Levi Strauss (LEVI) stock looks a safe bet despite volatility. Here’s why

Levi Strauss & Co. (NYSE: LEVI) has remained largely unaffected by the pandemic so far, but sales slowed down last year as customers reduced spending on discretionary items like clothing and apparel. Though the management’s efforts to revive sales by strengthening e-commerce capabilities paid off to some extent, it seems the jeans maker needs more effective measures to get back on track.

Stock Peaks

The stock hit an all-time high last week but lost momentum since then and slipped to the pre-peak levels. The dip in valuation has created a fresh buying opportunity, with the price estimated to remain stable during the remainder of the year. Experts’ consensus rating on the stock is strong buy.

The California-based apparel company was established more than one-and-half century ago. After operating as a listed entity for about 15 years it went private in 1985, only to become public once again a few years ago. It will be releasing first-quarter results on April 8 after the closing bell, amid expectations that sales would drop 17% to $1.25 billion. The market will be looking for earnings of $0.27 per share, down 33% year-over-year. Levi Strauss’ earnings exceeded expectations almost every quarter since its 2019 IPO, and the trend continued in the latest quarter.

Holiday Sales Falter

The company had a relatively unimpressive holiday season, thanks to the dismal store traffic. In the fourth quarter, revenues dropped 12% annually to $1.39 billion, hurt by the closure of retail locations across key markets, both third-party and company-owned. Consequently, adjusted earnings dropped 23% to $0.20 per share but topped the Street view. The bright spot was a 38% growth in e-commerce sales.

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From Levi Strauss’ fourth-quarter 2020 earnings conference call:

“Going forward, we are sharpening our focus and doubling down on the things that are making an outsized contribution to our business performance, things that will differentiate us and drive value for our shareholders: first, leading with our brands; second, operating with a DTC-first mindset and pivoting to act more like a vertical retailer; third, we’ll further diversify our business by driving outsized growth in underpenetrated areas; and fourth, digitally transforming our business.”

Road Ahead

Growing digital sales and easing cost pressure should translate into profit in the coming months. That, combined with the ongoing market recovery and strong fundamentals, brightens the company’s post-pandemic prospects. But, with several stores still non-operational, the recent resurgence in COVID cases doesn’t bode well for the company. The management has cautioned that sales would remain under pressure until at least mid-2021.

For Levi Strauss, investing in digital capabilities and tools is a key priority. The growth strategy also includes elevation and diversification of the brands across all geographical and operational segments, including the digital channel. Interestingly, the company opened 21 next-gen stores in the final three months of the last fiscal year.

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Read management/analysts’ comments on Levi Strauss’ Q4 report

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Levi Strauss’ shares pared their post-earnings gains in late January but returned to the growth path soon. The stock, which has gained about 20% since the beginning of the year, closed Friday’s regular session slightly higher.