Levi's Enduring Appeal Did the Job

Levi Strauss & Co LEVI saw its shares going up 9% on Tuesday after delivering a surprising profit. There were declines but they were less than anticipated. Pandemic-induced losses were offset by its online business whose revenues surged 52%. As of Tuesday's market close, shares are down about 22% this year but the stock jumped 13% to $16.65 shortly after the market opened on Wednesday.

Fiscal third quarter results

Revenue fell 27% to $1.06 billion but still exceeded the expectation of $822.2 million, resulting in adjusted earnings per share of 8 cents, topping the forecasted loss of 22 cents expected. Stores were closed during the quarter, and net income tumbled 78%. Levi's net income fell to $27 million, or 7 cents per share, from $124 million, or 30 cents a share, a year earlier. Moreover, Levi managed to relt less on promotions to move merchandise off shelves. Most importantly, Levi gained market share in women's apparel category.  This segment has grown from making 20% of the total business in 2015 to 37% today, but the long-term target is to account for 50% of total sales.

Net sales fell 16% in Europe, 29% in America and 42% in Asia. But its digital revenue across the globe, including sales on its own websites as well as its wholesale partners like Amazon.com, Inc. AMZN, grew 50% year over year. Moreover, online retail accounted for about 24% of third-quarter sales, which is double year-ago levels. Levi.com alone saw its sales skyrocketing 52% and online sales have remained strong even as stores reopen during the pandemic.

Forecasts

Levi expects the strong performance will continue into the holiday quarter, though it expects a drop of 14% to 15% year over year in sales during the period, assuming the pandemic does not worsen. Although there will be no dividend payout in the fourth quarter, payments will resume next year if the positive momentum continues. The denim maker plans to sell increase its Target Corporation TGT presence from 140 existing stores to 500 stores by the fall of 2021, providing both higher- and lower-price products that do not cannibalize one another as they appeal to entirely different customer groups.

Levi is getting into the resale game

The resale market is exploding. ThredUp and GlobalData Retail concluded from their study that this market is expected to rise from $32 billion this year to $51 billion by 2023. Levi aims to capitalize on this opportunity with its own program for worn jeans and jackets while also benefiting its reputation by making more sustainable choices. This week has also been about Levi's SecondHand launch. Buyers can now buy pre-owned jeans as well as receive a credit for their used items under the buy-back program, depending on the item's age, condition and original retail price. Levi has now officially stepped into recommerce as it is the first denim brand of its size to take action and responsibility for the full lifecycle of its garments.

Outlook

This quarter was much better than expected as Levi achieved profitability despite a fall in sales. Levi's efforts and the tough choices it had to make during the initial stage of the pandemic such as slashing 15% of its global corporate workforce have started to pay off. Although its business is expected to be significantly hurt by COVID-19 related costs weighing on its results, Levi's retained its the popularity of during the pandemic.

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