Wednesday, October 7, 2020

Levi Strauss Shares Surge on Oversized Q3 Results

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What’s happening: Shares of Levi Strauss & Co. rose sharply in extended trading on Tuesday after the popular denim jeans manufacturer surprised markets by reporting a profit for the third quarter.

What happened: Levi Strauss benefited in the quarter from various third-party retailers reopening their stores globally with easing restrictions.

Although the company continues to witness lower footfall at the reopened stores, its online business grew by more than 50%.

How were the results: While the denim maker reported a decline in both sales and profits for the third quarter, both metrics exceeded expectations.

  • Sales declined to $1.1 billion, from $1.5 billion in the same quarter last year, but topped the consensus views of $822 million.
  • Quarterly earnings came in at $27 million, or 7 cents per share, down from $124 million, or 30 cents per share, in the year-ago quarter.
  • Excluding onetime items, Levi earned 8 cents per share, handsomely beating the Street estimate of a loss of 22 cents a share.

Why it matters: The latest quarter represents a massive turnaround from the company’s dismal Q2 results reported in July. Although sales at Levi have not recovered to the pre-pandemic levels, the decline in Q3 was much lower than that recorded in the earlier quarter.

The company attributed the profit to its various initiatives to adjust swiftly to the pandemic situation, including cutting its workforce by 15%. The jean maker had already been looking to expand its ecommerce business. The shift to online took place much faster due to restrictions imposed to curb covid-19 infections.

Levi’s ecommerce business grew by 52% in the third quarter. Management indicated that online sales remained strong even as bricks-and-mortar stores reopened across the globe.

“Our total digital business has doubled as a share of total net revenues, and Levi’s remains the global leader in denim, where our women's business continues to take market share,” CEO Chip Bergh said.

How shares responded: Shares of Levi Strauss jumped 10.2% to $16.25 in after-hours trading after declining 1.8% during the regular trading hours. The stock has gained around 2% over the past three months.

What to watch: Investors will look out for news related to shoppers returning to physical stores, while also monitoring the company’s online sales. With the all-important holiday season approaching, expectations are high for direct-to-customer revenues, with CFO Harmit Singh indicating that the company could match last year’s sales.

The Markets Today

     

US stocks will be in focus today, ahead of the release of minutes from the Federal Reserve meeting.

Context: Wall Street closed sharply lower on Tuesday after President Donald Trump announced plans to halt talks on fresh fiscal stimulus.

Details: President Donald Trump was discharged from hospital late Monday where he was being treated for covid-19. During his time in hospital, the President had tweeted that a new stimulus package needed to be finalised soon. Shattering hopes of this becoming a reality, Trump tweeted yesterday that he intends to pause all talks related to the fiscal stimulus until after the Presidential elections in November. Markets were disappointed by the President saying he would rather focus on Judge Amy Coney Barrett’s Supreme Court nomination being confirmed.

Trump’s comments come after Federal Reserve Chairperson Jerome Powell urged the Congress to agree on the next round of pandemic relief, stressing on its importance to help the US economy recover.

Even Apple’s announcement of an online event on October 13 to unveil its new range of iPhones did not excite investors. Shares of Apple plummeted almost 3% amid the broader market downturn.

The Dow Jones index settled lower by 375.88 points at 27,772.76 on Tuesday, while the S&P 500 declined 1.4% to 3,360.97 and the Nasdaq 100 dipped 1.6% to close at 11,154.60.

What to watch: Investors continue to hope Trump goes back on his instructions to pause fiscal stimulus talks, amid fears of a stalling economic recovery. Markets also await the release of minutes from the latest Fed meeting.

Other Markets: European indices trading closed higher on Tuesday, with the FTSE 100, French 40 and German DAX 30 up by 0.12%, 0.48% and 0.61%, respectively.

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What else to watch today

     

UK’s Halifax house price index, Italy’s retail sales, Brazil’s car production and new vehicle registrations, Canada’s business confidence, Turkey’s treasury cash balance, ECB’s non-monetary policy meeting as well as the US MBA mortgage applications, EIA’s crude oil stockpiles and consumer credit.