OK, let’s see who’s hot and who’s not:
- LEVI is almost certain: https://www.philstockworld.com/2022/06/21/two-percent-tuesday-weak-bounces-accomplished-now-what/#comment-8125624
My premise here is that LEVI was hit by high cotton prices in Q1, peaking on March 31st. Q2 was considerably lower but they’ve also bounced back halfway to the top – so good but not great.
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Cotton is 20% of the cost of the jeans so the variable of $80 cotton to $130 cotton in Q2 is 50/80 (62%) x 20% is a whopping 12% cost increase. Cotton did have a similar spike in 2011 – all the way to $200 and the company survived so I think the fears are overblown. Also, would people consider a 12% increase passed along outrageous? Not really.
Currently we’re at $17.21, which is $6.9Bn and they made $554M last year and project $624M this year and $648M next year (20%!) on 5% rising sales. So far, they’ve made $196M and $50M – so we can assume they don’t have any hedges in place. Operating costs are $1.4Bn and 12% of that is $168M but we can assume they aren’t including all operating costs in their 20% number for cotton.
Nonetheless – the numbers all track so, given an average cost of under $100 so far in Q3, we can apply the same 20/80 is 25% x 20% is 5% of $1.4Bn is $70M so I’d guess they’ll do $120M in Q3 but probably better as they’ve had time to pass along some of the higher costs and also to choose to make more of their less cotton-intensive items while I’m sure negotiating better discounts from their suppliers.
If we say Q4 will still disappoint at $140M we have that + $120M + $196M + 50M = $506M, which is a 20% miss of estimates for the year but 25% more than the then-record $395M they made in 2019, when the stock was around $20.
