Levi Strauss & Co. (LEVI) shares are sagging after the company's second quarterly report since its initial public offering (IPO) disappointed investors.
Shares of the 166-year-old jeans manufacturer were down around 7% before Wednesday's opening bell, reversing a steady push upward that had produced an increase of more than 15% in the stock's price since late June.
The downward move came as earnings for Levi's fiscal second quarter, which ended May 26, came in at seven cents a share, down 65% from the like period last year.
The earnings decline largely was blamed on costs linked to its March listing on the New York Stock Exchange. Adjusting for that cost, Levi Strauss earned 17 cents per share, beating the Street consensus forecast of 15 cents per share but still down significantly from the year prior.
"Adjusted diluted EPS for the second quarter of 2019 was $0.17. Let me repeat, $0.17, which is down 21% over prior year," CFO Harmit Singh said. "The EPS decline was greater than adjusted net income decline due to the shares we issued in connection with our IPO."
Also impacting the stock was the company's reference to difficult sledding ahead.
"We do expect ongoing pressure for the remainder of the year due to a weak department store environment, continued door closures and pressure on our customers' open-to-buy budgets," Singh said.
Singh said that while underlying business trends remain positive, the lack of a Black Friday in the company's fiscal fourth will hurt year-over-year comparisons. Also, the impact on Levi's wholesale channel of bankruptcies and store closures at prominent distributors will sting second-half results as well.
The reduction in storefronts has led to higher advertising and marketing costs and a push to drive online sales growth and optimize Levi's own brick-and-mortar locations, lifting its expenses by around 7% in the just-reported quarter to $638 million. Given the second-half trends, these costs are unlikely to abate.
Still, with growth across regions and a steadily accelerating women's business plus an earnings miss largely driven by a one-time charge, many analysts remain optimistic about Levi's stock.
'We would recommend buying any weakness on U.S. wholesale concerns given that this is a rare liquidity event for a stock still with such a small float," Evercore ISI analyst Omar Saad said. "With the company just scratching the surface on digital marketing and finding unique ways to introduce the brand to a wider audience, this American 'Brandsformation' story should continue to resonate globally and support outsized top and bottom line growth."