BofA Raises Levi Strauss Target On Healthy Retail Recovery

Levi Strauss & Co (NYSE: LEVI) would witness strong demand for the brand, given a healthy recovery in retail in June, according to BofA Securities.

The Levi Analyst: Heather Balsky maintained a Neutral rating for Levi Strauss, while raising the price target from $14 to $15.

The Levi Thesis: Levi Strauss reported an adjusted per-share loss of 48 cents for the second quarter, versus BofA’s estimate of a loss of 60 cents per share, the difference resulting from COVID-related charges, Balsky said in the note.

Retail sales were recovering nicely and wholesale orders had started to pick up and, by the last week of June, nearly 80% stores had reopened and 40% were comping positively. Also, e-commerce had grown 79% in May and 70% in June.

Management expects gross margin pressure in the second half of 2020 from liquidations and cautioned that sales may not recover completely until “some point” in fiscal 2021, the analyst mentioned.

While noting that store closures could remain a near-term headwind, Balsky said Levi Strauss had plans of expanding with new and existing partners and opening 100 new, smaller format stores. The company is also reducing headcount to save $100 million.

The analyst reduced the fiscal 2020 estimate by 25 cents to a loss per share of 25 cents, while raising fiscal 2021 by 6 cents to earnings of $1 per share on higher margins.

LEVI Price Action: Shares of Levi Strauss fell 9% to $12.54 at the time of publication Wednesday.