Levi Strauss & Co. (LEVI) is receiving a vote of confidence from analyst Dana Telsey of Telsey Advisory Group, who has reiterated an “Outperform” rating on the company’s stock. Telsey’s positive outlook is driven by a combination of factors, including a stabilizing US denim market, a more streamlined business following the divestment of Denizen and footwear, and robust direct-to-consumer (DTC) trends.
The analyst highlights several key positives for Levi Strauss. The women’s denim segment is exhibiting accelerated growth, indicating strong consumer demand. Furthermore, Levi Strauss is actively enhancing its product assortment with a focus on new items to appeal to a wider customer base. The company’s “Project Fuel” initiative is also expected to deliver significant cost savings, reaching $50 million in the fourth quarter. This initiative will lead to more efficient operations and improved profitability.
Telsey acknowledges that the company’s third-quarter results mirrored the second quarter, with sales falling slightly short of market expectations (although aligned with guidance) and expenses aligning with forecasts. However, the analyst emphasizes that the company’s earnings per share (EPS) upside can be attributed to significantly stronger gross margins.
While the company faces challenges in the near term, particularly in the Chinese and Mexican wholesale markets, as well as in the Dockers business, Telsey remains optimistic about Levi Strauss’s long-term prospects. The company has slightly adjusted its full-year 2024 topline outlook due to these challenges, but its EPS guidance remains at the midpoint of its previous range, slightly below consensus estimates.
Despite these near-term headwinds, Telsey emphasizes that Levi Strauss is actively addressing these issues. The company’s exploration of strategic options for the Dockers brand demonstrates its commitment to focusing on core areas and driving growth. The analyst believes that Levi Strauss’s strong fundamentals and strategic initiatives position it for continued success in the long term.
At the time of writing, LEVI shares were trading up 1.21% at $19.68.
