Levi Strauss & Co (NYSE:LEVI) reports third-quarter results after the closing bell on October 5 and analysts expect the company to deliver a big improvement on the previous quarter.
The renowned denim maker is likely to report adjusted earnings per share of $0.27 for the quarter ended August 27, 2023, down from $0.40 a year earlier but well above the $0.04 reported in 2Q, according to the consensus estimate of five analysts surveyed by Zacks Investment Research.
The company’s shares have been under pressure this year following disappointing earnings reports. They fell 7.7% the day after it delivered its 2Q earnings and cut its full-year guidance due to increased costs and a sluggish wholesale performance in North America.
Things could be turning around, however, as it reduces its inventory in a challenging environment. It expects to achieve inventory levels below prior year levels by year-end. This will contribute to a continued improvement in its adjusted free cash flow, which turned positive in 2Q.
Its stock already got a boost this week after TD Cowen initiated coverage with an ‘Outperform’ rating and a $16 price target, saying it is in the “early innings of a favorable denim cycle.”
But Bank of America is a little more muted, maintaining a Neutral stance in anticipation of the upcoming results.
Analysts see "little upside" to EPS estimates, altthough they do see valuation support as shares trade at 10 times price-to-earnings (P/E) and 6.5 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA).
BofA's forecast for 3Q EPS is $0.27, aligning with market consensus, and the projection for full-year 2023 (F23) EPS is $1.12, situated at the lower end of the company's provided guidance range of $1.10 to $1.20.
"The operating environment has remained choppy for brands with significant wholesale exposure given cautious trends at dept stores and similar retailers (wholesale represents 58% of sales for LEVI)," analysts wrote. "A continuation of encouraging DTC results (US DTC up 11% in 1H) would be encouraging and help reaffirm our confidence that brand heat remains strong, and the brand can continue taking share."
Ahead of the earnings release, Levi’s shares were down1.4% at $13.25.
--Updates with analyst comment, share price--
Contact the author at stephen.gunnion@proactiveinvestors.com