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Why Levi Strauss Stock Dropped 13% in February

By John Ballard - Updated Mar 6, 2020 at 1:33PM

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Investors are worried about how the coronavirus outbreak could impact sales of jeans.

What happened

Fears of a global epidemic related to COVID-19 sent the broader market down last month, with companies that do business in China getting hit particularly hard. There have been more than 80,000 cases reported in China and more than 100,000 worldwide,  and that could negatively impact the classic jeans brand.

Shares of Levi Strauss (LEVI 3.40%) dropped 13.5% last month, according to data provided by S&P Global Market Intelligence.

A rack of jeans on display inside a store.

Image source: Getty Images.

So what

The jeans stitcher sources less than 8% of its goods from China, but the company has been focused on expanding its store footprint in that country to drive long-term growth. Last fall, Levi's opened a new 7,000 square foot store in Wuhan, which is now its largest store in China. 

However, in the recently filed annual report for 2019, the company states that "the extent to which the coronavirus may impact our results is uncertain." 

Now what

Levi's has long-term growth opportunities with its direct-to-consumer and international businesses, but the near term will remain shaky until COVID-19 is under control. Not only could supply chains be disrupted but obviously further spreading could severely impact consumer discretionary spending.

Apple has reopened factories in China, which could be a sign that the outbreak in China is stabilizing. But the rest of the world is seeing the virus spread, so investors should brace themselves for more volatility. 

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