Why Levi's (LEVI) Stock Is Down Today
What Happened?
Shares of denim clothing company Levi's (NYSE:LEVI) fell 12.5% in the morning session after the company reported third-quarter earnings results. Its constant currency revenue missed Wall Street's expectations. The weakness was mostly concentrated in the Americas, where sales declined 1% year on year, partly due to the company exiting its Denizen® business. The company also called out some underperforming elements, including the Dockers brand. Levi's is evaluating strategic alternatives, which could involve a potential sale of the brand. Looking ahead, its full-year EPS guidance fell short of Wall Street's expectations. In addition, full-year revenue guidance was lowered, with expectations for approximately 1% y/y growth (down from the previous guidance range of 1% - 3% growth). Overall, this was a weaker quarter.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Levi's? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Levi’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. Moves this big are rare for Levi's and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock gained 18.2% on the news that the company reported first-quarter results that blew past analysts' EPS expectations, driven by growth in its Direct-to-Consumer (DTC) sales in all business segments.
As a reminder, DTC revenue has higher margins than wholesale revenue because the company can charge higher prices. In addition, management noted that nearly half of its revenue (48%) was generated from its DTC business (direct-to-consumer), which means less reliance on partners to drive the top line and potentially more flexibility, which could extend to how its products are priced.
Furthermore, the company stated its revenue would have been flat year on year excluding its Russia business and divestiture of Denizen. Levi's also declared a dividend of $0.12 per share ($48 million total).
Lastly, the company's full-year revenue and EPS guidance were in line with Wall Street's projections. Overall, this was a favorable quarter for Levi's.
Levi's is up 19.8% since the beginning of the year, but at $19.47 per share, it is still trading 19.4% below its 52-week high of $24.17 from June 2024. Investors who bought $1,000 worth of Levi’s shares 5 years ago would now be looking at an investment worth $1,001.
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