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Levi said it plans to sell its denim at 500 Target stores by the fall of 2021, up from just 140 stores now.
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Levi Strauss & Co. delivered a surprise profit in its third quarter, and that is good news for retail partner Target, too, according to Raymond James.
Levi Strauss (ticker: LEVI) said late Tuesday that its e-commerce business climbed 52% in the period, while digital sales, which includes sales through the online platforms of its retail partners, rose 50%. Although the Covid-19 pandemic continues to weigh on Levi’s top line, it was able to provide fourth-quarter revenue guidance slightly ahead of expectations.
The stock jumped 13% to $16.65 shortly after the market opened on Wednesday, as the Dow Jones Industrial Average rose 1.2%.
The popularity of Levi’s, even as people lean on athleisure during the pandemic, shows the enduring appeal of the brand. That is valuable to Target (TGT), which has sold its value Denizen denim for about a decade and last year expanded its offerings to include higher-priced Red Tab products.
Analyst Matthew McClintock reiterated a Strong Buy rating and $180 price target on Target, writing on Wednesday that “it is increasingly apparent that Target has become one of the most attractive retail distribution points for good and better product of national brands.”
Levi said it plans to sell its denim at 500 Target stores by the fall of 2021, up from just 140 stores now, providing both its higher- and lower-price products—given that they attract different sets of customers, rather than cannibalize one another.
Thus, McClintock argues, Levi’s growing partnership is confirmation of the success of this strategy for Target, and that “forward thinking wholesale brands can remain strong, grow, and even find new customers (in both the physical and digital worlds) despite ongoing challenges facing a broader retail industry that is plagued with antiquated business models.”
Levi’s jeans won’t make or break Target, of course, and the company has also had success with its own private-label brands, in everything from apparel to food.
Nonetheless, given declining mall traffic—which has been going on for years—and trip consolidation—a pandemic-related phenomenon—are all the more reason for stand-alone brands to want to partner with Target, which is seeing accelerating same-store sales. The sales they bring may be incremental amid Target’s other top-line drivers, but it could help the company continue to attract and retain customers, even post-pandemic.
Write to Teresa Rivas at teresa.rivas@barrons.com