Why Levi Strauss & Co. Stock Just Crashed 16%

Core Viewpoint - Today's sell-off in Levi stock presents a potential buying opportunity for value investors despite the company's mixed earnings report [1]. Group 1: Earnings Performance - Analysts had forecasted Levi Strauss would earn $0.11 per share on $1.45 billion in sales for Q2 2024, but the company actually earned $0.16 per share, nearly 50% more than expected, with sales at $1.44 billion [2]. - Levi's sales grew by 8% year over year, and the company reported a record gross profit margin of 60.5%, attributed to its shift towards a direct-to-consumer (DTC) model [3]. Group 2: Cash Flow and Valuation - The DTC strategy has led to a significant increase in free cash flow (FCF), with $437 million generated in positive FCF so far this year, compared to negative $66 million in the first half of 2023 [4]. - The trailing-12-month FCF stands at $613 million, resulting in a price-to-free-cash-flow ratio of 12.6, indicating an attractive valuation for the stock [4][5]. Group 3: Stock Reaction and Accounting Clarification - Despite the earnings beat, Levi's stock fell by 16.5% on the day of the report, raising questions about the sustainability of the earnings [6]. - The reported earnings of $0.16 per share were pro forma, while the GAAP profit was only $0.04 per share, which may have contributed to the stock's decline [7].