Although it’s been a short one so far, Levi’s incredible winning streak over the last month proves the firm has returned to “effortless cool” form following intermittent bouts of financial weakness and a more than 30-year period off the public markets.
While Levi’s is currently on the upswing, its ostensible “Golden Age” occurred during the 1950s and 1960s when blue jeans rose to prominence in American culture. The firm benefited immensely from Hollywood icons like Marlon Brando and James Dean wearing jeans in their films, and Levi’s maintained this cultural dominance up until the 1990s when competitors slowed Levi’s growth to the point where it forcibly closed factories left and right.
The biggest move Levi’s made in the early 2000s was forming a close partnership with Walmart Inc. (WMT), producing signature jeans to be sold exclusively at the retailer’s locations. It was considered an effort to revitalize the Levi’s brand amidst lagging sales and changing fashion tastes. However, the Levi’s-Walmart partnership didn’t endure as long as both had hoped, and soon the iconic jean company fell into what seemed like permanent financial despair. The company reported declining annual sales during nine of the 10 years between 1997 and 2007. The only growth year was 2005 at a measly 1%.
Now, Levi’s is enjoying tremendous success again. Its IPO priced at $17 the night before the trading debut, above the expected $14-16 range and an early sign of investor hype toward the firm’s return to the markets. With that price point on the company’s 36.7 million shares, the deal raised $623 million at a market cap of $6.9 billion, easily becoming one of the largest IPOs of the year. That investor hype further manifested itself in the stock’s 32% gain on its first day alone.
With the first quarterly report as a public company under its belt, Levi’s plans to keep that train going with expansion into larger markets, primarily China where only 3% of the firm’s sales come from right now. In a CNBC interview on Wednesday, Bergh said, “China is one of my top priorities” despite uncertainty regarding U.S. trade relations with the world’s second-largest economy.
But Bergh took it one step further by explaining that he plans on making Levi’s a unifying brand across all cultures. He summarized this sentiment by saying: “The best thing we can do is just have the brand show up organically worn by people of all different backgrounds. You wear other jeans but you live in Levi’s.”
It’s difficult to find a reason why investors should be pessimistic about Levi’s growth from here. Companies only return to the investing public after more than three decades if they truly believe their growth engine is back, and Bergh’s plans to penetrate the always-burgeoning Chinese market means Levi’s stands to profit handsomely from these long-term plans.
With that in mind, investors can safely bet on LEVI stock’s sustained long-term growth from here. No other denim producer – including household names like Gap or American Eagle – have the same kind of lasting American legacy that Levi’s has. That remains a priceless and intangible metric that will continue to work in Levi’s favor.