Levi Strauss Stock Is Rising before Its Q1 Results

Levi Strauss & Co. (NYSE:LEVI) has risen more than 9% during today’s trading session. The company is scheduled to report its results for the first quarter of fiscal 2020 after the closing bell today. Analysts expect Levi Strauss to report an EPS of $0.35 and revenue of $1.47 billion. Since the first quarter ended in February, I don’t think that coronavirus volatility will impact the results. 

In the fourth quarter, the company’s earnings beat its estimates. The revenues lagged analysts’ expectations and fell 1.4% YoY to $1.57 billion due to lower sales in department stores. Protests in Hong Kong also disrupted the demand in Asian markets. Levi’s revenues grew 4% in the third quarter.

Levi Strauss stock rose over 15% on Monday and ended the day at $10.94. The broader markets recovered due to positive news related to the coronavirus. Investors reacted to US coronavirus cases increasing at a slow rate since March 31. On Monday, New York Governor Andrew Cuomo also said that the death toll was flat in New York for two days, as cited by The New York Times. As of Monday, there were nearly 357,000 coronavirus cases and more than 10,300 deaths in the US.

Impact of coronavirus on Levi Strauss stock

The coronavirus outbreak hasn’t just impacted people’s health globally, it has also eroded their wealth. Many businesses came to a standstill. Some businesses had to scale back their operations due to the lockdown imposed in many countries amid COVID-19. Levi Strauss has also suffered amid the outbreak.
Notably, Levi Strauss was on an expansion spree. The company planned to expand in markets like China and India to drive growth. Levi Strauss has opened three stores in India. In the fall, the company opened its largest store in Wuhan, China—the epicenter of the coronavirus pandemic. Levi Strauss wanted to make a big push in China. However, the demand in these countries will likely slow down amid the lockdown and store closures.
At the end of January, the company had to shut about half of its stores in China due to the coronavirus. Notably, China contributes about 3% of the company’s revenue. On March 16, the company announced the temporary closure of its stores in the US and Canada until March 27, which will hit its second-quarter results. India also announced a lockdown to curb the spread of coronavirus. Store closures and lockdowns will take a toll on the demand for Levi’s Strauss products in fiscal 2020. The Gap (NYSE:GPS), Macy’s (NYSE:M), Nordstrom, and JCPenney have also announced temporary store closures.
With e-commerce gaining traction, the company’s revenues from the wholesale channel (through third-party retailers) will take a hit as well. Meanwhile, the company depends less on its wholesale channel. A lower top line would also hurt its margins in the coming quarters.

Analysts’ views on Levi Strauss stock

Levi Strauss stock has declined over 43% year-to-date. Analysts have set the company’s 12-month target price at $19.63, which is over 79% higher than its April 6 price of $10.94. Among the nine analysts covering Levi Strauss, six recommend a “buy,” two recommend a “hold,” and only one recommends a “sell.”