Levi Straus Stock Ready to Buy the Dip

Iconic clothing brand Levi Strauss & Co. NYSE: LEVI stock decline may be coming to an end after stabilizing around the $17.50 range after its latest earnings. The popular and sticky denim brand struggled against a multitude of headwinds, but the reopening recovery continues despite Omicron and inflationary pressures. Supply chain constraints had materially impacted net revenues by nearly $60 million. The Company continued to grow its direct-to-consumer sales by 35% in its company-owned physical stores and e-commerce. Direct to consumer sales grew to 39% of total Q1 2022 sales. The pandemic has accelerated the digital transformation of the Company as it makes data-driven decisions utilizing proprietary data analytics utilizing artificial intelligence (AI) and methodical analysis of price elasticity. This has also enabled the Company to bolster global brick-and-mortar business by 50% from a year ago. The Levi app has doubled its monthly active users in the quarter in the U.S. and Europe with plans to rollout out in India in Q2 2022.

Q1 Fiscal 2022 Earnings Results

On April 6, 2022, Levi Strauss reported their fiscal Q1 2022 earnings results for the quarter ending February 2022. The Company reported earnings-per-share (EPS) of $0.46, beating consensus analyst estimates for $0.42, beating by $0.04. Revenues grew 21.9% year-over-year (YoY) to $1.59 billion beating the $1.55 billion analyst estimates. Adjusted EBIT margin was 14.9% versus 13.3% year ago period. Global direct-to-consumer (DTC) revenues were up 35% YoY composed of 48% growth in company owned stores and 10% growth in e-commerce. Levi Strauss CEO Chip Bergh commented, "We started the year with strong consumer demand and solid momentum across geographies, channels and categories. Our teams’ disciplined execution of our strategic priorities enabled us to deliver strong top and bottom-line growth as we capitalize on structural tailwinds and successfully manage a dynamic operating environment. The strength of our brands and strategy position us to deliver sustainable growth well into the future."

Reaffirmed Guidance

The Company reaffirmed fiscal full-year 2022 EPS of $150 to $.56 versus $1.53 consensus analyst estimates on revenues of $6.4 to $6.5 billion versus $6.44 billion estimates. Levi Strauss CFO Harmit Singh commented, "We achieved excellent financial results in the first quarter, driving strong double-digit revenue growth and record gross margin enabling us to deliver adjusted EBIT margin of 14.9 percent. The ongoing consumer demand across our portfolio of brands and our proven ability to deliver profitable growth give us the confidence to reaffirm our full-year outlook despite the incremental headwinds from ongoing macro challenges."

Conference Call Takeaways

CEO Bergh started off by reflecting on the Russian invasion of Ukraine and its efforts in helping the humanitarian cause by donating thousands of piece of clothing to refugee families. He noted the broad strength across all markets, categories, gender, and channels driving consumer demand. The Company hit a high watermark of 14.9% EBIT, which grew faster than revenue. U.S. denim sales have grown by 11% since pre-pandemic levels two years ago. The Company launched premium-price circular 501 jeans which are made with organic cotton and recyclable. The looser fit denim trend is a popular tailwind driver of growth. The brand is elastic as consumer demand remains strong even after they have raised prices as unit sales return to 2019 levels. The Company continues to rollout out next-generation stores. It’s Dallas, Texas, NorthPark Mall next-gen store was the most productive U.S. store in its second month of operation. The Levi brand grew 20% across its top five markets. DTC generated 35% growth driven by the recovery in brick-and-mortar. CEO Bergh concluded with comments on its Beyond Yoga brand, “The brand has started the year strong, exceeding our expectations in Q1. It's a well-positioned premium brand, but significantly expands our total addressable market while contributing to the diversification of the company.” 

LEVI Opportunistic Pullback Levels

Using the rifle charts on a weekly time and daily time frames provides a precision view of the landscape for LEVI stock. The weekly rifle chart bottomed near the $17.35 Fibonacci (fib) level. The weekly lower Bollinger Bands (BBs) sit at the $16.42 fib. The weekly rifle chart downtrend stalled as the 5-period moving average (MA) resistance is starting to slope up against the falling 15-period MA at $21.10. The weekly 50-period MA is falling near the $25.06 fib. The weekly stochastic is attempting a mini pup through the 30-band. The daily rifle chart downtrend is stalling with a flattening 5-period MA at $18.92 with a slowing 15-period MA at $19.69 and falling 50-period MA at $20.67. The daily lower BBs sit at $17.92. The daily market structure low (MSL) buy triggers on a breakout above the $19.13 level. The daily stochastic is stalled just below the 30-band ready to either mini inverse pup down on a 5-period MA breakdown or cross up on the 15-period MA breakout. Prudent investors can monitor for opportunistic pullback levels are at the $18.41 fib, $17.73 fib, $17.35 fib, $16.82 fib, $16.45 fib, $15.52 fib, $14.85 fib, and the $13.75 fib. Upside trajectories range from the $21.86 fib level up towards the $28.40 fib level.   

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