Levi Strauss & Co (LEVI) shares plummeted 5.87% in after-hours trading on Thursday, despite the company reporting better-than-expected third-quarter results and raising its full-year guidance. The sharp decline highlights investors' concerns about the impact of tariffs on the company's future performance.
The denim maker reported fiscal Q3 adjusted earnings of $0.34 per share, surpassing the analyst consensus estimate of $0.31. Net revenue for the quarter rose to $1.54 billion, beating expectations of $1.50 billion. Encouraged by strong demand for wide-leg denim bottoms in Europe and the Americas, Levi Strauss raised its full-year organic net revenue growth forecast to about 6%, up from its previous target of 4.5% to 5.5%.
However, the positive results were overshadowed by tariff concerns. The company's outlook assumes U.S. tariffs will remain at 30% for China and 20% for other countries through year-end, which could pressure margins. CFO Harmit Singh noted that the company expects a 70 basis point impact to annual gross margin before tariff mitigation, compared to the previously estimated 50 basis points. Despite efforts to mitigate the impact, including securing about 70% of its holiday inventory ahead of schedule and raising prices modestly, these measures will not fully offset the pressure. The fourth-quarter gross margin is expected to take a 130-basis-point hit due to tariffs. This outlook has clearly spooked investors, leading to the sharp sell-off despite the company's strong performance and raised guidance.
