Levi Strauss Shares Rise Despite Mixed Q1 Results

Levi Strauss & Co. (LEVI) shares rose on Monday after the company reported mixed first-quarter results, reflecting both progress and challenges in its strategic initiatives. The denim giant's stock climbed 2.5% to $13.89, despite a revenue decline and restructuring charges that weighed on earnings. The company's direct-to-consumer (DTC) focus and cost-cutting measures, however, showed promising signs of long-term growth potential.



The mixed Q1 results highlight the complexities of Levi Strauss's transformation. On one hand, the company's DTC revenue grew 7% year-over-year, reaching 48% of total net revenue. This growth was driven by a 10% increase in U.S. DTC sales and a 4% rise in Europe (excluding Russia). E-commerce revenue also surged 13%, reflecting strong digital engagement and the brand's enduring popularity. Levi's ranks as the #1 most popular clothing brand in the U.S., according to a Q4 2023 survey, supporting its ability to command premium pricing and loyalty.

On the other hand, wholesale revenue fell 18% year-over-year, partly due to a $100 million revenue shift from Q2 2023 to Q1 2023 caused by ERP system implementation. This suggests near-term volatility in wholesale sales, though normalized growth (excluding the shift) was -9%, indicating underlying weakness. The company's adjusted EBIT margin also declined 200 basis points to 9.0%, primarily due to lower revenue and restructuring charges related to Project Fuel, its cost-cutting initiative.

The company's gross margin, however, improved 240 basis points to 58.2%, driven by lower product costs and a favorable product mix. This margin expansion, along with the DTC momentum, suggests that Levi Strauss's strategic initiatives are on track to drive long-term profitability. The company raised its full-year EPS guidance to $1.17–$1.27, reflecting confidence in margin recovery and cost discipline.

Despite these positive signs, investors should remain cautious about Levi Strauss's near-term prospects. The company's reliance on international supply chains leaves it vulnerable to trade policy disruptions and tariffs. With 60% of sales coming from international markets, tariffs in key regions could hurt profitability and market position. For instance, Europe's Q1 revenue dropped 7% year-over-year, partly due to macroeconomic uncertainty. Trade barriers in these regions could amplify declines and pressure margins.

Moreover, Levi Strauss's dividend yield of 0.86% is relatively low, and earnings only cover dividends 3.74 times. This raises concerns about dividend growth amid uncertain revenue trends and potential trade disruptions. The company's one-off restructuring charges and large items impacting financial results also suggest ongoing challenges in adapting to a rapidly changing retail landscape.

In conclusion, Levi Strauss's mixed Q1 results reflect both progress and challenges in its strategic initiatives. While the DTC momentum and margin improvements are encouraging, investors should balance optimism about long-term growth potential with caution over near-term revenue volatility and external risks. The company's strong cash position and proactive measures, such as Project Fuel, may mitigate impacts, but its reliance on global supply chains and international sales leaves it vulnerable to prolonged trade conflicts. Competitors facing similar challenges could intensify market competition, making Levi's brand strength and agility critical to maintaining its position.