Portra/DigitalVision via Getty Images Levi Strauss & Co. ( NYSE: LEVI ) is an apparel manufacturer. The company owns the famous Levi's denim brand, along with Dockers and Beyond Yoga.
Levi's (the brand) is one of the best-known mass-market apparel brands in the world. The brand has considerable pricing power, with LEVI enjoying gross margins close to 60%, even though 55% of its revenues come from wholesale. There are some indications that denim could be enjoying a cyclical upturn after the pandemic casualization of apparel led to lower interest in jean products.
The company has also made questionable decisions. Its move downstream to DTC has increased revenues and gross margins but has failed to materialize in higher operating profitability. In an effort to diversify out of denim, it purchased Beyond Yoga at a valuation that had to be impaired later.
Despite the company's promising early FY24 results, I believe the stock is overvalued at these levels, trading at a P/E of around 18x for FY24E earnings as guided by management. I think such a multiple is only reasonable for the most outstanding companies, and LEVI is not one of them, despite its positive characteristics. Company intro As mentioned, LEVI is mostly known for owning Levi's, the world's leading denim brand.
Levi's FY23 sales amounted to $5.7 billion, more than doubling its closest competitor, Kontoor Brands ( KTB ), owner of Wrangler and Lee. LEVI is a global company, with 56% of sales generated outside the US.
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