Levi Strauss (LEVI) Stock: Can Record Margins Offset Tariff Worries?

TLDR:

Table of Contents

Levi Strauss reported Q1 earnings of $0.38 per share, beating estimates of $0.28
The company missed revenue expectations with $1.53 billion versus the $1.54 billion forecast
Direct-to-consumer sales grew by 12%, now representing 52% of total revenues
Gross margins reached a record 62.1%, up from 58.2% last year
Stifel lowered price target from $25 to $20 while maintaining a Buy rating

Levi Strauss & Co. released its first-quarter earnings report for fiscal year 2025, showing mixed results that exceeded profit expectations while falling short on revenue targets. The iconic jeans maker posted quarterly earnings of $0.38 per share, handily beating the consensus estimate of $0.28 per share.

This represents a strong improvement from the $0.26 per share reported in the same quarter last year. The earnings surprise of 35.71% continues a positive trend, as the company has now surpassed consensus EPS estimates for four consecutive quarters.

However, Levi’s posted revenues of $1.53 billion for the quarter ended February 2025, which missed analyst expectations by 0.95%. This was also slightly down compared to year-ago revenues of $1.56 billion.

The company has only topped consensus revenue estimates once in the last four quarters. This mixed performance reflects both strengths and challenges in Levi’s current business model.

Direct-to-Consumer Growth Drives Profits

One bright spot in the report was the impressive performance of Levi’s direct-to-consumer channels. These sales grew by 12% year-over-year and now account for 52% of the company’s total revenues.

This strategic shift toward selling directly to consumers rather than through third-party retailers appears to be paying dividends for the jeans maker. Direct sales typically command higher margins and provide better control over brand presentation.

The wholesale segment also showed positive momentum with a 5% increase. This balanced growth across both channels indicates that Levi’s multi-pronged distribution strategy is working.

Organic revenue growth improved to 8.6% year-over-year, up from 8.2% in the previous quarter. This acceleration suggests the company’s brand-building strategy is gaining traction with consumers.

Record Margins Boost Bottom Line

Perhaps the most impressive aspect of Levi’s quarterly performance was its profit margins. The company achieved record gross margins of 62.1%, a substantial improvement from 58.2% in the previous year.

This margin expansion played a key role in helping Levi’s exceed earnings expectations despite the slight revenue miss. The company appears to be successfully implementing pricing strategies and cost controls.

Analysts attribute the strong margin performance to effective execution of the company’s brand-building strategy. Higher-margin products and channels are making up a larger portion of overall sales.

The company is also benefiting from strong cash flows that are sufficient to cover interest payments. This financial health gives Levi’s flexibility to navigate potential challenges ahead.

Tariff Concerns on the Horizon

Despite the positive earnings report, Levi’s stock performance has been disappointing this year. Shares have lost about 19.7% since the beginning of the year, underperforming compared to the S&P 500’s 13.7% decline.

Following the earnings announcement, Stifel analysts revised their price target for Levi Strauss shares, reducing it to $20 from the previous $25. They maintained a Buy rating on the stock, however, suggesting confidence in the company’s long-term prospects.

A major concern affecting investor sentiment is the potential impact of reciprocal tariffs, which are not currently factored into the company’s guidance. These trade tensions create uncertainty about future costs and consumer demand.

Stifel notes that Levi’s diverse global revenue streams and supply chain could provide some protection against tariff impacts. The company sources from 20 different countries, which may give it more flexibility than competitors to adjust to changing trade conditions.

However, analysts acknowledge that Levi Strauss is not immune to cost increases or consumer spending slowdowns. Stifel estimates that tariffs could result in a high-single-digit percentage decrease in calendar year 2026 earnings, assuming steady consumer demand.

If consumer spending were to decrease alongside tariff implementation, the impact on earnings could be even more substantial. This risk factor is likely contributing to the stock’s recent underperformance.

Despite these challenges, Levi Strauss maintained its full-year outlook, expressing confidence in continued revenue and margin growth. Management appears to believe they can navigate the potential headwinds through their diversified business model.

The revised $20 price target from Stifel is based on a 17.4 times price-to-earnings ratio on projected earnings of $1.15 for calendar year 2026 under an inflationary scenario. This valuation takes into account the downside risks while acknowledging the company’s strong execution.

Levi Strauss has maintained its Zacks Rank #3 (Hold) status, suggesting expectations for performance in line with the broader market in the near term. Investors will be watching closely to see if the company can continue its earnings momentum in the face of potential tariff challenges.

The current consensus EPS estimate is $0.16 on $1.42 billion in revenues for the coming quarter and $1.27 on $6.27 billion in revenues for the current fiscal year. How these estimates evolve in the days ahead may provide further clues about market expectations for Levi’s performance.

Stay Ahead of the Market with Benzinga Pro!

Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders: