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Pre-COVID Tights: Levi Strauss

20 August 2020 by jbchevrel

Levi Strauss & Co. (LEVI), the famous retailer and apparel maker, reported a second fiscal quarter (Q2F, ended May 24) that coincided with the roughly 10-week duration of the closure of its and its customers stores in response to the COVID pandemic. Revenue was down by -62% YoY, as the closing of stores and stay-at-home rules had a devastating effect on consumer purchasing. Indeed, LEVI reported revenue of $497.5M in Q2F (ended May 24). Despite the fall, this release was not as weak as the consensus had forecast: analysts’ estimate was $485.5M. The street vs online revenue offset was very partial. But the stores have now largely re-opened and the e-commerce business accelerated to nearly +80% growth during the month of May alone. LEVI also successfully increased liquidity with a $500M of 5% 2025. The CDS is not very liquid (thus why the time series isn’t very ‘regular’), is back to pre-COVID levels of close to 100bp. At the peak of the COVID crisis, 5-year protection was costing a tad more than 200BP annually. The sector has been under pressure. Brooks Brothers, the self-proclaimed oldest clothier in the US (started in NYC, 1818), has filed for bankruptcy last month, as reportedly Brooks Brothers wasn’t able to keep up with younger shoppers, who often wanted styles that were cheaper and more functional. Earlier than that, J.CREW had been the first big retail chain to file bankruptcy in the wake of lockdowns ($900M missed sales because of lockdowns). Now it is probably fair to say that J.CREW struggle had started years earlier (6 straight yearly losses with a chunky -$2BN loss cumulated in 2014/15, high and mounting debt since the LBO, and finally, the brand lost touch with its customers). In comparison, LEVI is doing quite well. From a CDS perspective. Indeed, shareholders in LEVI may not fully adhere to that, as the stock has lost -40% since the middle of February. The market cap is left at $4.8BN. As of the end of Q2F, cash on B/S was reported at $1.5B and total debt at $2.9BN. The consensus of Bloomberg analysts expects LEVI to generate $100M EBITDA / lose net -$70M in 2020 and revert toward normalcy in 2021 with $600M EBITDA / $300M net earning.