Levi's (NYSE:LEVI) Misses Q3 Revenue Estimates, Stock Drops
Denim clothing company Levi's (NYSE:LEVI) fell short of the market’s revenue expectations in Q3 CY2024, with sales flat year on year at $1.52 billion. Its non-GAAP profit of $0.33 per share was 6% above analysts’ consensus estimates.
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Levi's (LEVI) Q3 CY2024 Highlights:
- Revenue: $1.52 billion vs analyst estimates of $1.55 billion (2.4% miss)
- EPS (non-GAAP): $0.33 vs analyst estimates of $0.31 (6% beat)
- EPS (non-GAAP) guidance for the full year is $1.22 at the midpoint, missing analyst estimates by 2.7%
- Gross Margin (GAAP): 60%, up from 55.6% in the same quarter last year
- EBITDA Margin: 14.9%, up from 11.9% in the same quarter last year
- Free Cash Flow was $2.3 million, up from -$21.2 million in the same quarter last year
- Constant Currency Revenue rose 2% year on year (-2% in the same quarter last year)
- Market Capitalization: $8.62 billion
Company Overview
Credited for inventing the first pair of blue jeans in 1873, Levi's (NYSE:LEVI) is an apparel company renowned for its iconic denim products and classic American style.
Apparel, Accessories and Luxury Goods
Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, Levi’s sales grew at a weak 1.3% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Levi’s recent history shows its demand slowed as its revenue was flat over the last two years.
We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which exclude currency movements that are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales were flat. Because this number aligns with its normal revenue growth, we can see Levi’s foreign exchange rates have been steady. 
This quarter, Levi’s $1.52 billion of revenue was flat year on year, falling short of Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 7.2% over the next 12 months, an acceleration versus the last two years.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Levi's has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.1%, lousy for a consumer discretionary business.
Levi's broke even from a free cash flow perspective in Q3. This result was good as its margin was 1.6 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.
Key Takeaways from Levi’s Q3 Results
It was good to see Levi's beat analysts’ EPS expectations this quarter. On the other hand, its constant currency revenue missed along with its full-year EPS guidance. Overall, this was a weaker quarter. The stock traded down 7.6% to $19.46 immediately following the results.
Levi’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy.We cover that in our actionable full research report which you can read here, it’s free.
