Levi’s 1Q Sales And EPS Beat Estimates; Street Says Buy

Levi Strauss & Co. delivered strong 1Q results as the company’s sales and profits in 1Q FY21 exceeded Street expectations. The jeanswear company reported adjusted diluted EPS of $0.34 which came in ahead of analysts’ expectations of adjusted EPS of $0.24. Levi’s revenues in 1Q declined 13% year-on-year to $1.3 billion but still beat analysts’ estimates of $1.2 billion.

Levi Strauss & Co.’s (LEVI) CEO Chip Bergh said, “Our strong results this quarter were driven by faster-than-expected recovery in our business from our relentless focus on the priorities that are driving outsized performance. We continue to lean into our strategies – leading with our brands, investing in direct-to-consumer and diversifying our business – while still operating prudently to manage the ongoing uncertainty, especially in Europe.”

“As the vaccine rollout continues and consumer excitement returns, I am more confident than ever that we will emerge from the pandemic a stronger business and drive sustainable, profitable growth,” Bergh added.

The fall in revenues for Levi was primarily a result of the COVID-19 pandemic that resulted in reduced traffic at the company’s stores and closures of company-operated and third-party retail outlets. 1Q revenues also excluded the benefit from Black Friday sales compared to the same quarter last year.

However, Levi’s e-commerce sites and online business saw revenues grow by 41% year-on-year in 1Q and comprised 26% of the company’s total revenues. Levi’s e-commerce sites contributed 10% of the total net sales in the first quarter.

The company declared and paid a dividend of $0.04 per share in 1Q that totaled around $16 million. Levi has increased this dividend to $0.06 per share for the second quarter and will be payable on or after May 25 to the holders of record at the close of business on May 7. (See Levi Strauss & Co. stock analysis on TipRanks)

Levi has projected growth in revenues of between 24% and 25% for 1H FY21 and expects adjusted EPS in 1H to land between $0.41 and $0.42 assuming “no significant worsening of the COVID-19 pandemic or dramatic incremental closure of global economies.”

Following the results, Guggenheim analyst Robert Drbul raised the price target from $26 to $29 and reiterated a Buy on the stock. Drbul commented, “Gross margin was strong (+200bps vs. our +100bps estimate), and we expect further improvement in 2021 as pricing power remains, inventory is well managed, premiumization continues, and structural sales mix shifts favorably (DTC, Int’l). The company continues to “play offense” from an investment standpoint while reducing SG&A expense in other areas, which we expect to drive EBIT margin above 12% in 2022.”

Overall, the rest of the Street is bullish on the stock in line with Drbul’s view with a Strong Buy consensus rating based on 4 Buys. The average analyst price target of $26.50 implies that LEVI shares have 5.9% upside potential to current levels.

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