Market Capitalization: $7.71 Billion
Shares Outstanding: 396.73 Million
Sector: Consumer Cyclical
Industry: Apparel Manufacturing
Analysis as of: October 3, 2024

1. Company Overview

Levi Strauss & Co. (NYSE: LEVI) is a globally recognized apparel company founded in 1853 and headquartered in San Francisco, California. The company designs, markets, and sells a range of products, including jeans, casual and dress pants, activewear, tops, shorts, skirts, dresses, jackets, footwear, and related accessories. Levi Strauss operates under several brands:

• Levi’s: The flagship brand known for denim jeans and casual wear.
• Dockers: Focused on business casual clothing.
• Signature by Levi Strauss & Co.
• Denizen
• Beyond Yoga

Levi Strauss sells its products in more than 110 countries through a combination of chain retailers, department stores, online platforms, and approximately 3,100 retail stores and shop-in-shops.

2. Financial Performance

a. Revenue and Growth

• Trailing Twelve Months (TTM) Revenue: $6.16 Billion
• Year-over-Year (YoY) Revenue Growth (TTM): +0.53%

Revenue Trend:

Analysis:

Levi Strauss has shown resilience in recovering from the significant revenue decline in FY 2020 due to the COVID-19 pandemic. The company rebounded strongly in FY 2021 with a 29.45% increase. However, revenue growth has slowed in FY 2023 and TTM 2024, indicating a plateau in sales. The minimal growth of 0.53% in TTM 2024 suggests that the company may be facing challenges in expanding its market share or increasing sales volumes.

b. Profitability

• Net Income (TTM): $154.9 Million
• Earnings Per Share (EPS, TTM): $0.38
• Profit Margin: 2.52%
• Return on Equity (ROE): 8.12%
• Return on Assets (ROA): 5.94%
• Return on Invested Capital (ROIC): 8.82%

Analysis:

Net income has decreased by 43.32% YoY, dropping from $249.6 million in FY 2023 to $154.9 million in TTM 2024. The EPS also declined by 44.96%, indicating reduced profitability. The profit margin of 2.52% is relatively low compared to industry averages, suggesting tight profit margins. ROE and ROA have decreased, reflecting lower efficiency in generating profits from shareholders’ equity and assets.

c. Gross Margin and Operating Margin

• Gross Margin (TTM): 59.09%
• Operating Margin (TTM): 9.36%

Analysis:

The gross margin has improved to 59.09% in TTM 2024, up from 56.90% in FY 2023, indicating better cost management or pricing strategies. However, the operating margin decreased from 11.55% in FY 2022 to 9.36% in TTM 2024, implying higher operating expenses relative to revenue.

d. Cash Flow

• Operating Cash Flow (TTM): $860 Million (+342.39% YoY)
• Capital Expenditures (CapEx, TTM): -$226.9 Million
• Free Cash Flow (FCF, TTM): $633.1 Million
• Free Cash Flow Margin: 10.28%
• Free Cash Flow Per Share: $1.57

Analysis:

Operating cash flow increased significantly by 342.39%, indicating improved cash generation from operations. The substantial increase suggests effective working capital management and operational efficiency. Free cash flow turned positive, moving from -$40.2 million in FY 2022 to $633.1 million in TTM 2024, providing the company with flexibility to invest in growth initiatives, pay down debt, or return capital to shareholders.

3. Balance Sheet

• Total Assets: $6.25 Billion
• Total Liabilities: $4.38 Billion
• Total Debt: $2.25 Billion
• Cash & Equivalents: $577.1 Million
• Net Debt Position: – $1.67 Billion
• Net Cash Per Share: – $4.22
• Equity (Book Value): $1.87 Billion
• Debt-to-Equity Ratio: 1.20
• Current Ratio: 1.41
• Quick Ratio: 0.65
• Working Capital: $799.4 Million

Analysis:

Levi Strauss has a moderate level of debt relative to equity, with a debt-to-equity ratio of 1.20, indicating that the company is using leverage to finance its operations. The net debt position of -$1.67 billion suggests that total debt exceeds cash reserves, which could be a concern if cash flows decrease. The current ratio of 1.41 implies that the company can cover its short-term liabilities, but the quick ratio of 0.65 indicates potential liquidity issues when inventory is excluded.

