Levi Strauss & Co. pumped its chest a bit on Thursday when it touted a ratings agency upgrade.
The San Francisco denim company’s celebratory announcement was in relation to Fitch Ratings’ long-term issuer default rating being bumped up from BB+ to BBB. The move was based on Levi’s EBITDAR leverage. The measure is a ratio of a company’s debt to earnings before interest, taxes, depreciation, amortization and rent. It serves as an indication of a company’s health by offering a gauge on its ability to pay down debt.
Levi Strauss CFO and Growth Officer Harmit Singh said the upgrade ramps the company’s “momentum to become a $10 billion company with 15 percent EBIT margins.”
Other factors that went into Fitch’s revised view of Levi’s is its belief the tactics being carried out by the company will lead to low-single digit revenue growth annually. Fitch said it expects revenue to hit $6.5 billion by 2028, which is up 12 percent from 2019.
Plusses and Minuses
Levi’s is pulling on several levers to make growth happen.
A big chunk of that is buckling down on its namesake Levi’s brand. There’s also direct-to-consumer opportunities for a channel that made up 46 percent of overall 2024 revenue. That’s expected to tick up to more than half of companywide revenue by 2027, Fitch pointed out. Category and market expansion is another aspect of the growth plan and includes more men’s tops and women’s apparel.
Unloading parts of the business that no longer make sense is helping.
Levi Strauss exited the Denizen brand and is expected this year to sell Dockers, a $300 million business in 2024.
Fitch tempered its outlook by pointing to the lack of revenue stream diversification.
“The company’s credit profile is somewhat constrained by its Levi’s brand concentration, at 89 percent of 2024 revenue and narrow product focus on bottoms at 67 percent of 2024 revenue,” the ratings agency said.
It added the potential challenge for all brands is the “fickle consumer behavior” that rules the apparel industry.
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