Levi Strauss & Co. (LEVI) Stock Analysis

Sector: Consumer Cyclical
Industry: Apparel Manufacturing
Analysis Date: February 18, 2025

1. Company Overview

Levi Strauss & Co. is a globally recognized apparel company best known for its iconic denim products, particularly Levi’s jeans. Founded in 1853 and headquartered in San Francisco, the company sells a wide range of casual and fashion apparel, footwear, and accessories under various brands, including Levi’s, Dockers, Denizen, and Signature by Levi Strauss & Co. Despite a rich heritage in denim, Levi Strauss continuously adapts to shifting consumer preferences, e-commerce trends, and international market expansions.

Key Business Segments:

• Wholesale: Partnerships with department stores, specialty retailers, mass-channel retailers, and other distributors.
• Direct-to-Consumer (DTC): Company-operated retail stores, e-commerce sites, and brand specialty shops.
• Licensing: Royalties from licensing agreements for accessories and other related products.

Strategic Initiatives:

• Global Expansion & E-commerce: Expanding retail footprint internationally while strengthening digital channels for direct consumer engagement.
• Product Innovation & Sustainability: Investing in new fabric technologies, style collaborations, and sustainable production methods to resonate with evolving consumer values.
• Brand Diversification: Developing lifestyle apparel offerings beyond core denim to capture broader consumer segments and reduce dependence on a single product category.

2. Financial Performance

a. Revenue & Growth

• TTM Revenue: $6.36 Billion
• YoY Revenue Growth (TTM): +2.85% (fiscal forecast indicates moderate growth)

Analysis:
Levi’s revenue has shown modest growth, recovering from prior pandemic-related disruptions. While overall growth is not as robust as in some high-growth retail categories, the brand’s global recognition, strong DTC presence, and new product lines support stable top-line performance.

b. Profitability

• TTM Net Income: $210.60 Million
• EPS (TTM): $0.52
• Profit Margin: 3.31%

Analysis:
Although Levi’s net income and EPS are lower compared to some previous years, the company remains profitable with a net margin of 3.31%. Higher operating costs, promotional activities, and macroeconomic headwinds (inflation, supply chain) have pressured net income. Nonetheless, cost optimization and brand strength help maintain profitability.

c. Margins

• Gross Margin (TTM): 60.04%
• Operating Margin (TTM): 10.28%
• EBITDA Margin (TTM): 13.32%

Analysis:
A gross margin above 60% highlights Levi’s pricing power and brand value in the denim and casual apparel segment. The operating margin (~10.28%) is healthy for an apparel manufacturer but has faced recent headwinds from rising costs and inventory management challenges.

d. Free Cash Flow

• TTM Free Cash Flow: $670.90 Million
• FCF Per Share (approx.): $1.69

Analysis:
Strong free cash flow underscores Levi’s operational efficiency and ability to generate cash from its global brand presence. This liquidity supports investments in brand marketing, store expansions, e-commerce enhancements, and dividend distributions.

3. Balance Sheet & Liquidity

• Cash & Equivalents: $690.00 Million
• Total Debt: $2.21 Billion
• Net Cash Position: -$1.52 Billion (or -$3.85 per share)
• Book Value Per Share: $4.98
• Working Capital: $840.60 Million

Analysis:
Levi Strauss carries moderate debt relative to equity (Debt/Equity ~1.12). While the net debt is notable, the company’s consistent free cash flow and brand strength provide it with a stable financial footing. The working capital position remains positive, supporting day-to-day operations and inventory management.

4. Valuation

• PE Ratio (TTM): 35.04
• Forward PE: 14.59
• PS Ratio: 1.14
• PB Ratio: 3.67
• P/FCF Ratio: 10.78
• PEG Ratio: 1.35

Analysis:
The trailing PE ratio (~35) may appear high relative to the broader market, partly reflecting pandemic-era disruptions. The forward PE (~15) suggests the market anticipates improved earnings growth. The P/FCF ratio of ~11 indicates a reasonable valuation for a well-known consumer brand with stable cash generation.

5. Market Performance

• 52-Week Range: $15.62 – $24.34
• Current Price: $18.27 (as of last close)
• Beta (5Y): 1.16

Analysis:
Levi’s stock has been trading near the lower end of its 52-week range, reflecting broader retail sector challenges (inflation, shifting consumer spending). A beta above 1 indicates the stock is slightly more volatile than the market, potentially influenced by consumer cyclical trends.

6. Dividend & Shareholder Returns

• Dividend Per Share (TTM): $0.52
• Dividend Yield (TTM): 2.85%
• Payout Ratio: 100% (TTM)

Analysis:
Levi Strauss maintains a moderate dividend yield (~2.85%), with a historically rising dividend. However, a TTM payout ratio near 100% suggests dividends consume most net earnings, which may limit near-term dividend growth unless earnings rebound.

7. Risks & Considerations

• Consumer Discretionary Nature: Levi’s performance can be sensitive to economic slowdowns, as apparel spending is discretionary and can decline in recessionary periods.
• Competition & Fashion Trends: The apparel sector is highly competitive. Rapid changes in fashion trends and consumer preferences can impact Levi’s market share and pricing power.
• Inflation & Supply Chain Pressures: Rising input costs (cotton, labor) and logistical disruptions can compress margins and profitability.
• Foreign Exchange & Global Exposure: With a significant international footprint, Levi’s revenue is exposed to currency fluctuations and local economic conditions.

8. Conclusion

Pros:

1.  Iconic Brand & Global Presence: Levi’s is synonymous with denim, providing strong brand equity and stable demand.

2.  Healthy Free Cash Flow: Consistent cash generation supports dividends, share buybacks, and strategic initiatives.

3.  Ongoing Dividend & Shareholder Returns: A dividend yield near 3% and occasional buybacks enhance shareholder value.

4.  Forward PE Improvement: The forward PE (~15) is significantly lower than the trailing PE (~35), indicating expected earnings recovery.

Cons:

1.  High Current Payout Ratio: Near-100% payout ratio constrains further dividend hikes without earnings growth.

2.  Consumer Spending Sensitivity: Discretionary nature of apparel can lead to volatility in revenues during economic downturns.

3.  Competitive & Fashion Risks: Levi’s must continuously innovate and adapt to maintain brand relevance against fast fashion and other established players.

4.  Inventory & Supply Chain Challenges: Ongoing global supply chain disruptions and rising input costs can pressurize margins and operational efficiency.

Final Note:
Levi Strauss & Co. has successfully navigated market shifts for decades, leveraging its iconic brand to maintain a loyal customer base. Current valuations suggest the market anticipates an earnings recovery, supported by strong free cash flow and cost-management efforts. While near-term headwinds (inflation, competition) persist, Levi’s global brand recognition, product innovation, and direct-to-consumer strategies position the company for moderate, stable growth in the coming years.

Disclaimer:
This analysis is for informational purposes only and does not constitute investment advice. Investing involves risks, including the potential loss of principal. Past performance is not indicative of future results. Always consult a qualified financial advisor before making any investment decisions.