Levi Strauss (LEVI) Dips 11.59% on Weak Q3 2024 Earnings Report

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Levi Strauss & Co. (NYSE: LEVI) witnessed a steep decline of 11.59% in Thursday’s premarket trading after missing earnings and revenue expectations for Q3 2024. The denim giant reported a third-quarter earnings per share (EPS) of $0.05, missing analyst estimates of $0.34, and revenues of $1.5 billion, which fell short of the expected $1.55 billion. This gap between expectations and results has put significant downward pressure on the stock, exacerbated by weak sales in key segments, and an ongoing reconsideration of its brand strategy, including the possible sale of its Dockers brand.

Earnings Overview
Levi Strauss & Co. (NYSE: LEVI) faced a challenging quarter, with flat net revenues on a reported basis. While the Levi's® brand posted a 5% growth—the largest increase in two years—the company struggled to maintain momentum in its Dockers line, which saw a 15% decline. The company also revised its revenue growth expectations for the full year, lowering it to 1% from the previous 1-3% range.

Key Highlights
- Net Revenues: $1.5 billion, missing the expected $1.55 billion.
- EPS: $0.05, up from $0.02 in Q3 2022, but far below analyst expectations of $0.34.
- Gross Margin: Increased by 440 basis points to 60%, driven by lower product costs and a favorable brand mix, signaling that cost-cutting measures are paying off in terms of profitability.
- Direct-to-Consumer (DTC) Sales: Up by 10% on a reported basis, with e-commerce seeing a 16% rise, showcasing Levi's successful pivot to direct sales.
- Operating Margin: Declined slightly to 2.0%, down from 2.3% in Q3 2022, largely due to an impairment charge of $111 million related to the acquisition of Beyond Yoga®.

While the company made strides in expanding its direct-to-consumer channel and increasing e-commerce sales, it wasn't enough to offset the overall flat revenue performance. Additionally, revenue in the Americas, Levi's largest segment, declined by 1%, dragged down by execution issues and the cybersecurity breach faced by one of its largest wholesale customers in Mexico.

Dockers, which was once a major contributor to the company's revenues, has now become a liability. Sales in the brand dropped significantly, leading Levi Strauss to consider selling the Dockers business to focus on core growth areas like the Levi’s and Beyond Yoga brands.

Despite these struggles, the company continues to push forward with high-profile partnerships, such as its collaboration with Beyoncé. This cultural alignment may help boost brand visibility in the long term, but short-term headwinds remain significant.

Technical Analysis
From a technical standpoint, the recent earnings miss has resulted in a dramatic drop in LEVI’s stock price, with the share price down 11.59% in Thursday's premarket trading. This gap-down pattern is indicative of a bearish sentiment, further compounded by several technical warning signals.

LEVI is experiencing a sharp gap-down pattern, which is a strong indicator of bearish momentum. The stock previously had a gap down that wasn’t correctly filled, and the latest earnings miss exacerbates this bearish trend. The RSI remains neither overbought nor oversold, holding at a relatively neutral level. However, the continued price drop could push the RSI into oversold territory, signaling potential short-term buying opportunities for risk-tolerant investors.

The gap-down following the earnings miss suggests a significant reversal in sentiment. If the stock fails to recover and continues its downward trajectory, we could see further declines. The unfilled gap-down from earlier trading sessions adds more weight to the possibility of extended losses in the short term.

LEVI is likely to find its first level of support around $16.50, which was a historical low. If breached, the next key support is at $11.50.


Outlook and Conclusion
Levi Strauss & Co.'s Q3 2024 earnings miss has triggered a negative reaction in the market, with the stock plummeting by double digits. Despite some fundamental strengths, such as improved gross margins and DTC growth, the overall financial performance and revised guidance have raised concerns about the company’s future prospects. The technical indicators also point to further downside risk, with a gap-down pattern and bearish reversal in play.

Investors should keep a close eye on upcoming developments, especially the potential sale of the Dockers brand, which could alleviate some of the pressure on Levi Strauss’s revenue and margins. However, short-term sentiment remains bearish, and the stock may continue to face downward pressure unless Levi Strauss demonstrates stronger revenue growth and addresses operational challenges, particularly in its key regions like the Americas and China.

In summary, the short-term outlook for LEVI appears to be bearish, with technical indicators suggesting further declines. Investors should remain cautious, especially given the company’s lowered revenue guidance and ongoing strategic challenges. Long-term investors may look for potential entry points as the stock approaches oversold conditions, but patience and risk management will be essential in navigating the near-term volatility.