With the consumer spending slowdown impacting the retail sector, Levi Strauss & Co. (LEVI) experienced a significant decrease in its second-quarter sales, prompting a downward revision of its revenue projections for the year ahead.
LEVI’s second-quarter revenue plunged 9% year-over-year to $1.34 billion. The company also reported a net loss of $1.60 million, a striking contrast to a net income of $49.7 million reported during the same quarter last year.
The primary contributor to this downturn was a sluggish wholesale market, resulting in a steep 22% drop in America’s net revenue, accentuated further by a 2% decline in Europe, offsetting its gains in Asia.
Additionally, the company slashed its revenue growth forecast to 1.5% to 2.5% for the current year, vs. prior expectations of 1.5% to 3%. Also, LEVI plans to cut some items’ prices later this year, which could potentially squeeze margins.
Despite having a strong global brand presence, LEVI might find itself in a tough spot with economic pressures in the short run. Considering the challenging retail environment, now might not be the time to invest in the stock. It is worth examining the developments in key financial indicators to understand the situation better.
Analyzing LEVI’s Financial Performance: Net Income, Revenue, Gross Margin, and Current Ratio Trends
The trailing-12-month net income of LEVI has shown significant fluctuations with a general upward trend from August 2020 to May 2023, despite some recent dips.
- Between August 23, 2020, and November 29, 2020, net income fell from -$88.51 million to -$127.14 million.
- February 28, 2021, reported a further decline to -$137.33 million, marking the lowest point in the period.
- A positive turnaround was observed by May 30, 2021, when LEVI returned to a net income of $290.94 million.
- This rebound continued until November 28, 2021, with each subsequent quarter registering substantial growth, reaching a peak of $606.88 million on February 27, 2022.
- A slight downtrend was recorded until August 28, 2022, with net income falling to $571.53 million before a negligible drop to $569.1 million by November 27, 2022.
- Early 2023 saw a continued drop with a value of $487.96 million reported on February 26, before a further slump to $436.62 million by May 28, 2023.
Despite the fluctuating figures, the overall growth rate from the start of the series to the end of the series is considerable. The latest figure, however, shows a reduction in net income which might draw investor concern if the pattern continues.
The trend and fluctuations in LEVI’s trailing-12-month revenue over the past few years are summarized as follows:
- As of August 23, 2020, the reported revenue stood at approximately $4.64 billion.
- There was a downward trend till February 28, 2021, when the revenue dropped to around $4.25 billion.
- Following this period, there was a significant uptick in LEVI’s revenue, with values progressively increasing to around $6.26 billion by August 28, 2022.
- However, there was a slight dip to approximately $6.17 billion by November 27, 2022, followed by a slight increase to about $6.27 billion on February 26, 2023.
- The most recent datum point, as of May 28, 2023, indicates a drop in revenue to about $6.13 billion.
Despite the noticeable fluctuations, there is a general upward trend in LEVI’s revenue throughout the observed period.
The gross margin of the LEVI saw a predominantly upward trend from August 23, 2020, to November 27, 2022.
On August 23, 2020, LEVI’s gross margin was at 52.60%; by November 27, 2022, it stood at 57.50%. This represents a growth rate of approximately 9.31% over the given period.
The highest recorded value during this period was 58.40% on February 27, 2022; however, there were slight reductions after this peak.
Notably, since February 27, 2022, there has been a downward trend in the gross margin reaching 56.60% on February 26, 2023. A slight increase to 56.70% was reported on May 28, 2023.
The data provided outlines the historical fluctuations and general trends observed in the current ratio of LEVI from August 2020 to May 2023.
- The current ratio began at 1.96 on August 23, 2020, and experienced a slight increase to 2.02 by November 29, 2020, before it started to decline.
- More recent data shows a consistent decrease in the current ratio from February 2022 (1.55) until November 2022 (1.43 times).
