Levi Strauss & Co. (NYSE: LEVI) reported a 4% increase in earnings for the first quarter of 2020 helped by lower income tax expenses despite a rise in operating expenses. The results exceeded analysts’ expectations. The company withdraws its prior annual guidance due to the COVID-19 uncertainty.
Net income increased by 4% while earnings per share remained flat from last year due to higher weighted average common shares outstanding. Adjusted earnings grew by 5% to $0.40 per share. Revenue rose by 5% to $1.51 billion. Analysts had expected EPS of $0.35 on revenue of $1.47 billion for the first quarter.
The top line was benefited by Black Friday despite the adverse impact of COVID-19 and the continuing unrest in Hong Kong. The adverse impact of store closure and reduced traffic during the last six weeks in Asia turned out to be a concern for top-line growth.
Virus Attack
In mainland China, nearly all company-operated owned and franchisee doors were closed at the end of the Q1. Levi Strauss reopened all company-operated doors and six franchisee doors in mainland China, including its beacon store in Wuhan. The company is recovering from the weak traffic and sales as weekly sales are improving sequentially and digital sales show year-over-year growth.
Since mid-March, in response to the global pandemic, the company has temporarily closed all its doors, both company-operated and franchise, in the Americas and Europe, as well as most doors in Asia outside greater China, Korea, and Japan. This could have a materially significant adverse impact on the company’s revenue, earnings and cash flow for the second quarter.
The COVID-19 pandemic continues to impact the apparel stocks as governments are implementing isolation and lockdowns in order to escape from the virus spread. After the shut down of factories in China early this year, apparel stocks have a long road to fully recover from the sell-off.
“I am very optimistic about our prospects for the future, both navigating through the crisis in the short- to medium-term and in the long-term recovery. And I believe we are well-positioned, if not, better positioned than most companies in our industry,” chief executive Charles Bergh said during the earnings call.
However, the market experts were concerned about the company’s growth prospects for fiscal 2020 due to the rapid spread of the COVID-19 outbreak around the globe. Levi’s store traffic will certainly be hurt by store closures and lockdowns around the world this year. This will lower the company’s revenue and earnings growth for fiscal 2020.