In the autumn of 2022, we pointed out that the group's valuation was not lacking in appeal at $14 per share. After the rebound that followed - the stock reached $24 by the spring of 2024 - it was nevertheless back to square one in the wake of the Trump administration antics.
Stormy weather or a real tectonic shift? It's still too early to tell. However, it's a safe bet to day that Levi's has seen it all before, and that few ready-to-wear brands - especially in the denim segment - have managed to prosper so sustainably.
Faced with fierce competition - as well as an abundance of it, given that jeans are now an essential item that are available everywhere, whereas they were once the preserve of a few icons - Levi's has so far succeeded in defending and even significantly improving its gross margin.
Its new CEO Michelle Gass - who formerly worked for Starbucks, responsible, amongst other things, for the chain's international expansion - must ensure the transition from a model that historically relied on distributors to one that favors direct sales.
The latter is virtually more lucrative, of course, but also more costly to set up and maintain, and by extension riskier. Nike is another American icon to pivot in this way, as we recalled last week in Nike in the doldrums.
Despite a manufacturing quality criticized by brand aficionados and the gradual abandonment of its entire collection of classics in favor of more modern cuts, Levi's is making the transition rather smoothly for the time being. In 2020, the group returned to growth - albeit modestly - after a painful decade of stagnation following the great financial crisis.
However, operating profit has been treading water for the past four years, as gross margin gains, up 14% over the period - from $3.3bn to $3.8bn - have been eaten away by inflation in operating expenses, which have risen by 19%.
In addition, restructuring charges in 2023 and 2024 depressed net income. See Levi Strauss & Co: On the operating table.
Nonetheless, in the face of this complicated economic situation, Levi's generates between $350m and $400m in profit per year, which it fully returns to its shareholders via dividends and, for the time being, well-sequenced share buybacks when the stock was trading at its lows.
In light of the valuation's return to its lows and a satisfactory Q1 2025 - in line with the performance of the last five years - it's a safe bet that share buybacks will resume at a sustained pace very soon.