- A minor increase was recorded in February 2023, where the ratio climbed back to 1.49, only to decrease again by May 2023, settling at 1.42.
Though the current ratio has experienced some fluctuations over the observed years, the general trend shows a gradual decline. The growth rate, calculated by measuring the final value against the first value, indicates a decrease of 27.60%. This shedding light on LEVI’s diminishing ability to cover its short-term liabilities with its short-term assets over time.
- Analyst Price Target for LEVI remained constant at $34.5 from November 12, 2021, to January 21, 2022.
- Starting from late January 2022, a downward trend is observed, with the value steadily decreasing over months, eventually reaching its lowest in November 2022 at $19.
- This decline took a small step back when the value rose to $20 by February 10, 2023, remaining constant throughout March 2023.
- Further decreases were seen in April 2023, down to $18.
- The value stayed constant at $18 from April 28, 2023, to July 7, 2023.
- A sharp drop was observed in Mid-July 2023, bringing the final Analyst Price Target to approximately $15.67 as of July 19, 2023.
The initial value on November 12, 2021, was $34.5, and the final value on July 19, 2023, was $15.67. Thus, the growth rate measured from the first value to the last shows a decline of approximately 54.52%. Recent Fluctuations:
- From December 2022 to February 2023, there has been a minor fluctuation from $19 to $20, a growth of about 5.26%.
- In April 2023, there was a small decrease from $20 to $19, indicating a dip of about 5%.
- From mid-April to mid-July 2023, the Analyst Price Target gradually decreased from $19 to $16.8.
- A notable decline from $16.8 to $15.67 was observed in mid-July 2023, representing a 6.74% drop within a week.
Unraveling LEVI’s Six-Month Stock Performance: Trends, Drops, and Fluctuations
Based on the given data, the share price of LEVI has experienced both rises and falls over the months from January to July 2023. Here’s a detailed look at the trend:
- On January 20, 2023, the share price of LEVI was $16.34.
- The price increased slightly to reach $17.10 on January 27, 2023.
- In February 2023, the share price showed an upward trend initially, reaching a peak of $18.59 on February 3. However, the price started declining gradually during the rest of the month, finishing at $17.52 by February 24.
- In March 2023, the price showed mild fluctuations initially but witnessed a significant drop, going down to $15.87 on March 17. It then gained slightly, ending the month at $17.59.
- April 2023 saw a notable downward trend, with the price falling consistently throughout the month. By April 28, the share price dropped to $14.42.
- This downward trend continued in May 2023, as the share price decreased to $13.17 by the end of the month.
- In June 2023, the price initially showed a slight uptick, peaking at $14.84 on June 16 before ending the month at $14.47.
- Finally, in July 2023, the share price of LEVI showed a gradual decline, finishing at $13.57 on July 18, its lowest point in the observed period.
In terms of growth rate, it seems that LEVI had an overall negative growth rate during this period, experiencing more severe drops than rises in its share price. The most rapid decrease occurred between March 3, 2023 ($17.78) and March 17, 2023 ($15.87), representing a fall of about 11% within two weeks. This significant decelerating trend dominates the prevailing trend for the entire six months analysis. Here is a chart of LEVI’s price over the past 180 days.
Assessing LEVI’s POWR Ratings
LEVI has an overall C rating, translating to a Neutral in our POWR Ratings system. It also has a C grade for Momentum, Stability, Sentiment, and Quality. It is ranked #35 out of the 80 stocks in the Consumer Goods category.
Stocks to Consider Instead of Levi Strauss & Co. (LEVI)
Other stocks in the Consumer Goods sector that may be worth considering are Ennis Inc. (EBF), KOSÉ Corporation (KSRYY), and Société BIC SA (BICEY) -- they have better POWR Ratings.
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LEVI shares were trading at $14.02 per share on Wednesday afternoon, up $0.45 (+3.32%). Year-to-date, LEVI has declined -8.31%, versus a 19.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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