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Why Levi Strauss & Co. Shares Jumped This Morning

By Howard Smith – Oct 7, 2020 at 1:29PM

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The retailer reported a 27% decline in revenue, but there was more good news than bad.

What happened

Shares of Levi Strauss & Co. (LEVI 2.29%) opened the trading day up 14% after the company released its fiscal third-quarter earnings last night. Shares remain up 5% as of 12:45 p.m. EDT.

So what

Levi's earnings report showed it was still battling the impacts from the COVID-19 pandemic, but strong e-commerce growth led to positive adjusted free cash flow generation of $183 million. 

Close-up of a variety of jeans

Image source: Getty Images.

The company expressed confidence that its strong performance would continue into the holiday season. Though the quarterly results included a 78% drop in net income, they were better than the company anticipated. "This quarter was much better than we expected, and it's a little bit of an out-of-body experience for me to say that when revenues are down 27% ... but we were profitable," President and Chief Executive Officer Chip Bergh commented to CNBC. 

Now what

The retailer's gross margins increased even during this difficult quarter to 54.3%. The gain came from price increases and a larger portion of sales from the higher-margin direct-to-consumer channel, the company said. 

Overall digital revenue, which includes online orders from wholesale customers, made up almost 25% of total sales, double what it was in the year-ago quarter. Though the company remained cautious about the balance of 2020, it signaled optimism, saying in the release that "trends appear to be improving sequentially, and at a faster pace than previously expected." 

Bergh said inventories were positioned well going into the holiday season. He added that he's "cautiously optimistic that we're not going to have to go down the rabbit hole on promotions ... which I think is good for brand health." 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Levi Strauss & Co. Stock Quote
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