Retail Stock under pressure: Levi Strauss & Co. (NYSE: LEVI)

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Levi Strauss & Co. (NYSE: LEVI) stock lost over 4.9% on July 8th, 2020 pre-market session (Source: Google finance) as covid hit second quarter results of the firm coupled with uncertainty ahead. The firm already undertook cost cutting efforts leading to workforce reduction by over 700 people, which is over 15% of their global non-retail, non-manufacturing headcount. Gross margin was 34% which included COVID-related charges of $87 million, but even without these charges, adjusted gross margin fell 180 basis points against last year.

Net revenues took a solid hit, falling over 62% a reported basis, and 61% on a constant-currency basis hurt by temporary closures of brick and motor sales due to COVID-19 pandemic. As per the COVID-related charges, the firm booked inventory reserves of $87 million as well as took a charge of $28 million for receivables as the wholesales customers and recorded $60 million in store-related impairment. Adjusted EBIT was a loss of $206 million, while Adjusted net loss was $192 million against Adjusted net income of $69 million in the same quarter of the prior year. The firm recorded a Restructuring charges of $67 million in the second quarter of 2020 due to company’s restructuring initiative, which includes over 15% cut in global non-retail and non-manufacturing organization.

On the brighter side, the firm’s e-commerce business surged over 70% in the month of June even as brick and mortar stores reopen. This is three times growth against pre-COVID levels as consumers are not showing interest to brick and motor stores. This increase e-commerce contribution to 15% of total company net revenues in the second quarter, against 5% in the second quarter of the prior year. The firm is improving their digital initiatives and analyzing the pandemic’s impact to consumer shopping behaviors accordingly. However, the overall situation looks hazy for the apparel category to return to pre-COVID levels. International markets like India, took a hot due to rising COVID cases and management does not see revenues to return to pre-COVID levels until sometime in 2021.

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