Why Levi Strauss Fell Short in Q2

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When Levi Strauss & Co. (NYSE: LEVI) reported its second-quarter financial results after the markets closed on Tuesday, the firm said that it had $0.07 in earnings per share (EPS) and $1.31 billion in revenue. That compared with consensus estimates of $0.13 in EPS and $1.3 billion in revenue, as well as the $0.19 per share and $1.25 billion posted in the same period of last year.

During the latest quarter, net revenues grew 5% on a reported basis and 9% on a constant-currency basis.

The company’s direct-to-consumer business grew reported revenues by 9% in the second quarter, primarily due to performance and expansion of the retail network and e-commerce growth. The company had 78 more company-operated stores at the end of the second quarter of 2019 than it did a year prior. The company’s wholesale business grew reported revenues by 3%, reflecting growth in all the regions.

Second-quarter net income decreased $49 million, primarily due to $29 million of costs associated with the company’s IPO, inclusive of $25 million of underwriting commissions paid on behalf of the selling stockholders.

Looking ahead to the 2019 fiscal year, the company expects to see net revenues grow at the high end of the mid-single-digit range and adjusted EBIT margin slightly up in the range of 10 basis points (both forecasts are on a constant currency basis). Consensus estimates are calling for $1.06 in EPS and $5.87 billion in revenue for the full year.

Chip Bergh, president and CEO of Levi Strauss, commented:

Our second quarter and first half results reflect the continued strength of our diversified business model as we delivered broad-based growth across all brands, regions and key product categories despite a challenging retail and macroeconomic environment. For both periods, the Levi’s brand grew in all three regions across men’s, women’s, tops and bottoms and maintained its position at the center of culture through iconic products and consumer experiences.

Shares of Levi Strauss traded down 11% Wednesday to $20.98, in a 52-week range of $18.92 to $24.50. The consensus price target is $25.00.

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