Levi Strauss stock comes undone following reports of elevated inventory levels

Yahoo Finance Live inspects Levi Strauss shares after the brand reported on its inventory levels.

Video Transcript

- My play today is Levi's, and those shares are sinking, on pace for their worst intraday performance ever. Inventory increases continue to lag on the stock. Inventory for the first quarter rose 33% on a yearly basis. That came in above Street estimates. Levi's management noted on today's earnings call that the company expects levels to be in line with sales growth by the end of the year.

Now, Jim Duffy at Stifel points out Levi's had initially guided for inventory in line with sales growth in the second quarter of this year. So Duffy notes that inventory is still an overhang, but Levi's did beat on the top and bottom line today, so maybe some upside in the long run. But I do think, Dave, that inventory probably weighing on margins and potentially building up an issue there for Levi's

DAVE BRIGGS: That was my lead when reading this. Now, they did 12% growth in direct to consumer, but my lead here was the margin compression. 360 basis points in that regard, and that is a really tough number to swallow for investors.

SEANA SMITH: Yeah, it certainly is. And even when you look at that sales number, their sales-- we saw some improvement, but that margin pressure really points to the fact that promotions-- the way they were forced to promote so many of their sales here over the last quarter, something that many of its competitors out there have had to do because people are really pulling back on spending.