Less than three weeks removed from its initial public offering, Levi Strauss (NYSE: LEVI) just announced strong first-quarter 2019 results, and the market was rightly impressed. Shares climbed as much as 9.2% early Tuesday, then settled to close up 4%.
To be fair, there were no formal analyst estimates or financial guidance to compare. But the iconic clothing brand's quarterly revenue climbed 7% year over year -- or 11% at constant currency, marking its sixth consecutive quarter of double-digit growth -- to $1.435 billion. On the bottom line, Levi's adjusted (non-GAAP) net income soared an even more impressive 81% to $151 million.
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Now that the dust has settled, it's a good idea for investors to take a closer look at the underlying drivers of Levi's business. Lucky for us, management offered invaluable insight to that end during their subsequent conference call with analysts.
Here are five important points they brought up during this quarter's call:
1. Levi's strength is broad-based
To be clear, while Levi's overall business is propped up by its core namesake men's bottoms, we should remember it also fosters the Dockers, Signature by Levi Strauss, and Denizen brands. Furthermore, shareholders should be pleased that its diversification efforts are proving fruitful for driving growth across distribution channels and geographies.
2. On focusing on the long term
At the same time, we're also talking about driving growth for a business that, by many accounts, is relatively mature. To consistently accomplish that feat, it's crucial that Levi Strauss doesn't simply chase low-quality, near-term growth opportunities that will fade in time. Thankfully, that seems to be a lesson Levi's management has taken to heart.
3. On lumpy near-term advertising costs
Of course, driving top-line growth from mature brands requires a concerted marketing effort. And this shift in timing likely helped spur Levi's outsized earnings growth to start 2019. We shouldn't be shocked, then, if Levi's earnings growth rates wane as the company's marketing spend returns to more normal levels in the coming quarters.
4. China is a "huge" deal
Later in the call, Singh added that the company had only recently "reset the foundation of [its] strategy" in China. This helps explain why revenue growth in the Middle Kingdom lagged the increases in both Levi's overall sales and the 8% growth (or 13.8% at constant currencies) from Asia as a whole.
As an aside -- and more on this topic below -- Levi's investors should remain mindful of the threat of Chinese tariffs going forward.
5. On Levi's light forward guidance
More specifically for full fiscal year 2019, Levi's expects constant currency revenue growth in the mid-single-digit percent range. Later in the call, Singh elaboarted that they realize "this may sound conservative." But the company also likely realizes it's better to under-promise and over-deliver than the other way around. Considering the market opted instead to focus on their relative outperformance in the first quarter, I would argue they made the right move in walking that fine line.
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