Levi's (NYSE:LEVI) Misses Q2 Sales Targets, Stock Drops 14.4%

Adam Hejl /
2024/06/26 4:17 pm EDT

Denim clothing company Levi's (NYSE:LEVI) missed analysts' expectations in Q2 CY2024, with revenue up 7.8% year on year to $1.44 billion. It made a non-GAAP profit of $0.16 per share, improving from its profit of $0.04 per share in the same quarter last year.

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Levi's (LEVI) Q2 CY2024 Highlights:

  • Revenue: $1.44 billion vs analyst estimates of $1.45 billion (small miss)
  • EPS (non-GAAP): $0.16 vs analyst estimates of $0.11 (48.7% beat)
  • Revenue Guidance: $6.3 billion for the full year missed analysts' estimates of $6.35 billion (small miss)
  • EPS Guidance (non-GAAP): $1.22 for the full year missed analysts' estimates of $1.27 (4.1% miss)
  • Gross Margin (GAAP): 60.5%, up from 58.7% in the same quarter last year
  • Free Cash Flow of $222.6 million, similar to the previous quarter
  • Constant Currency Revenue rose 9% year on year (-8.6% in the same quarter last year)
  • Market Capitalization: $9.15 billion

Credited for inventing the first pair of blue jeans in 1873, Levi's (NYSE:LEVI) is an apparel company renowned for its iconic denim products and classic American style.

Apparel, Accessories and Luxury Goods

Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, Levi's grew its sales at a weak 1.4% compounded annual growth rate. This shows it failed to expand its business in any major way. Levi's Total Revenue

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Levi's recent history shows its demand slowed as its revenue was flat over the last two years.

We can dig further into the company's sales dynamics by analyzing its constant currency revenue, which exclude currency movements that are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales were flat. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Levi's. Levi's Year-On-Year Constant Currency Growth

This quarter, Levi's revenue grew 7.8% year on year to $1.44 billion, missing Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 5.9% over the next 12 months, a deceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Levi's has shown poor cash profitability over the last two years, putting it in a pinch as it gave the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 4%, lousy for a consumer discretionary business.

Levi's Free Cash Flow Margin

Levi's free cash flow clocked in at $222.6 million in Q2, equivalent to a 15.4% margin. This quarter's margin was in line with the comparable period last year.

Key Takeaways from Levi's Q2 Results

We were impressed by how significantly Levi's blew past analysts' EPS expectations this quarter. We were also glad its constant currency revenue outperformed Wall Street's estimates. On the other hand, its full-year revenue and earnings guidance fell short. Overall, this was a mediocre quarter for Levi's, and the weak outlook is driving the share price down. The stock traded down 14.4% to $19.85 immediately after reporting.

So should you invest in Levi's right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.