(News Bulletin 247) – The ready-to-wear group raised its financial outlook for the current financial year, but warned that customs duties would weigh on its margin in the fourth quarter. The stock fell 10% in early trading on Wall Street.

Last July, Levi Strauss & Co reported better-than-expected quarterly results and raised its targets for the entire 2024-2025 financial year.

The company then explained that it had begun to reap the benefits of its strategy focused on its flagship brand Levi’s. Last spring, Levi Strauss & Co initiated the sale of its Dockers brand to Authentic Brands Group, a company known for owning the Reebok brands. In October 2024, the company announced in October 2024 that it wanted to “conduct a strategic review” of this label which is losing momentum, suffering from the caution of European and American consumers.

“Dockers is a brand that has been out of touch with consumer trends for some time,” Zak Stambor, an analyst at eMarketer, told Reuters.

The inventor of jeans has also focused its strategy on direct sales to consumers, to better control its margins and extended its range aimed at female customers. The company has also diversified into sportswear with Beyond Yoga, acquired in August 2021.

A dynamic summer

This transformation also convinces consumers who once again favored Levi Strauss & Co products this summer. The American ready-to-wear group announced Thursday, October 9, that it had achieved a turnover of $1.54 billion in the third quarter ended at the end of August, representing growth of 6% on a published basis and 7% on a comparable basis.

In detail, the turnover achieved by distributors increased by 5% and that of the own network by 9%, on a comparable basis. By geographic region and on a comparable basis, growth accelerated significantly in Asia, to 12% compared to stable sales in the previous quarter, sales in the Americas region increased by 7% and in Europe by 3%.

A little further down in the accounts, gross margin increased by 1.1 percentage points year-on-year while adjusted operating profit (Ebit) climbed to $182 million. Levi Strauss & Co thus revealed net earnings per share of $0.34.

The group exceeded market expectations, with analysts targeting sales of $1.54 billion and net earnings per share of $0.31, according to a consensus cited by CNBC.

“Levi’s is enjoying strong momentum in the denim sector, but the company is expanding its line beyond jeans, allowing it to hedge against changing fashion trends,” notes CNBC.

The performance is all the more notable as the group told Bloomberg that it began to feel the effects of customs duties in the third quarter.

The shadow of customs duties

After delivering a better-than-expected quarter, the San Francisco-based company also raised its forecasts for the current year. Levi Strauss & Co now expects like-for-like revenue growth of around 3% this year, compared to a previous forecast of 2%. It also expects net profit per share to be between $1.27 and $1.32, an objective also raised compared to the previous range communicated by the group, from $1.25 to $1.30.

Levi Strauss & Co’s updated forecasts in terms of revenues outperform analysts’ expectations, who expected a contraction of 2.9% in 2025. As for those for net earnings per share, at the top of the range, they are in line with Wall Street estimates, which amount to $1.31 per share, according to an LSEG consensus cited by CNBC.

Levi Strauss & Co, very exposed to customs duties, also took stock of the effects of Donald Trump’s trade policy on its accounts. The ready-to-wear group continues to count on customs duties of 30% in China, but has revised upwards its forecasts for the rest of the world, going from 10% in the previous quarter to 20%.

Cited by Reuters, Barclays analysts said the forecast for the fourth quarter was “cautious” as the company did not see a change in trend in September, nor a pullback on price increases so far, either at the consumer or retailer level. Levi Strauss & Co’s chief financial officer, Harmit Singh, told Reuters that customs duties would weigh 130 basis points (1.3 basis points) on gross profit in the fourth quarter, which covers the crucial holiday season.

Which explains why the stock fell by 10% in the first trading on Wall Street, this Friday, October 10. At Thursday’s close, Levi Strauss & Co was still up more than 40% since the start of the year, with the market appreciating the new strategy of this group founded in 1853.

“We are encouraged by the fact that Levi’s continues to gain market share, add new wholesale distributors and post a gross margin higher than expected,” said Bank of America, which renewed its buy opinion on the stock this Friday.