What Happened:
Shares of denim clothing company Levi's (NYSE:LEVI) fell 17.7% in the morning session after the company reported second quarter earnings results and provided full-year revenue and earnings guidance below expectations. Also, revenue fell narrowly short of expectations during the quarter, adding to investors' concerns about decelerating sales growth. Notably, the FY'2024 sales forecast implied a modest sales growth of 1-3% year on year. Overall, this was a mediocre quarter for Levi's, and the weak outlook is driving the share price down.
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What is the market telling us:
Levi's's shares are not very volatile than the market average and over the last year have had only 5 moves greater than 5%. Moves this big are very rare for Levi's and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 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). The dividend is payable on May 23, 2024, to shareholders of record on May 9, 2024. 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 19.2% since the beginning of the year, but at $19.36 per share it is still trading 19.9% below its 52-week high of $24.17 from June 2024. Investors who bought $1,000 worth of Levi's's shares 5 years ago would now be looking at an investment worth $919.58.
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