4. Valuation

• Price: $19.44
• Price-to-Earnings (PE) Ratio (TTM): 51.24

• Forward PE Ratio: 14.21
• Price-to-Sales (PS) Ratio: 1.26
• Price-to-Book (PB) Ratio: 4.12
• Price-to-Free Cash Flow (P/FCF) Ratio: 12.12
• PEG Ratio: 1.05

Analysis:

• PE Ratios: The TTM PE ratio of 51.24 is high, reflecting lower earnings in the past 12 months. The forward PE ratio of 14.21 indicates that analysts expect earnings to improve, bringing the valuation to a more reasonable level.
• PS and PB Ratios: The PS ratio of 1.26 is relatively low, suggesting that the stock is reasonably valued relative to its sales. The PB ratio of 4.12 indicates that the stock is trading at over four times its book value.
• P/FCF Ratio: A P/FCF ratio of 12.12 suggests that the stock is fairly valued based on its free cash flow generation.
• PEG Ratio: A PEG ratio of 1.05 indicates that the stock’s price is in line with its expected earnings growth, suggesting reasonable valuation.

5. Market Performance

• Current Stock Price: $19.44
• 52-Week Range: $13.54 – $24.08
• 52-Week Price Change: +43.68%
• Beta: 1.14
• Dividend Yield: 2.68%
• Ex-Dividend Date: October 29, 2024

Analysis:

The stock price has increased by 43.68% over the past year, outperforming the broader market. The beta of 1.14 indicates that the stock is slightly more volatile than the market average. The dividend yield of 2.68% provides a modest income stream for investors.

6. Financial Health and Risks

a. Liquidity

• Current Ratio: 1.41
• Quick Ratio: 0.65

Analysis:

The current ratio above 1 indicates that Levi Strauss can meet its short-term obligations. However, the quick ratio below 1 suggests potential liquidity challenges without relying on inventory sales.

b. Leverage

• Debt-to-Equity Ratio: 1.20
• Debt-to-EBITDA Ratio: 1.95
• Interest Coverage Ratio: 14.09

Analysis:

The company’s leverage is moderate, but the debt-to-EBITDA ratio of 1.95 indicates that debt levels are significant relative to earnings. The interest coverage ratio of 14.09 shows that the company can comfortably meet its interest obligations.

c. Profitability Concerns

• Declining Net Income and EPS: The significant drop in net income and EPS raises concerns about the company’s profitability and ability to grow earnings.
• Low Profit Margin: A profit margin of 2.52% is relatively low and may limit the company’s ability to withstand cost increases or economic downturns.

d. Operational Risks

• Inventory Management: Inventory turnover decreased to 1.90 times, indicating slower inventory movement and potential overstocking, which could lead to increased holding costs or markdowns.
• Competition: The apparel industry is highly competitive, with pressure from other established brands and fast-fashion retailers.
• Consumer Trends: Changes in consumer preferences and fashion trends can impact sales.

e. Market Risks

• Economic Conditions: The company’s performance is sensitive to economic cycles and consumer spending habits.
• Supply Chain Disruptions: Global supply chain issues could affect production and delivery times.
• Currency Fluctuations: As an international company, Levi Strauss is exposed to foreign exchange risks.

7. Conclusion

Pros:

• Strong Brand Recognition: Levi Strauss is a well-known brand with a loyal customer base.
• Improved Cash Flow: Significant increase in operating and free cash flow provides financial flexibility.
• Dividend Yield: Offers a dividend yield of 2.68%, providing income to investors.
• Reasonable Valuation: Forward PE and PEG ratios suggest the stock may be reasonably valued relative to expected earnings growth.

Cons:

• Declining Profitability: Decrease in net income and EPS indicates challenges in maintaining profitability.
• Low Profit Margins: Tight margins may limit the company’s ability to absorb cost increases.
• Inventory Concerns: Slower inventory turnover could lead to excess stock and markdowns.
• Leverage: Moderate debt levels require careful management to avoid financial strain.

Disclaimer:

This analysis is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investing in stocks involves risks, including the potential loss of principal. Past performance is not indicative of future results. Investors should conduct their own research or consult a qualified financial advisor before making investment decisions.