Levi Strauss Earnings Rise – A Look at the Textile Sector

Riding a wave of premium product sales, Levi Strauss & Co.’s first-quarter earnings rose 61%. The company also cited growth in emerging markets and brand-dedicated retail stores for the increase.

Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_04_11_Textiles.mp3

Although the San Francisco maker of jeans is not publicly traded, the PowerOptions weblog will use this news as a springboard to take a look at the textile industry as a whole.

This article serves as an example of how the average investor can identify the most attractive option trade based on their view of whether a stock will rise or fall. If an investor’s view is bullish, they might choose to use bull call debit spreads or bull-put credit spreads to make money from their hunch. If an investor believes a stock will fall, they might choose bear put debit spreads or bear-call credit spreads. Today we will look at a covered call investment strategy. Click on any of the above links for more information about the specific strategy or take a look at our covered call example.

Last year, Levi’s boosted profit despite lower sales with heavy decade long cost cutting by management. The measures included the elimination of thousands of redundancies and the closing of dozens of factories.

Cost trimming continues as the company discontinued its Signature brand of lower-cost jeans in Europe in October. A success for Levis has been the Dockers brand of khaki pants.

The company has said in the past year it might go public again for the first time since 1985. An initial public offering would help the company pay down its $2.2 billion in debt.

Levi’s also named longtime manager John Anderson chief executive at the end of 2006, just weeks after promoting him to operating chief. Anderson had been head of the Asia-Pacific division. The Asia division has been one of the company’s better performing units during the last decade.

Adhering to the old adage about all boats rising with the tide, we will take a look at some of Levi’s competitors in the apparel market.

Potential Trades:
All of the following option trades have 39 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.

GYMB – Gymboree clothing. This trade involves the May $40 call option and offers 6.7% downside protection and 4.6% potential profit if the stock is above the $40.00 strike price at the end of the option period. Gymboree is currently trading at $40.99.

UA – Under Armour, Inc. designs, develops and distributes of a range of apparel and accessories utilizing synthetic microfiber in the United States and internationally. This trade involves the May $55 call option and offers 3.8% downside protection and 7.7% potential profit if the stock is above the $55.00 strike price at the end of the option period. Under Armour is currently trading at $53.05.

BEBE – Bebe stores design and produce women’s apparel and accessories. This trade involves the May $17.50 call option and offers 6.7% downside protection and 5.0% potential profit if the stock is above the $17.50 strike price at the end of the option period. Bebe is currently trading at $17.87.

COLM – Columbia Sportswear Company designs, markets, and distributes outdoor apparel in the United States and internationally. This trade involves the May $65.00 call option and offers 3.1% downside protection and 4.9% potential profit if the stock is above the $65.00 strike price at the end of the option period. Columbia Sportswear is currently trading at $63.98.

Competitors:
Competitors for GYMB include: Gap Inc. (GPS), Talbots Inc. (TLB), Target Corp. (TGT), and Childrens Place Retail Stores (PLCE).
Competitors for UA include: Columbia Sportswear Company (COLM), and Nike Inc. (NKE).
Competitors for BEBE include: Guess? Inc. (GES), Wet Seal Inc. (WTSLA), and Express, LLC (private).
Competitors for COLM include: Nike Inc. (NKE), Timberland Co. (TBL), and The North Face, Inc. (private).
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.

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