from the earlier estimated 11% to 13% growth.

“Things did get tougher as the quarter progressed,” CFO Harmit Singh succinctly stated to Barron’s.

LEVI Stock Offers Some Hope Amid Retail Mess

On the surface, circumstances don’t appear auspicious for LEVI stock. On a year-to-date (YTD) basis, shares have now dropped around 44%, reflecting steep industry-wide pressure. Essentially, worsening economic conditions have forced consumers to pivot away from discretionary purchases, especially apparel.

Still, LEVI stock may be able to weather the storm better than segment rivals. For one, the workplace has become more casual as society gradually returns to normal post-pandemic. While this theoretically benefits all apparel makers, Levi may enjoy disproportionately better performance based on its brand power.

Second, management believes that it won’t have to endure the aggressive markdowns that have negatively impacted other apparel manufacturers. Around “two-thirds of the company’s inventory is in core products,” meaning Levi can cycle these products through various seasons.

Finally, the company’s executive leadership is maintaining broader objectives that it previously set in June, perhaps with timeline adjustments. Per Barron’s, “Levi’s plans to achieve up to $10 billion in revenue by 2027, driven by annual revenue growth of between 6% and 8%.”

“We still feel that our longer-term goals that we laid out are achievable,” says Singh, “But it may take us a year longer to get there if things toughen.”

On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


Article printed from InvestorPlace Media, https://investorplace.com/2022/10/levi-strauss-levi-stock-sinks-10-percent-on-reduced-guidance/.

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