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Levi Stock Pops on Earnings Beat and Guidance Raise

By Beth McKenna – Oct 7, 2021 at 9:00AM

Key Points

  • Revenue growth of 41% year over year was driven by 52% growth in the Americas region.
  • Revenue was 3% higher than in the pre-pandemic period two years ago.
  • Management raised full-year guidance on the top and bottom lines.

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Shares rose nearly 4% after the iconic casual clothing retailer released third-quarter results.

Levi Strauss (LEVI -2.61%) reported better-than-expected results for its third quarter of fiscal 2021 (which ended on Aug. 29) after the market close on Wednesday. The denim and casual clothing retailer's growth was driven by consumers refreshing their wardrobes as economies around the world broadly reopen.

Shares rose 3.7% in Wednesday's after-hours trading. That pop is probably attributable to sales and earnings beating Wall Street's consensus estimates and management increasing full-year guidance on the top and bottom lines.

Through Wednesday's regular trading session, Levi stock is up 43% since its initial public offering in March 2019. The S&P 500 index has returned about 8% over this period.

Below is an overview of Levi's quarter, along with its outlook.

A family with children -- all dressed in jeans and white t-shirts -- walking on beach.

Image source: Getty Images.

1. Revenue jumped 41%

Levi's quarterly sales jumped 41% year over year (and 38% in constant currency) to $1.5 billion. This result beat the $1.48 billion Wall Street consensus estimate. 

The company had easy year-over-year comparables due to the pandemic, which significantly hurt the year-ago period's results. For context, revenue in the reported period was 3% higher than in the two-year-ago period (Q3 2019).

Here's a look at regional results:

Region Fiscal Q3 2021 Revenue  Change (YOY)
Americas $838 million 52%
Europe $494 million 27%
Asia $165 million 34%
Total $1.50 billion 41%

Data source: Levi Strauss. YOY = year over year.

Levi's wholesale channel's net sales rose 45% year over year while its direct-to-consumer channel's net sales increased 34%. DTC includes company-owned stores and the company-operated e-commerce site.

Net revenue through all digital channels grew 10% year over year and accounted for about 20% of total revenue.

2. Operating income surged 134%

Income from operations under generally accepted accounting principles (GAAP) was $216 million, up from $92 million in the year-ago period.

Levi attributed the increase to higher net revenue and gross margin. (Gross margin was 57.6%, up from 54.3% in the year-ago period.) 

3. Adjusted EPS soared 500% 

GAAP net income was $193 million, or $0.47 per share, up from $27 million, or $0.07 per share, in the year-ago period. Adjusted net income landed at $197 million, or $0.48 per share, up from $31 million, or $0.08 per share, in the third quarter of last fiscal year. 

Wall Street had been looking for adjusted earnings per share of $0.37, so the company easily exceeded the profit expectation.

4. Operating cash flow rocketed 107% in the first nine months of fiscal 2021

For the first nine months of fiscal 2021, cash generated from operations was $499 million, more than double the year-ago period's result. Adjusted free cash flow for this period was $220 million, compared to negative $31 million in the year-ago period.

Levi ended the period with $1.47 billion of cash, cash equivalents, and short-term investments, and $1.24 billion in long-term debt.

5. Management expects fourth-quarter revenue to grow 20% to 21%

For the fourth quarter, management guided for revenue growth in the range of 20% to 21% year over year, which is slightly lower than the 22% Wall Street had been expecting. For Q4, management also expects adjusted EPS of $0.38 to $0.40, which is in line with the $0.39 analysts had been projecting. 

Management raised its full-year guidance, citing third-quarter results coming in higher than it expected and the continued expectation that holiday sales will be good. For fiscal 2021, it now expects adjusted EPS of $1.43 to $1.45, up from the prior outlook of $1.29 to $1.33. This compares to fiscal 2020 and fiscal 2019 adjusted EPS of $0.21 and $1.12, respectively.

Its Q4 revenue guidance implies full-year revenue growth of about 29%. Last quarter, management guided for second-half revenue growth of 28% to 29% year over year. The Q4 outlook implies second-half revenue growth of 29% to 30%. 

As a point of comparison, athletic wear-focused Lululemon Athletica has guided for annual revenue growth of 41% in fiscal 2021.

Fiscal 2022 will be the real test 

I'll end on the same note as I did last quarter: "Levi has bounced back nicely from the pandemic's hit to its business. In the next couple of quarters, it should continue to benefit from pent-up consumer demand for apparel, so the real test for its business will likely come next fiscal year."

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

Stocks Mentioned

Levi Strauss & Co. Stock Quote
Levi Strauss & Co.
LEVI
$16.39 (-2.61%) $0.44
Lululemon Athletica Stock Quote
Lululemon Athletica
LULU
$326.39 (-12.85%) $-48.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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