Did you know that Russians coveted Levi’s jeans for decades?
It’s true.
During the Cold War, Levi Strauss jeans permeated the Russian black market.
Today, they still hold a lot of sway as a premium American brand.
Back home, the parent company Levi Strauss (LEVI) struggles to drive growth.
Last week’s quarterly earnings were met with a collective shrug despite extreme interest as shown in our TrackstarIQ search data.
With a 2021 price-to-earnings multiple of just 22.5x, we wanted to find out if there was any more room for shares to run.
Levi’s growth problem
Levi Strauss makes jeans.
We all know that.
But, their clothing also includes everything from jackets to belts.
Yet, those lines fail to resonate with consumers.
By focusing so much on their denim business, they neglect other spaces such as athleisure.
For example, did you know that Dockers is owned by Levi Strauss? What about Denizen.
So, when jeans fall out of fashion, as they do from time to time, Levi’s sales plummet.
However, as CEO Chip Bergh pointed out in the recent earnings call, we’re likely on the cusp of a denim restocking cycle.
The cause – people’s waist sizes changed during the pandemic (not entirely untrue).
So, at least in the short-term, expectations are for improved topline growth and margins.
And to be clear, Levi’s has never had a profitability problem. Outside of the pandemic, they have delivered positive earnings since 2014.
Comparison to the competition
When we stack Levi’s up against a few competitors, we get a sense of the market’s view of the company.
Levi’s prices out at above Gap (GPS) and Under Armour (UA) but far below Lululemon Athletica (LULU) and Nike (NKE).
The reason is simple when you look at the revenue growth and operating margins.
NKE and LULU consistently deliver better results on both. LULU happens to be priced richer as it’s only 1/5th the market cap of NKE.
But as the P/E ratios show, LEVI is priced for higher growth than GPS, but not nearly as much as NKE and LULU.
UA is the one exception of the group that focuses on the athleisure and athletic segment yet fails to deliver results.
Our hot take
Levi’s is investing heavily in its eCommerce platform and international expansion.
Both allow it to leverage its iconic jeans appeal.
Yet, the company lacks a true vision to transform beyond denim jeans.
Nonetheless, they are a well-run company that is priced appropriately.
It could make a nice investment if you can pick it up at a discount.
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