These Jeans Look faded in a Pandemic

Levi’s results appear worse than others, but that should not send its share prices down so much.

By guest author Jinjoo Lee from Wall Street Journal

Caption and graphic courtesy by Wall Steet Journal

Many have joked that widening waistlines and seated Zoom calls have eliminated the need for new pants. Levi Strauss & Co. shareholders are not laughing.

The fashion brand’s revenue dropped 62% in the quarter ended May 24 compared with a year earlier, and the company swung to a net loss.

A couple of factors compounded the poor performance: One was that its business is pants-focused. The company said on a Tuesday earnings call that its tops business, which accounted for only 21% of sales last fiscal year, fared better in the last quarter. Aside from the aforementioned issues of girth and presentability on camera, customers might be less comfortable buying pants online without the ability to try them on. The second factor was the timing of its quarter, which encompassed the peak pandemic months of March, April and May.

Nike, another apparel brand with a similar reporting period, saw revenue drop by a much milder 38%. Its share price is down just 4% year to date compared with a 28% decline for Levi Strauss before what is shaping up to be another drop Wednesday. While its recent results were markedly weaker, Levi Strauss’s retreat seems excessive for a company that has posted solid performance over the past few years.

It seems to be faring far better where bricks-and-mortar sales have resumed. As stores reopened, Levi Strauss stopped burning cash and saw positive cash flow in June. Almost 40% of reopened stores saw sales numbers exceed year-ago levels last month. E-commerce, which accounted for just 5% of total sales a year earlier, brought in 15% last quarter. The acceleration in online selling means the company’s e-commerce business will be profitable for the full year, ahead of expectations.

And while denim isn’t an up-and-coming growth category like athletic wear, Euromonitor still predicts the market will grow 2%-3% a year in the U.S. The jeans maker’s domestic brand awareness is topped only by Nike, according to a survey conducted by UBS Research last year.

Like many of its peers, the company is using the bad months to focus its attention where it matters, including high-tech initiatives in design and product development.

Levi Strauss has weathered a lot of storms in its 167-year history. The depth of its latest swoon, a blip in the long run, might present a buying opportunity. If any apparel maker can look even more stylish after being stretched and torn, it is this one.

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