Denim clothing company Levi's (NYSE:LEVI) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 7.8% year on year to $1.56 billion. It made a non-GAAP profit of $0.26 per share, down from its profit of $0.34 per share in the same quarter last year.
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Levi's (LEVI) Q1 CY2024 Highlights:
- Revenue: $1.56 billion vs analyst estimates of $1.55 billion (small beat)
- EPS (non-GAAP): $0.26 vs analyst estimates of $0.21 (24.8% beat)
- Gross Margin (GAAP): 58.2%, up from 55.8% in the same quarter last year
- Free Cash Flow of $214.4 million, similar to the previous quarter
- Market Capitalization: $7.46 billion
Apparel, Accessories and Luxury GoodsWithin apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Levi's annualized revenue growth rate of 1.3% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Levi's recent history shines a dimmer light on the company as its revenue was flat over the last two years.
Levi's also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 2.3% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see that foreign exchange rates have been a headwind for Levi's.
This quarter, Levi's reported a rather uninspiring 7.8% year-on-year revenue decline to $1.56 billion of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 6.3% over the next 12 months, an acceleration from this quarter.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Over the last two years, Levi's has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 2.3%, subpar for a consumer discretionary business.
Levi's free cash flow came in at $214.4 million in Q1, equivalent to a 13.8% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter.
Key Takeaways from Levi's Q1 Results
We were impressed by how significantly Levi's blew past analysts' EPS expectations this quarter, driven by growth in its Direct-to-Consumer (DTC) sales in all business segments. As a reminder, DTC revenue has higher margins than wholesale revenue because the company can charge higher prices. Furthermore, the company stated its revenue would have been flat year on year excluding its Russia business and divestiture of Denizen.
Levi's also declared a dividend of $0.12 per share ($48 million total). The dividend is payable on May 23, 2024, to shareholders of record on May 9, 2024. The company's full-year revenue and EPS guidance were in line with Wall Street's projections.
Overall, this was a mediocre quarter for Levi's. The stock is up 6.4% after reporting and currently trades at $19.86 per share.
