The rally in shares of Levi Strauss (LEVI 0.04%) will be tested in just a few days. The jeans maker reports its fiscal second-quarter earnings results on Thursday, July 8.
Expectations are running high for that report, especially after management lifted its outlook and raised the dividend in early April. Let's take a closer look at what investors are hoping to hear from Levi to confirm their brightening view of the stock.
Image source: Getty Images.
Staying ahead of demand shifts
All indications are that Levi will announce some head-turning growth numbers this week, and not just when compared to the pandemic-depressed period a year ago. Sales will rise by over 20% in the first half of this fiscal year, executives predicted in April.
That forecast implies an over 100% spike this quarter, with most investors expecting sales to rise about 150% to $1.2 billion. It also should mark Levi's first quarter of year-over-year growth since the pandemic started.
LEVI operating revenue (quarterly YoY growth) data by YCharts. YoY = year over year.
In April, CEO Chip Bergh and his team described a "faster-than-expected recovery" in their retailing business, and investors are hoping to hear similarly bullish comments on Thursday.
Look for Levi to describe broad growth rebounds as consumers began moving around again in the spring even though some areas dealt with new COVID-19 restrictions.
Pricing and shipping challenges
Levi likely faced some serious manufacturing and supply chain challenges in the period as demand shifted and as shipping lanes were stressed. These costs jumped for both Nike and lululemon athletica, but both companies were able to pass along price increases while keeping inventory levels in check. Profitability rose even as apparel giants were forced to rely on more-expensive air freight in some cases.
Levi's gross profit margin will be the number to watch on this score. Profitability hit a new record last quarter thanks to the combination of rising prices and the shift toward e-commerce sales. Another record is likely this week, assuming Levi's supply chain held up through the period. Most investors are looking for earnings to land at $0.08 per share compared to a loss of $0.48 per share a year ago.
Looking ahead
Management's current outlook only covers the first half of the fiscal year that just ended. As a result, investors could be treated to a significant new growth forecast this week.
Heading into the report, most Wall Street pros are predicting sales will rise about 33% in fiscal 2021 after having declined 23% last year. The hope is that Levi will not only return to setting new sales records but will also do so at a fundamentally higher profitability level in this positive selling environment.
Executives likely won't be able to offer much guidance about where these rates will settle after consumer-demand trends settle down to a new normal around fiscal 2022. But this week's report should still describe some of the best growth and earnings trends that Levi has ever posted as it looks forward to second half of the year and the upcoming holiday shopping season.
