Gregory Bent
CFA, Equity Analyst, US & Canadian Markets, 30+ Years of Experience
Consensus underestimates Levi Strauss's transition into a high-margin direct-to-consumer brand, making it a conviction buy with a $34 target, about 40% upside, over 12-18 months. DTC now drives over 50% of revenue, lifting margins and cutting wholesale dependence. Brand equity gives it pricing power, the Dockers divestiture streamlines operations, and a ~2.5% dividend plus buybacks support EPS. As DTC tops 55% of sales, EV/sales could rerate from about 1.2x toward 1.6x-1.8x. x.comÂ
Levi Strauss is becoming a high-margin direct-to-consumer lifestyle brand, and a re-rating from about 15.5x forward earnings could drive it to an aggressive $34 target, making the post-earnings dip a buying opportunity. DTC passed 51% of revenue for the first time, lifting gross margin to 62.7%. Q2 adjusted EPS of $0.28 beat the $0.24 consensus, full-year growth guidance rose to 7-7.5%, women's grew 11% and Beyond Yoga 16%. Growth splits evenly between volume and price, showing pricing power. x.comÂ
American Eagle Outfitters looks cheap at 10.2x current-year consensus P/E versus 14.6x for Levi's, which just posted a whopping quarter and guide, and its Sydney Sweeney campaign is back. x.comÂ
On Holding could rerate quickly from 9 times forward EBITDA back to 20 times if its growth decline slows or reverses, possibly in early 2027, while it holds premium gross margins. Over the past two quarters it deliberately held prices and protected its premium positioning, pulling back from wholesale toward direct-to-consumer. Its apparel business is growing 84%, small now but a clear sign its category expansion is working. x.comÂ
Lululemon is not that tempting even after falling from $500 to about $100, because cheap does not mean buy. At about 1x sales the market prices in roughly zero growth, and analysts expect about $13 of EPS by 2029; at an 8x P/E that is only about $104. Agreeing with @HKIStrategies that the stock may simply move sideways for years, that would still mean losing money to inflation. x.com x.comÂ
Lululemon offers better risk/reward than Nike if it is not broken, trading below 5x EV/EBITDA versus Nike's 14x. Nike's turnaround through wholesale is very hard for a $50B revenue business facing strong rival brands, less product control, price competition and channel conflict across multiple product lines. Nike may have a better near-term chance of beating estimates and is a more evergreen brand, but Lululemon looks increasingly preferable. x.com x.comÂ
Nike's push to reposition as a premium sports brand looks like the right route to recovery, including in Greater China. New CFO Dave Denton was clearer, and Alex Arnault's board seat, Jordan's return to scarcity, elite athlete deals and less discounting support it. EPS was fairly strong and margins are improving; guidance looks set deliberately low to beat, since management says the decline largely stems from its own choices. The dividend is safe; a full turnaround may take 3-5 years. x.com … Show more
Nike's valuation premium has been squeezed out just as CEO Elliott Hill's turnaround shows traction. P/S near 1.3x is a decade low, P/E is about 20x, and a 3.8% yield gives downside protection; Morningstar rates it Wide Moat with fair value above $90. North American wholesale revenue rose 10%, and Foot Locker's first positive same-store sales in four years suggest the wholesale repair is working. Curbing AJ1 and Dunk supply rebuilds scarcity, and the fall Investor Day could flip expectations. … Show more
Lululemon is an 800lb gorilla worth defending despite bad management and the politics around its skin-tight leggings. x.comÂ
