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Levi Strauss & Co (LEVI), the iconic denim maker, saw its stock price drop 7.8% on Friday, after the company lowered its revenue guidance for the second half of the year, citing weak consumer spending and supply chain disruptions.
The company reported its second-quarter results on Thursday, beating analysts’ expectations on both earnings and revenue. The company posted earnings per share of $0.23, compared to the consensus estimate of $0.09. Revenue came in at $1.28 billion, up 156% year-over-year and above the consensus estimate of $1.21 billion.
The company also raised its dividend by 33% to $0.08 per share and announced a new $200 million share repurchase program.
However, the company also lowered its revenue outlook for the third and fourth quarters, saying that it expects revenue to grow 4% to 5% in the second half of the year, compared to the same period in 2019, before the pandemic. This implies a slowdown from the 7% growth in the first half of the year.
The company cited several factors for the lower guidance, including:
- The resurgence of Covid-19 cases and variants in some markets, especially in Asia, which could affect consumer demand and store operations.
- The ongoing supply chain challenges, such as port congestion, labor shortages and higher freight costs, which could limit product availability and increase expenses.
- The uncertainty around consumer spending patterns, as government stimulus fades and consumers shift their spending from apparel to other categories, such as travel and entertainment.
The company also said that it expects its gross margin to decline slightly in the second half of the year, due to higher product costs and unfavorable currency effects.
The company’s CEO Chip Bergh said that he remains confident in the long-term prospects of the company, as it continues to execute its strategy of expanding its product portfolio, growing its direct-to-consumer channel and enhancing its digital capabilities.
He also said that the company is well-positioned to navigate the near-term challenges and capture the opportunities in the post-pandemic world.
“We are confident that we will emerge from this crisis a stronger company,” he said.
Analysts’ reactions to the company’s results and guidance were mixed. Some analysts praised the company’s strong performance in the second quarter and its ability to gain market share and improve profitability. Others expressed concerns about the company’s growth prospects and valuation amid a challenging environment.
According to Yahoo Finance, out of 14 analysts covering Levi Strauss stock, nine have a buy rating, four have a hold rating and one has a sell rating. The average price target is $28.93, implying a 12-month upside potential of 101% from Friday’s closing price of $14.43.
