On Thursday, Citi reiterated its Neutral rating on shares of Levi Strauss & Co. (NYSE:LEVI), maintaining a $21.00 price target. The firm's position comes after the apparel company reported mixed financial results, with a stronger-than-expected bottom line but sales that slightly missed market forecasts.
Levi Strauss's recent earnings outperformed predictions primarily due to gross margin improvements, yet the company chose to maintain its earnings per share (EPS) outlook for the year. Management adjusted the implied second-half guidance from $0.90 to a range of $0.75 to $0.85, which falls short of the consensus estimate of $0.91. This revision was attributed to expenses linked to changes in the company's distribution strategy and foreign exchange headwinds.
In the United States, Levi Strauss's direct-to-consumer (DTC) segment saw a robust 12% increase, contributing to the company's strong domestic performance. Conversely, the European market did not fare as well, with an overall 2% decline, which was below the consensus projection of a 1.5% increase.
Although management stated that Europe's performance was in line with their plans, the second-quarter downturn may lead to skepticism about the possibility of a rebound in the latter half of the year, which is currently factored into the company's guidance.
The Asia-Pacific region did not meet management's expectations, with the underperformance largely driven by challenges in China. Despite a generally positive quarter, heightened expectations were set due to anticipated benefits from new product styles, fits, and collaboration with Beyonce.
While the Levi's brand appears to remain strong, the wholesale segment is still a constraining factor. Moreover, there are concerns that the European market may not experience the anticipated improvement in the second half of the year.
In other recent news, Levi Strauss & Co. has seen significant developments, starting with Stifel increasing its price target for the company from $24 to $28 and maintaining a Buy rating. This comes on the back of a strong outlook for the company, with Stifel anticipating Levi Strauss to surpass its second quarter 2024 revenue and earnings per share projections.
Additionally, TD Cowen has raised Levi's share price target from $23.00 to $26.00, maintaining a Buy rating and highlighting it as a top pick among small to mid-cap companies.
The company has also appointed Gianluca Flore as its new executive vice president and chief commercial officer, aiming to expand its direct-to-consumer sales and international presence. On a less positive note, Levi Strauss has joined the trend of significant workforce reductions seen across North American firms.
In the first half of the fiscal year 2024, Levi Strauss reported revenue of $1,558 million and adjusted earnings per share of $0.26, exceeding Stifel's projections. The company's plans to increase its store count from approximately 1,100 to 1,500 by 2027 were also noted, with Stifel expressing a higher conviction in the stock's prospects.
These recent developments provide investors with a glimpse into the company's current trajectory.
InvestingPro Insights
As Levi Strauss & Co. navigates the mixed financial landscape highlighted by Citi, real-time data from InvestingPro provides additional context for investors. The company's market capitalization stands at a robust $9.2 billion, with a notable dividend yield of 2.08%, reinforcing its commitment to shareholder returns. This aligns with the InvestingPro Tips that Levi has raised its dividend for five consecutive years, showcasing a pattern of rewarding investors.
InvestingPro data also reveals that Levi's Price to Earnings (P/E) ratio is at a high of 74.1, suggesting a premium market valuation that may be justified by the company's strong return over the last year, including a significant 63.19% one-year price total return. Additionally, the company's liquid assets exceed short-term obligations, providing financial flexibility. With a solid operating income margin of 8.41% for the last twelve months as of Q1 2024, Levi's profitability is further corroborated by analysts' predictions of continued profitability this year.
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