Denim is clearly in style with Levi Strauss & Co. saying that it’s seeing strong demand from customers despite inflation and other pressures.
“The consumer here in the U.S., I fundamentally believe, is in a very good place,” said Chip Bergh, Levi’s
chief executive, during the JPMorgan Retail Roundup Conference this week, according to a FactSet transcript.
Bergh acknowledged that shoppers are seeing higher prices for things like gas and food. And he said during the first-quarter earnings call on Wednesday that Levi Strauss has raised prices on its own merchandise. Still, even as the brand raised its average unit retail (AUR) by 10%, it was able to hold on to demand.
The consumer has savings at their disposal, and the labor market favors the worker on the job hunt, Bergh said.
“The consumer largely has not had to tap into those [savings] reserves and the first indication that they’ve had to tap into it was just this past month,” he said during the JPMorgan conference.
“We look at the demand signals that we’re seeing, both from our own retail business, both brick-and-mortar and e-commerce as well as from our largest wholesale customers… We feel like we’re in a pretty good place.”
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In fact, Bergh says Levi’s would’ve raised its guidance “under normal circumstances,” noting the uncertainty across the globe.
“We were prudent, I think, to maintain guidance,” he said.
Wells Fargo analysts note the tailwinds working in favor of Levi Strauss, but still has an eye toward the future.
“While its commendable Levi Strauss is able to reiterate its full-year guidance despite the worsening macro, we almost would rather see management take a more conservative approach going forward (leaving themselves room in case the macro worsens further),” analysts wrote.
Wells Fargo rates Levi’s stock overweight with a $25 price target.
During his earnings call commentary, Bergh said that at its own stores and its app have momentum, with monthly active app users more than doubling during the quarter.
Business at both Target Corp.
and Nordstrom Inc.
has also thrived. Target announced this week that Levi Strauss is heading to 300 additional stores, bringing the total to 800. The original goal was to be in 500 stores.
Moreover, Levi’s is adding more than 60 new styles to the Target lineup.
“We’re benefiting from more favorable floor space [at] key customers, and we’re selectively increasing distribution in key wholesale specialty accounts aligned with younger consumers like Urban Outfitters,” Bergh said on the earnings call, according to a FactSet transcript.
Factors helping Levi’s business include the increasingly casual nature of work attire and the latest trend for looser-fitting jeans, which dethroned skinny jeans as the preferred fit.
“These are tailwinds that I think we’ve got going in our favor and we are, by far, the leading brand in denim,” Bergh said during the JPMorgan conference.
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Levi’s stock is up 4.5% over the past month, but shares have slumped 24.6% for the year to date.
“[W]e believe Levi’s current stock price represents a very attractive entry point into a leading, high-quality, global apparel franchise at a very reasonable price for those with a long-term investment time horizon,” analysts wrote.
UBS analysts rate Levi’s stock buy with a $34 price target.
Analyst groups have noted that lower-income consumers will be among the first to shift to value brands as inflation and high gas prices take a toll.
And: Lower-income consumers will start tightening their belts by trading down to private label goods in 2022, analysts say
“While the aggregated impact on the consumer from surging gas prices might be fairly muted, the impact is definitely felt unevenly across income groups with the lower income being hurt the most,” wrote Bank of America in a note published Friday.
“[L]lower income consumers tend to work in services sectors such as leisure and hospitality where remote working is not an option, suggesting their demand for gasoline should be inelastic to prices. “
Bank of America notes that lower-income shoppers also have less money saved to manage higher prices.