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1 Views Apr 08, 2025 03:01 AM
GuruFocus.com - Article

Levi Strauss & Co (LEVI) Q1 2025 Earnings Call Highlights: Strong Revenue Growth and Record ...

GuruFocus News

  • Organic Net Revenue Growth: Up 9% in Q1.

  • Direct-to-Consumer Growth: Up 12%, with positive comp growth and strong e-commerce performance.

  • Wholesale Growth: Up 5%, with US business up 8% and international up 9%.

  • Gross Margin: Record 62.1%, up 330 basis points from last year.

  • Adjusted EBIT Margin: Expanded 400 basis points to 13.4%.

  • Adjusted SG&A Expenses: Up 2% to $744 million.

  • Adjusted Diluted EPS: $0.38, up 52% from prior year.

  • Inventory Levels: Reported inventory dollars up 7% from prior year.

  • Store Closures: Closed 21 net stores, including 51 underperforming franchisee stores in China.

  • Dividend: Declared $0.13 per share, an increase of 8% from prior year.

  • Americas Net Revenue: Up 11%, with US up 8%.

  • Europe Net Revenue: Up 3%, with strong growth in the UK and Germany.

  • Asia Net Revenue: Up 10%, with direct-to-consumer up 14%.

Release Date: April 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Levi Strauss & Co (NYSE:LEVI) reported a strong start to 2025 with high single-digit organic net revenue growth of 9%.

  • The direct-to-consumer (DTC) channel continues to be a primary growth driver, up 12%, with strong e-commerce performance.

  • The company's wholesale business also showed positive growth, up 5%, with the US business accelerating by 8%.

  • Levi Strauss & Co (NYSE:LEVI) gained market share in both men's and women's categories, solidifying its number one position in denim.

  • The company achieved record gross margins of 62.1%, driven by lower product costs, favorable channel and brand mix, and higher full-price selling.

Negative Points

  • The company is facing a dynamic macro environment due to recent tariff announcements, which could impact future financial performance.

  • Despite strong performance, the company remains cautious about global wholesale, expecting it to be flat for the full year on an organic basis.

  • Levi Strauss & Co (NYSE:LEVI) is dealing with challenges in its China market, which was flat compared to the prior year.

  • The company closed 21 net stores in the quarter, including 51 underperforming franchisee stores in China.

  • There is uncertainty regarding the impact of tariffs on the company's cost structure and pricing strategy, with potential implications for margins.

Q & A Highlights

Q: With tariffs front and center on everyone's mind, can you provide a percentage breakdown of sourcing by key countries for the investors on this call? What are your suppliers saying about providing potential concessions? And then on passing some of the tariffs down the value chain, how much -- when do you think you can raise pricing? A: Michelle Gass, President and CEO, explained that the tariff situation is fluid and new. Levi Strauss is assessing various scenarios and identifying levers to mitigate impacts, including cost structure changes and working with stakeholders. The company sources from 28 countries, with key suppliers in Bangladesh, Cambodia, Egypt, Pakistan, Sri Lanka, and Vietnam. Harmit Singh, CFO, added that imports into the US from China are approximately 1%, from Mexico about 5%, and from Vietnam in the mid- to high single digits.

Q: How are you planning inventory levels going forward on wholesale orders? What are you seeing from the accounts? A: Harmit Singh stated that inventory at the end of Q1 was up 7%, with a healthy composition. The company has secured inventory for spring and summer, and March trends were stronger than February. Global wholesale was up 5%, with US wholesale up 9% organically. There has been no change to orders from wholesale customers, and trade inventory is similar to 2019 levels.

Q: Could you elaborate on key drivers of the 9% organic growth, maybe consumer demand and market share trends that you're seeing in the Americas? A: Michelle Gass highlighted that the 9% organic growth was driven by strength across geographies, channels, and categories. The Americas, Europe, and Asia all showed growth, with DTC up 12% and wholesale up 5%. Key metrics in DTC, such as positive comp sales, traffic, conversion, and AURs, contributed to the growth. Levi's brand grew market share in both men's and women's categories in the US.

Q: Can you give us a sense of the guidance for Q2 organic net revenue growth by region? A: Harmit Singh provided guidance for Q2, expecting low to mid-single-digit growth in the US, mid-single-digit growth in Europe with wholesale returning to growth, and mid-single-digit growth in Asia. DTC is expected to grow in high single digits, while global wholesale is anticipated to be flat to slightly up.

Q: What are your thoughts around frameworks around pricing, especially in light of tariffs and inflation? A: Michelle Gass mentioned that pricing is a potential lever, and any adjustments will be surgical. The brand has pricing power, especially in premium products, and has been pulling back on promotions in DTC. The company will test pricing elasticity in its DTC channel and has experience with successful price adjustments in Mexico.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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