Last September it was a “favorable denim cycle,” and now it’s about “stabilizing denim demand.” Either way, Levi Strauss & Co. is still the dominant share holder in the denim market.
TD Cowen’s luxury and retail analyst Oliver Chen believes that Levi’s “icon” status as a heritage brand continues to give it superior brand awareness among consumers in the $93 billion global denim space. He initiated coverage of the brand last September.
In TD Cowen’s most recent proprietary TD Cowen’s Denim Consumer Survey Tracker from December 2023, stabilizing denim demand with consumers indicate that they are willing to spend $59 on average on a pair of denim jeans, as well as purchase three pairs per year. Chen said those data points are “largely unchanged” from November 2023. Moreover, the latest survey indicates market share leadership and brand heat continues to be strong, resulting in Levi’s “remaining the No. 1 choice for denim jeans.”
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“Levi’s [continues] to be the dominant share holder in the denim market [with] share trends improving in December 2023 v. November and September 2023,” Chen wrote in a research note on Friday previewing fourth quarter expectations.
He has an “Outperform” rating on shares of Levi Strauss stock, and raised the price target to $18 from $16. He also noted that his projection model includes “positive physical store traffic, stabilizing to increasing conversion rates, and average tickets, which should be slightly up.”
For the fourth quarter, Chen is projecting 155 basis points of gross margin expansion given a better commodity and freight cost backdrop versus the first half of 2023. That improvement gives Levi Strauss the ability to receive inventory at a lower product cost into 2024. While Chen said elevated promotional activity could offset margin expansion, the intensity of promotions “should not reach prior year levels,” due in part to improving inventory levels. He also said he wasn’t expecting price reductions in the fall continuing into the fourth quarter as the company has “noted successful price elasticity of demand.”
The company’s CEO Chip Bergh will retire from as of April 26. Michelle Gass, the company’s current president, will succeed Bergh as president and CEO effective Jan. 29. Bergh has been elected as executive vice chair of the board until his retirement date. Then he will transition to the role of senior advisor until the end of the company’s 2024 fiscal year.
Gass joined the company in December 2022. Last week, she spoke at the National Retail Federation’s Big Show at the Jacob Javits Center in New York City where she spoke about the state of the business. She said the brand is into the “denim dressing” trend for that top-to-bottom denim look. The brand also eyes expansion opportunities via overseas markets as well as an assortment mix featuring fabrications beyond denim.
