The corporate reinvention is a fickle beast.
One can be set off by a new chief executive officer, the passage of time or some retail disaster — self-made or otherwise.
But once they get going, strategic plans to refocus product offerings, refresh operations, reprioritize investments and more or less change everything can take on a life of their own.
CEOs are both driving the process and along for the ride as companies start to flex under a new, internal momentum.
Wall Street usually allows some kind of a grace period — a year or maybe two, but not three — when they’ll buy into a new corporate vision and promises for the future.
But sooner or later, they’ll want results or more proof points that they’re coming.
CEO Michelle Gass is right on that cusp between telling the world how Levi Strauss & Co. is changing — selling denim head to toe, growing in women’s and building with its own stores — and just showing the results.
Gass told WWD on Thursday that the Levi’s brand is “stronger than ever” and “resonating around the world.”
That was backed up by a 9 percent increase in second-quarter organic sales and a 39 percent rise in adjusted income, to $89 million. The outlook for the full year was also raised, even while baking in higher tariffs.
Investors traded shares of the company up 11.1 percent to $21.93 on Friday.
Jay Sole, an analyst at UBS, described the results as “one of Levi’s best quarters over the past few years.”
“We believe Levi’s ongoing transformation into a global, multichannel, lifestyle brand for both men and women from what traditionally was a North America, wholesale, men’s, denim business is happening,” Sole said. “This change should fuel strong long-term growth.”
The analyst predicted that sentiment on Wall Street would improve for Levi’s.
“Our conversations with investors suggest most want to own only the most ‘defensive’ and ‘high-quality’ softline names, such as TJX Cos. Inc.,” Sole said. “The issue is there are very few stocks of this type, and they have high price-to-earning ratios.
“As investors have looked for lower P/E alternatives, names like Ralph Lauren Corp. and Tapestry Inc. have emerged. This has boosted sentiment and driven P/E expansion for those stocks. We believe investors will decide Levi’s belongs in that group as the company continues to produce more exceptional quarters like it did in Q2.”
Likewise, Alex Straton at Morgan Stanley called it an “impressive 2Q beat” and raised his target price on the stock.
And TD Cowen’s Oliver Chen said traffic, conversion and pricing were all moving in the right direction.
“Cultural and product relevance remains apparent as Levi’s executes on: baggy dad jeans, quiet Western aesthetic, Nike collaboration, thermal regulation, and Y2K cultural relevance,” Chen said.
“The story at Levi’s is focused, direct-to-consumer growth on units — +16 stores in 2Q and plans to open +250 stores over the next five years — and DTC revenue +6 percent year over year, underpinned by product execution combined with better inventory management strategies and speed,” he said.
Levi’s has a market capitalization of $8.7 billion, putting it well ahead of other names wanting to give a new look to the market, including Macy’s Inc. (with a market cap of $3.4 billion), PVH Corp. ($3.5 billion) and VF Corp. ($4.8 billion).
Wall Street is now looking to see if Levi’s can make the jump from leading that pack to joining other companies that are bearing the fruits of steady reinvention, including Ralph Lauren ($17.4 billion) and Coach-parent Tapestry ($20.5 billion).
The Bottom Line is a periodic business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000.