Levi Strauss & Co. (NYSE: LEVI) shares fell sharply on Friday despite the denim maker reporting stronger-than-expected third-quarter results and raising its full-year guidance.
Investors appeared unsettled by the company’s cautious fourth-quarter outlook and warnings of tariff-related margin pressure, sending the stock down 10.23% to $22.03 on Friday.
Earnings beat and upgraded full-year forecast
For the fiscal third quarter ended in August, Levi reported adjusted earnings per share of 34 cents on revenue of $1.54 billion, exceeding FactSet estimates of 31 cents and $1.50 billion, respectively.
The company also nudged up its fiscal 2025 guidance, raising expectations for both revenue and adjusted earnings per share.
Chief Financial Officer Harmit Singh said on a call with analysts that the updated outlook assumes US tariffs on imports from China will remain at 30% and 20% on imports from other countries through the rest of the year.
“While the macro environment remains complex, the consistency of our performance and operational agility gives me confidence that we will deliver sustained, profitable growth into 2026 and beyond,” said CEO Michelle Gass.
The company cited its continued progress in direct-to-consumer sales and a broader brand turnaround as key drivers of third-quarter performance.
Levi’s also noted early strength in its holiday preparations, with about 70% of its holiday inventory already secured, alongside slight price increases to offset higher costs from tariffs.
Cautious fourth-quarter outlook weighs on sentiment
Despite the upbeat results, Levi’s conservative fourth-quarter forecast tempered market enthusiasm.
The jeans maker expects revenue to decline around 3% year over year and adjusted earnings between 36 and 38 cents per share.
Analysts had anticipated a steeper 7% revenue decline but higher earnings of 41 cents per share, according to FactSet.
Singh said Levi is taking a prudent approach given the “complex macros,” pointing to tariffs and potential impacts on consumer demand.
The company also expects gross margin contraction of about 100 basis points in the current quarter, primarily due to tariff costs and the absence of a 53rd week in the fiscal calendar.
While Wall Street analysts generally viewed the guidance as conservative, the cautious tone was enough to rattle investor confidence.
Stifel analysts described the forecast as a “relative disappointment,” though they suggested it may prove overly cautious given current sales momentum.
Barclays analysts also noted that Levi had not observed any significant deterioration in shopping trends in September.
In July, the company raised its annual revenue and profit guidance after Q2 results beat expectations.
Tariff pressures highlight broader industry challenges
Levi’s latest warning underscores the ongoing impact of US trade policies on apparel companies that rely on overseas manufacturing.
The company sources much of its production from South Asia, including Bangladesh, Cambodia, and Pakistan — countries currently facing higher tariff burdens.
Singh said tariffs could contribute to a 130-basis-point hit to fourth-quarter margins.
The pressure from tariffs has also weighed on other fashion retailers such as Ralph Lauren, Abercrombie & Fitch, and Tapestry, though higher-end brands have been better able to pass on added costs to consumers.
Despite Friday’s decline, Levi shares remain up about 26% year-to-date, reflecting investor optimism around the company’s brand recovery and direct-to-consumer strategy.
According to FactSet, roughly 67% of analysts rate the stock a Buy or Buy-equivalent, with an average price target of $26.15.
Even as near-term headwinds persist, Levi Strauss remains confident that its operational discipline and focus on brand strength will support sustainable growth beyond 2025.
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