Is Levi Strauss (LEVI) doomed?

Levi Strauss & Co (NYSE: LEVI) shows how coronavirus could destroy many retail and fashion brands.

For instance, Levi Strauss (LEVI) reported a -$448.24 million quarterly operating loss on 31 May 2020. In contrast, Levi Strauss reported a $92.33 million operating income on 31 August 2020.

Similarly, Stockrow estimates Levi Strauss’s revenue growth shrank by –28.54% in the quarter ending on 31 August 2020. The quarterly revenue growth shrank by -62.10% in the quarter ending on 31 May 2020.

How Coronavirus could Kill Levi Strauss

Thus, Levi Strauss could be one of the most vulnerable companies to the pandemic. I think Levi Strauss lost money because COVID-19 closed workplaces and retail stores.

To explain, blue jeans are the standard work uniform for many Americans, including most office workers. However, blue jeans can be uncomfortable. Thus, many people are not wearing jeans because they are working from home. Instead, those people wear more comfortable alternatives such as sweats, shorts, or yoga pants.

Moreover, most people buy jeans at malls and department stores which coronavirus closed. Thus, Levi Strauss faces a perfect storm of retail collapse and falling demand.

 Is Levi Strauss Making Money?

Levi Strauss (LEVI) makes some money. Levi Strauss reported a quarterly gross of profit of $577.40 million on 31 August 2020.  

The quarterly gross profit fell from $839.33 million on 29 February 2020 to $169.65 million on 31 May 2020. Similarly, the quarterly operating income fell from $178.71 million on 29 February 2020 to -$448.24 million on 31 May 2020.

Levi Strauss’s quarterly revenues fell from $1.506 billion on 29 February 2020 to $497.54 million on 31 May 2020. Ultimately, the quarterly revenues rose to $1.063 billion on 31 August 2020.

How Much Cash does Levi Strauss Generate?

Levi Strauss (NYSE: LEVI) is generating some cash. It reported a quarterly operating cash flow of $199.50 million on 31 August 2020.

In 2020, the quarterly operating cash flow fell from $197.88 million on 29 February 2020 to -$156.52 million on 31 May 2020. However, the quarterly ending cash flow fell from $874.07 million on 29 February 2020 to $574.97 million on 31 May 2020 and -$95.54 million on 31 August 2020.

I think Levi Strauss had to borrow money to survive 2020. To explain, Levi Strauss reported $727.61 million in cash from financing on 31 May 2020. The cash from financing fell to -$287.07 million on 31 August 2020. Levi Strauss started 2020 with a -$138.02 million operating cash flow on 29 February 2020.

Notably, Levi Strauss’s long-term debt grew from $416.39 million on 29 February 2020 to $504.12 million on 31 May 2020. The long-term debt fell to $500.70 million on 31 August 2020.

What Value Does Levi-Strauss Have?

Levi had a little value in the form of $1.425 billion in cash and short-term investments on 31 August 2020.

Levi Strauss had total assets of $5.547 billion on 31 August 2020. The total assets grew from $51.115 billion on 29 February 2020. Thus, Levi Strauss added some value in 2020.

Therefore, I think Levi Strauss’s only value is its’ iconic brand. To elaborate, many companies make blue jeans, but only this company has the Levi Strauss label. However, there are many consumers who do not care about the Levi Strauss label.

Can Levi Strauss Compete with Amazon?

In particular, all the people who buy their clothing from America’s favorite department store, Amazon (AMZN). Notably, Amazon’s private label brands account for 9% of the sales in Amazon’s Clothing, Shoes, & Accessories department, Jeff Bezos told Congress in August 2020.

Consequently, I think Amazon is now Levi Strauss’s largest and most dangerous competitor. In fact, I think the most popular blue jean brand in America could soon be the Amazon brand.

Levis will have a hard time competing with the Amazon brand because lazy people will order the Amazon brand first. Remember, you can find the Amazon brand on your phone in a few seconds and have UPS deliver it to your doorstep tomorrow.

Similarly, all the people afraid to enter brick and mortar stores because of new, more-contagious strains of COVID-19 will shop at Amazon (NASDAQ: AMZN). Consequently, I think Levi Strauss’s future could be as a supplier to Amazon.

Thus, Levi Strauss will be at the mercy of Amazon. How Levi Strauss can survive that reality is beyond me.

Is Levi Strauss a Good Stock?

Levi Strauss & Company (NYSE: LEVI) is a cheap stock. Mr. Market paid $19.71 for LEVI on 29 January 2021.

That price is up from $20.25 on 27 January 2020. Notably, Levi Strauss’s share price fell to a low of $9.51 on 3 August 2020. I think Mr. Market is realistically pricing Levi Strauss because of its exposure to Amazon.

To elaborate, I think the exposure to Amazon gives Levi Strauss a low margin of safety. Thus, I think Levi Strauss could collapse.

 Conversely, Levi Strauss paid a quarterly dividend of 8¢ on 23 April 2020. However, Levi Strauss has not paid a dividend since then.

I think Levi Strauss is a dangerous stock in a collapsing industry; brick and mortar fashion, that investors need to avoid. I predict Levi Strauss’s only future will be as part of a larger company. For instance, Amazon.

Originally published at https://marketmadhouse.com on January 28, 2021.