Shares of apparel company Levi Strauss (LEVI 3.60%) dropped 19.7% in June, according to data from S&P Global Market Intelligence. In short, the analyst community didn't like the company's financial report for its fiscal second quarter of 2024, which came out on June 26. And it's kind of hard to explain, considering the Q2 numbers were better than what analysts had expected.
For its part, Levi Strauss' management gives guidance for the year, leaving analysts to provide their best estimates for the quarter. The company reported Q2 net revenue of $1.4 billion and diluted earnings per share (EPS) of $0.04, which surpassed analysts' estimates. But they were nevertheless disappointed, because Levi Strauss didn't raise its full-year financial guidance. In other words, the company's Q2 financials were ahead of schedule by the analysts' standards. But from management's perspective, they were simply on schedule. When reality set in, disappointment and downgrades were the result.
NYSE: LEVI
Key Data Points
Putting June in context with its performance in 2024
Yes, Levi Strauss disappointed investors by beating expectations. Only on Wall Street can that statement make sense. However, in fairness, there is some additional helpful context.
Consider that Levi Strauss stock was up about 40% year to date until just a couple of weeks ago. That's a big short-term gain for a mature, low-growth business. Therefore, it's not surprising to see at least some investors lock in some gains by selling.
However, locking in gains does lock investors out of at least one thing: Levi Strauss raised its quarterly dividend payment by 8% when it reported Q2 financial results. That dividend will come in August.
What should investors do now?
Levi Strauss has a large brick-and-mortar presence, but its strength in direct-to-consumer (DTC) sales and e-commerce is noteworthy. DTC net revenues account for nearly half of its overall revenue. And Q2 e-commerce sales were up 19% year over year.
Consumers are increasingly going direct to apparel companies to buy items. This is a broader trend. Levi Strauss is enjoying it and is updating its distribution model to better meet this reality. In the short term, profit will take a hit. But longer term, this move should support better sales volume without going through other retailers.
This is certainly something to watch with Levi Strauss. Direct sales can be higher-margin. So while the stock pulled back in June, it could trend higher in the coming years if its profit improves dramatically thanks to this shift in consumer spending.
