Levi Strauss & Co. shares fell Friday as analysts said the jeans maker’s reduced outlook brought it in line with weak consumer spending reported by others earlier in the year and didn’t change the company’s long-term growth prospects.
Levi
LEVI,
shares fell as much as 9% to an intraday low of $12.96, while the S&P 500
SPX,
was up less than 1%. For the year, Levi shares are down just more than 15%, while the S&P 500 is up a little more than 15%.
Late Thursday, Levi Strauss cut its outlook for the year, while assuring Wall Street the company was past “peak inventory” difficulties.
UBS analyst Jay Sole, who has a buy rating and a $22 price target, said that while the lowered outlook “was not too surprising,” the report didn’t change Levi’s long-term growth potential.
Sole said it was important to remember that Levi’s last provided an outlook on April 6, “before the industry fully realized how much the U.S. consumer spending environment was going to slow,” and that the current one “reflects changes that happened in April and May” that “have already been discussed by other softline companies that reported in mid-to-late May.”
In April, Levi’s shares logged their worst day since returning to public markets in 2019 as inventory issues continued to wear on earnings.
Read: Levi’s stock suffers worst day on record as earnings show inventory issues continuing
With U.S. direct-to-consumer sales and international sales making up about 70% of revenue, Sole believes that will help the company drive earnings-per-share growth after 2023.
“We expect the U.S. consumer spending environment remains challenged for some time and this could limit stock price upside in the near-term,” Sole said. “However, we maintain high conviction Levi’s is a strong brand and management’s strategy is positioning the company for above-average long-term growth.”
Of the 11 analysts who cover Levi Strauss, six have buy-grade ratings and five have hold ratings. At least five analysts cut price targets, resulting in an average price target of $16.45, down from a previous $18.18.
Stifel analyst Jim Duffy said that margin drivers into fiscal 2024 support an upside case for the stock, and he lowered his price target to $17 from $19.
“Softer U.S. wholesale trends and vulnerability to price competition are disappointing and we are discouraged this was mismanaged with overly ambitious pricing,” Duffy said. “We note, however, our constructive thesis has centered on margin accretion from outgrowth of international and DTC where trends remain more buoyant.”
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