Despite the pressures of global economic uncertainty, Levi Strauss & Co. (LEVI) has delivered accelerated revenue growth, strong cash flow, and better-than-expected results. The company has reported Q4 results that beat Wall Street’s expectations, with revenue of $1.84 billion, a 12% increase year-over-year, and earnings of $0.50 per share, marking a 3.7% rise over analysts’ consensus estimates. Looking to the future, the company anticipates a softer environment in 2025, reflecting the negative impact of a stronger dollar on sales. The company predicts a 1% to 2% fall in revenue in FY25, leading to adjusted earnings between $1.20 and $1.25 per share.
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This is less than the expected earnings of $1.37 per share. However, Levi’s expects its adjusted EBIT margin to broaden to 11.1% from 10.9% last year and is forecasting organic net revenue growth of 3.5% to 4.5%. The stock appears reasonably valued, though it may languish until the company posts more positive news. Investors may want to look for a better entry point.
Sharpened Focus on Core Brands
Levi Strauss & Co. is one of the iconic brand-name apparel companies globally. It designs and markets jeans, casual wear, and related accessories for men, women, and children. The company’s brand portfolio includes notable names such as Levi’s, Dockers, Signature by Levi Strauss & Co., and Beyond Yoga brands.
Leveraging a vast distribution network, Levi Strauss & Co. sells products in more than 110 countries worldwide. This network encompasses chain retailers, department stores, online platforms, and approximately 3,000 brand-dedicated stores and shop-in-shops.
The company’s focus for 2025 is to expedite growth across its regional markets, notably North America and Europe. It is also set to leverage emerging opportunities in rapidly developing regions like Latin America and Asia Pacific while maintaining stability in Greater China. Additionally, an ongoing strategy exists to explore a potential sale of the Dockers brand. Conversely, there is a level of confidence within the company about Beyond Yoga’s future, with expectations that the brand could one day achieve a billion-dollar status.
Strong Financial Results Reported
The company recently reported strong fourth-quarter financial results, exceeding expectations. Revenue reached $1.84 billion, outperforming predictions by $110 million. Regionally, net revenues saw growth in all areas on a net basis and an organic basis (which excludes the impacts of foreign exchange rates) – Americas (12% reported, 9% organic), Europe (15% reported, 6% organic), Asia (9% reported and organic), and other brands (10% reported, 5% organic). Direct-to-consumer revenues also grew significantly, by 19% on a reported basis and 14% on an organic basis, accounting for 45% of total organic net revenues in Q4.
Operating margin was 11.5%, an increase from 9.2% in Q4 2023, and gross margin rose to 61.3% from 57.8% the previous year, setting a new company record. The increase in gross margin was due to lower product costs, favorable channel mix, and higher full-price sales. Net income increased to $183 million, up from $127 million in Q4 2023, with adjusted net income at $202 million compared to $179 million the previous year. The company’s earnings per share were $0.50, an increase compared to $0.44 in Q4 2023, beating expectations by $0.02.
For the full Fiscal year of 2024, reported net revenues stood at $6.4 billion, a 3% increase from FY 2023. The operating margin was 4.2%, and gross margin was 60%. Net income was $211 million, with adjusted net income at $503 million, up from $441 million in FY 2023. The company also generated a record adjusted free cash flow of $671 million and returned $289 million in capital to shareholders, a 45% increase from the prior year.
The company has declared a $0.13 per share quarterly dividend, equating to a forward yield of 2.87%. It will be payable on Feb. 28 for shareholders of record on Feb. 12.
Following fourth-quarter earnings, LEVI’s management has offered forward guidance for 2025, with organic net revenue projected to grow by 3.5% to 4.5%. The adjusted EBIT margin is anticipated to expand to 10.9-11.1%.Adjusted diluted earnings per share are expected to be between $1.20 and $1.25, including effects such as a 20-cent headwind from foreign currency fluctuations and higher tax rates.
Readjusting Price Targets
Analysts following the company have been constructive on LEVI stock, but the soft forward guidance has caused many to revise and adjust 12-month price targets. For example, Guggenheim’s Robert Drbul, a four-star analyst according to Tipranks’ ratings, lowered the price target on LEVI stock to $20 (from $23) while maintaining a Buy rating, noting its reduced FY25 EPS estimate.
Levi Strauss & Co. is rated a Moderate Buy overall, based on the recent recommendation of 10 analysts. The average price target for LEVI stock is $20.45, representing a potential upside of 7.46% from current levels.
Bottom Line on LEVI
Despite facing global economic headwinds, Levi Strauss & Co. has demonstrated its resilience by delivering accelerated revenue growth, robust cash flow, and impressive Q4 results, surpassing expectations. The brand’s global presence and focus on expanding in various regions position it well for future growth despite a forecasted softer environment in 2025. As an iconic brand, LEVI stock appears reasonably priced, with the potential for growth once more positive news emerges. In the interim, investors might want to hold off and look for better entry points.
