Add Levi's To Your Watchlist

In the middle of a 50% bounce in their stock price off the lows of last week, Levi Strauss & Co (NYSE: LEVI) released their Q1 earnings after Tuesday’s session. Their EPS and revenue both came in ahead of analyst expectations with the latter showing almost 6% growth year on year. Given the current economic environment, being able to post any kind of analyst beat or positive growth will be music to the bull’s ears, especially as the company forecasted that their revenue for the quarter from Asia was impacted by as much as $20 million thanks to the coronavirus pandemic.

Their CEO, Chip Bergh, touched on a lot of points when he said “our first-quarter results underscore the strength of the Levi’s brand and the efficacy of our strategies to diversify our business, both of which will be crucial to coming out of the current crisis stronger than ever. As this human and economic tragedy unfolds globally over the coming months, we are taking swift and decisive action that will ensure we remain a winner in our industry.”

Not Its First Rodeo

Levi’s is a company that is no stranger to situations like the present. They’ve been around since before the Civil War and endured that along with two World Wars, the 1918 Spanish Flu, and the Great Depression. Management is getting ready to batten down the hatches again and is busy reducing costs and capital spend while keeping their margins steady. Their gross margins are up over 55% which is a healthy number for any retailer to be aiming for and achieving.

It will be Q2’s earnings before Wall Street can really get a sense of the economic impact the coronavirus pandemic has had on the world’s economy but retailers are expected to be on the firing line. As non-essential businesses, they were caught in the first wave of shutdowns and some like Neiman Marcus have already started to throw in the towel. As the virus’ spread appears to be slowing in some countries and the curve starts to flatten, there is light peeking in at the end of the tunnel. For example, Levi’s announced with their release that all company-operated stores and all but six franchisee stores have reopened on mainland China, including in the city of Wuhan where the virus originated. Whether the world can avoid the second wave of infection remains to be seen but businesses are eager to get back to doing business as quickly as possible and Levi’s is no different.

Getting Involved

Levi’s stock had taken a 50% haircut from mid-February through last week but that didn’t stop management from announcing a dividend with Tuesday’s release, a bullish step that underlines their CEO’s positive stance. For investors considering getting involved in a beaten-down retail stock, there are far worse retail names out there. Levi’s can boast huge brand loyalty and worldwide popularity. They listed available liquidity of $1.8 billion in their Q1 report so have a hefty balance sheet to ride out the coming months with. 

The stock only IPO’d about a year ago and while it hadn’t performed well compared to the S&P 500 through 2019 it had put in a solid double bottom on the chart. Shares were up 20% from November through mid-February and are starting to look like they want to get back up there. Last week’s low at $9 is an attractive entry point for the patient investor. For the less patient, consider starting to build a position and be ready to add if the stock takes another dip. We’re not out of the woods by a long shot yet, but of all the retail names out there, Levi’s looks likely to recover lost territory the quickest.