Shares of Levi Strauss (NYSE: LEVI) were soaring today after the apparel company beat estimates in its first-quarter earnings report and raised its guidance for the year.
As of 10:21 a.m. ET, the stock was up 17.5% on the news.
Image source: Getty Images.
Levi hops over a low bar
Levi Strauss said revenue in the quarter was down 8% to $1.56 billion, but that was slightly ahead of the consensus at $1.55 billion.
Revenue was down in part due to one-time events including the shift of wholesale payments from Q1 to Q2 due to a new enterprise resource planning (ERP) implementation, which negatively impacted revenue by 6%. Adjusting for that and the exit of the Denizen business and Russia, revenue would have been flat in the quarter.
Levi continues to shift its business to the direct-to-consumer (DTC) channel, which was up 7% globally in the quarter and 10% in the U.S. Wholesale revenue was down 9%, adjusting for the ERP implementation.
The shift to DTC helped lift gross margin by 240 basis points, rising to 58.2% due to falling product cost and a favorable mix shift. It also reduced inventories by 14%.
On the bottom line, adjusted earnings per share (EPS) fell from $0.34 to $0.26, which topped the consensus at $0.21.
CEO Michelle Gass said, "We are on our way to transforming this company into a best-in-class DTC-first apparel retailer."
What's next for Levi Strauss
The company maintained revenue guidance for the year at 1% to 3% growth and raised its adjusted EPS forecast from $1.15-$1.25 to $1.17-$1.27.
While the double-digit gains might seem like a surprise, the better-than-expected results and guidance lift comes at a time when much of the apparel industry is struggling and investors are buying into the company's turnaround strategy.
With the apparel stock up 75% from its low in September, however, investors may want to temper their expectations going forward.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
