Over the last year or so, many consumers have been refreshing their wardrobes as they venture out more often than they did during the earlier parts of the pandemic.
As customers shift their focus to apparel, are shares of iconic denim and casual clothing retailer Levi Strauss (LEVI -0.73%) a buy?
Image source: Getty Images.
To help answer this question, let's dig into the company's report for its first quarter of fiscal 2022 (period ended on Feb. 27), which it released in April.
Q1 revenue jumped 22%
Levi's quarterly sales jumped 22% year over year (26% in constant currency) to $1.59 billion. This result beat the $1.55 billion Wall Street consensus estimate.
Below are the segment results. Levi changed its reporting structure starting last quarter to include the "other brands" category. This category includes Dockers and Beyond Yoga, the latter of which Levi acquired in August 2021.
| Segment | Fiscal Q1 2022 Revenue | Change (YOY) |
|---|---|---|
| Americas | $766 million | 26% |
| Europe | $469 million | 13% |
| Asia | $258 million | 11% |
| Other brands | $98 million | 96%* |
| Total | $1.59 billion | 22% |
Data source: Levi Strauss. YOY = year over year. *Excluding Beyond Yoga, this category grew 44% YOY.
Levi's wholesale channel's sales rose 15% and its direct-to-consumer (DTC) channel's sales increased 35% year over year.
Within the DTC channel, company-operated store revenue jumped 48%, and company-operated e-commerce revenue grew 10% year over year. The latter's growth was lower because it was facing a tougher year-ago comparable due to pandemic-driven strength in online shopping.
Global digital revenue rose 16% year over year and accounted for 25% of the quarter's total revenue.
Supply chain constraints resulted in an estimated $60 million in lost sales in the quarter. This number compares to $50 million in lost sales in the prior quarter.
Q1 adjusted EPS rose 35%
Net income under generally accepted accounting principles (GAAP) was $196 million, or $0.48 per share, up 37% from the year-ago period. Adjusted for one-time items, net income landed at $189 million, or $0.46 per share, up 35% year over year.
Wall Street had been looking for adjusted earnings per share (EPS) of $0.42, so the company exceeded this expectation.
Q1 operating cash flow grew 25%
In fiscal Q1, cash generated from operations increased 25% year over year to $86 million.
Levi ended the period with $678 million of cash and cash equivalents, $99 million in short-term investments, and net debt of $248 million.
Fiscal 2022 revenue is expected to grow 11% to 13% year over year
Management reaffirmed the fiscal year 2022 guidance that it issued in the prior quarter. For the year, it expects the following:
- Revenue of $6.4 billion to $6.5 billion, representing annual growth of 11% to 13%.
- Adjusted EPS of $1.50 to $1.56, representing annual growth of about 2% to 6%.
So, is Levi stock a buy?
Levi Strauss turned in a solid fiscal first quarter. A couple of things to particularly like: Adjusted EPS grew faster than revenue, indicating profit margin expanded; and cash generated from operations grew solidly from the year-ago period.
Levi stock is worth watching, but investors should hold off buying it for now, in my view. With inflation surging and what's looking like a solid possibility of a recession on the horizon, consumer discretionary stocks, which include apparel stocks, could further decline. In general, consumer staple stocks (stocks of companies that provide products and services that people need during all economic climates) are better bets now.
