Levi Strauss' (NYSE:LEVI) Conservative Accounting Might Explain Soft Earnings

The market was pleased with the recent earnings report from Levi Strauss & Co. (NYSE:LEVI), despite the profit numbers being soft. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

See our latest analysis for Levi Strauss

The Impact Of Unusual Items On Profit

For anyone who wants to understand Levi Strauss' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$156m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Levi Strauss to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Levi Strauss' Profit Performance

Because unusual items detracted from Levi Strauss' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Levi Strauss' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Levi Strauss at this point in time. You'd be interested to know, that we found 3 warning signs for Levi Strauss and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Levi Strauss' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.