Levi Stock Jumps On Earnings And Rise In Tips


Levi Strauss (NYSE: LEVI) reported better-than-expected results for its third quarter of fiscal 2021 (which ended Aug. 29) after market closed on Wednesday. The growth of the denim and casual wear retailer has been driven by consumers refreshing their wardrobes as economies around the world largely reopen.

Shares rose 3.7% in after-hours trading on Wednesday. This pop is likely due to the fact that sales and profits exceeded consensus Wall Street estimates and management increased their full-year forecast on top and bottom results.

Thanks to Wednesday’s regular trading session, Levi’s stock is up 43% since its IPO in March 2019. The S&P 500 the index returned around 8% during this period.

Below is an overview of the Levi’s neighborhood, along with its outlook.

Image source: Getty Images.

1. Revenue jumped 41%

Levi’s quarterly sales jumped 41% year-on-year (and 38% constant currency) to $ 1.5 billion. That result exceeded Wall Street’s consensus estimate of $ 1.48 billion.

The company had easy year-over-year comparables due to the pandemic, which significantly hurt the previous year’s results. For the context, the turnover for the period considered was 3% higher than for the two-year period (Q3 2019).

Here is an overview of the regional results:

Region Revenue for the third fiscal quarter of 2021 Change (YOY)
Americas $ 838 million 52%
Europe $ 494 million 27%
Asia $ 165 million 34%
Total $ 1.50 billion 41%

Data source: Levi Strauss. YOY = year after year.

Levi’s wholesale channel net sales increased 45% year-over-year, while net sales from its direct-to-consumer channel increased 34%. DTC includes company owned stores and company operated e-commerce site.

Net revenues from all digital channels grew 10% year over year and represented around 20% of total revenues.

2. Operating profit jumped 134%

Generally Accepted Accounting Principles (GAAP) operating income was $ 216 million, compared to $ 92 million the previous year.

Levi attributed the increase to higher net revenues and gross margin. (The gross margin was 57.6%, down from 54.3% a year ago.)

3. Adjusted EPS climbed 500%

GAAP net income was $ 193 million, or $ 0.47 per share, compared to $ 27 million, or $ 0.07 per share, a year ago. Adjusted net income reached $ 197 million, or $ 0.48 per share, from $ 31 million, or $ 0.08 per share, in the third quarter of last year.

Wall Street was chasing adjusted earnings per share of $ 0.37, so the company easily exceeded earnings expectations.

4. Operating cash flow increased 107% in the first nine months of fiscal 2021

For the first nine months of fiscal 2021, cash flow from operations was $ 499 million, more than double the prior year result. Adjusted free cash flow for this period was $ 220 million, compared to a negative amount of $ 31 million for the period last year.

Levi ended the period with $ 1.47 billion in cash, cash equivalents and short-term investments, and $ 1.24 billion in long-term debt.

5. Management expects fourth quarter revenue to increase 20% to 21%

For the fourth quarter, management has focused on revenue growth of around 20% to 21% year-on-year, which is slightly below the 22% expected by Wall Street. For the fourth quarter, management also expects adjusted EPS of $ 0.38 to $ 0.40, which is in line with analysts’ forecast of $ 0.39.

Management has raised its guidance for the full year, citing better-than-expected third quarter results and continued expectation that holiday sales will be good. For fiscal 2021, he now expects adjusted EPS of $ 1.43 to $ 1.45, up from the previous outlook of $ 1.29 to $ 1.33. This compares to Fiscal 2020 and Fiscal 2019 Adjusted EPS of $ 0.21 and $ 1.12, respectively.

Its revenue forecast for the fourth quarter implies full-year revenue growth of about 29%. In the last quarter, management focused on sales growth of 28% to 29% in the second half year on year. The outlook for the fourth quarter implies revenue growth of 29% to 30% in the second half of the year.

For comparison, sportswear Lululemon Athletica guided 41% annual revenue growth in fiscal 2021.

Fiscal year 2022 will be the real test

I will end on the same note as last quarter: “Levi has rebounded well from the pandemic hit for its business. Over the next two quarters, he is expected to continue to benefit from pent-up consumer demand for clothing, so the real test for his business will likely take place next fiscal year. ”

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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