Levi Strauss & Co Is A Good Fit For Dividend-Growth Investors Levi Strauss & Co (NYSE: LEVI) caught our eye in the early spring of 2020 and has since outlived our expectations. The company represents what to us is the next generation of iconic American retailers,

Levi Strauss & Co Emerge From Pandemic In Smart Fashion

Levi Strauss & Co (NYSE: LEVI) caught our eye in the early spring of 2020 and has since outlived our expectations. The company represents what to us is the next generation of iconic American retailers, those with a strong brand and solid eCommerce presence, and is emerging from the pandemic in stronger shape than when the crisis started. If you are looking for a safe growth stock to park some money in we think Levi Strauss could be a good fit for your portfolio.

Levi Strauss Smashes Consensus, Raises Guidance

Levi Strauss had a great quarter even in the face of tough comps. The Q1 period of 2020 ended early enough to miss the shutdowns and produced near-record revenue for the quarter. The comps moving forward will get easier due to the pandemic and will run in the range of 160% to 200% depending on reopening strength. During the Q1 2021 period, roughly 15% of stores globally and 33% in Europe were closed highlighting just how strong the company's sales are. Another factor impacting the comps is Black Friday, there was no Black Friday in the 2021 results shaving a cool 3% off of revenue.

So, the $1.31 billion in revenue down by 13% YOY but beat the consensus estimates by 480 basis points. The company experienced double-digit declines in all markets led by the EU and International but offset by eCommerce. eCommerce sales grew by 41% across all channels to account for 26% of revenue, up from 16% of revenue last year, along with a notable increase in DTC sales. Direct-to-consumer sales increased by 24% with a 10% increase in company-owned eCommerce portals.

The company's margins increased despite the YOY decline in revenue. The gross margin expanded by more than 200 basis points, adjusted gross margin by 200 basis points, due to mix, pricing, and lower promotional spending. The operating margins, both GAAP and adjusted, also improved with adjusted operating margin up 70 basis points to 13%. On the bottom line, the GAAP $0.35 and adjusted $0.34 in earnings beat by $0.11 and $0.10, and this strength is expected to continue.

The company did not give specific revenue guidance for the Q2 period but did update its first-half outlook. Execs now expect to see revenue grow by 24% to 25% in the Q2 period implying $1.18 billion in revenue or about 137% YOY growth. Needless to say, we think this figure is overly cautious given the strength of the Q1 sales, recent stimulus measures, economic reopening in the U.S., and the strength of the labor market.

Levi's Is About To Accelerate Growth

Even if Levi's doesn't outperform our expectations in the Q2 period it is still on track for explosive growth in the second half of the year. The company is planning to increases its store count with a focus on digital experience and we think that is going to drive a double-digit increase in revenue growth. The "next-gen" stores will include enhanced digital capabilities, create a smooth interface between B&M locations and the digital experience, and use AI/machine learning to control inventory. The stores are expected to be smaller which will help control costs as well, as will the recent decline in mall rents.

The Technical Outlook: Levi's Pops, Sets All-Time High

Shares of Levi's are up more than 5.0% in the premarket action and look like they will move higher. The pop has shares trading at a new all-time high with bullish signals in the indicators that point to increasing momentum and underlying market strength. Price action may retreat after the open to fill the gap formed with this morning's pop but we expect to see buyers step in and push the price back up. Longer-term, this company is on track for accelerating growth and growing its 1.0% dividend so we see it moving up into the $30 range at least.