Levi Strauss & Co (LEVI) is a Zacks Rank #5 (Strong Sell) that is an American clothing company best known for its denim jeans, particularly Levi's brand jeans.

The company had previously been privately held for many years, but in 2019, it re-entered the public markets by offering shares on the New York Stock Exchange under the ticker symbol LEVI.

The stock debuted at an opening price of $22, but it has struggled to gain momentum over the past five years, with the price currently trading below $19. A recent earnings report has led analysts to revise their earnings estimates downward, further complicating the case for investing in the stock.

About the Company

Founded in 1853, Levi pioneered blue jeans and remains a global leader in denim apparel. In addition to jeans, Levi Strauss produces jackets, shirts, and other casual wear under brands like Levi's, Dockers, Denizen, and Signature by Levi Strauss & Co. The company operates both direct-to-consumer retail stores and wholesales its products worldwide.

LEVI is valued at $7 billion and has a Forward PE of 14. The stock holds Zacks Style Scores of “A” in Growth, but “D” in Momentum.  It also has an “C” in Value with a Forward PE at 14.

Q3 Earnings

Levi Strauss reported better-than-expected Q4 earnings, beating EPS by 4%. However, the company guided for FY25 earnings below consensus, with adjusted EPS projected between $1.20 and $1.25, compared to the $1.36 expected by analysts. Revenue is also expected to decline by 1% to 2% year-over-year.

While the company highlighted improvements in profitability, including a 13.4% adjusted EBIT margin and a 61.3% gross margin driven by lower product costs and better sales execution, the outlook for FY25 suggests slower growth.

Additionally, despite the strong cash flow and organic revenue growth in Q4, the weak revenue guidance and inventory drop of 4% year-over-year may signal potential headwinds.

Earnings Estimates Falling

Since reporting earnings, LEVI has seen its earnings estimates lowered by analysts.

For the current quarter, forecasts have dropped 15% over the past 30 days, from $0.33 to $0.28.

Looking at the current year, estimates have declined 8% in that same period, down from $1.39 to $1.27.

For the next year, projections have been adjusted downward by 5%, now at $1.39 from $1.47.

Technical Take

It is a troubling sign when the stock is trading below its IPO debut price from five years ago. This indicates negative growth, suggesting that investors have been unimpressed with the company's performance since going public.

Looking at levels, $24.34 is the 52-week high, while $15.62 is the 52-week low.

The stock is trading under the 200-day MA at $19, but above the 50-day at $17.80. A break below that 50-day would likely bring about a test of the recent low.

In Summary

Levi Strauss faces significant challenges despite its strong brand heritage and global presence. The stock has failed to gain momentum since its IPO, currently trading below its debut price, and recent earnings reports and downward revisions to earnings estimates suggest a lack of investor confidence.

LEVI faces headwinds that make it a challenging investment, particularly for those seeking growth or momentum in the near term.

For those interested in the apparel space, a better option might be Deckers Outdoor (DECK). The stock is a Zacks Rank #1 (Buy) that is today's Bull of the Day.   

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