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Levi Strauss (NYSE:LEVI) shares volatile as investors digest Q3 report

  • Clothing company posts $0.31 Non-GAAP EPS and $1.45bn revenue versus $0.28 and $1.44bn consensus
  • Shares bounce around as investors identify weakness in Latin America before US-China trade deal hopes seizes narrative
  • Shares up 1.55% late on Tuesday, fall overnight, rally in premarket, decline 6% in Wednesday’s trading

Levi Strauss & Co (NYSE:LEVI) stock jumped from negative territory to positive and back again on Wednesday off the back of the clothing company’s Q3 earnings and revenue beats and broader optimism regarding a potential deal in the US-China trade battle.

Late on Tuesday, Levi said Non-GAAP EPS came in at $0.31 for the three-month period to 25th August, which was 8.8% lower than Q3 2018 but three cents ahead of the consensus.

Group revenues for the same period were $1.45bn, a 4.3% rise year-over-year and $10m up on the pre-report forecasts.

The end of Levi’s fiscal year will arrive just before Black Friday next month, and it doubled down on previous revenue guidance of mid-single-digit growth for the period, which will match the 6% increase recorded in H1 2019.

Levi also expects to deliver a slightly higher adjusted profit margin “in the range of 10 basis points.”

It was a rollercoaster ride for LEVI stock after the release of the report as shares briefly surged before plummeting overnight, rallying slightly in premarket and then falling again (-6%) in Wednesday’s trading.

Shares were changing hands for around $17.85 by mid-morning which takes the edge of Levi’s gains earlier in the week and reins in the year-to-date advance to 7%.

While the San Francisco-based company delivered strong-than-expected returns in Q3, a weakness in its Latin America wholesale business soured sentiment overnight.

However, that changed on Wednesday on reports that China is looking to strike some sort of trade deal in the coming days as it prepares for high-level talks with the US in Washington on Thursday.

Levi would stand to benefit from a thaw in trade blows between the world’s most prominent economic players as there is potential for marked growth from its business in China.

CEO Charles Bergh said that the country still represented a “huge opportunity” for the company and that China makes up around 3% of their total business: “We've been evolving our China business over the last couple of years. Go back two fiscal years, we declined in China. Last fiscal year we were flat.”

He also noted that he expects China’s growth to increase sharply in 2020: “China remains on track to post growth for the full year after being flat last year.”

Levi’s global wholesale business grew by 2% in Q3 and it expects performance to remain strong in the short term. It also forecasts healthy sales for women’s clothing and tops.

On the analyst front, LEVI currently has six Buy ratings, one Hold rating and one Sell rating. The average price target is $23.25.