To The Moon

$Levi Strauss & Co(LEVI)$ is expected to report its quarterly earnings for fiscal Q1 2025 on 07 April 2025 after the market close.

With the announcement of tariffs by President Trump, how would this impact Levi’s earnings. Levi's might have diversified manufacturing. If they have factories in countries not subject to the tariffs, they might shift production to avoid the costs.

But relocating production is not quick or cheap. The earnings report for Q1 2025 would reflect decisions made in response to tariffs implemented before that. How long does it take for tariff impacts to show up in earnings? Probably a couple of quarters, depending on inventory cycles and contract renegotiations.

The revenue for this upcoming reporting quarter would be anticipated to come in at $1.54 billion, this is a decline of 1% compared to same quarter last year. The earnings per share is expected to come in at 28 cents, which is an increase of 7.7% compared to same period last year.

Levi Strauss (LEVI) Last Neutral Earnings Call Saw Share Price Drop By 6.85%

LEVI had a neutral earnings call on 29 Jan 2025 which saw its share price decline by 6.85%.

The earnings call reflects a positive outlook with strong growth in key areas such as direct-to-consumer, women's business, and gross margin achievements. However, challenges remain in managing SG&A expenses, navigating the wholesale channel, and addressing issues in China. The strategic exits of Denizen and the footwear business also present short-term revenue headwinds.

Levi Strauss (LEVI) Guidance On DTC-first strategy

During the fourth quarter and fiscal year-end call for Levi Strauss & Company, the company reported strong financial results and provided guidance for 2025. For the fourth quarter, net revenues increased by 12% on a reported basis and 8% on an organic basis, excluding the impacts of the Denizen business exit, footwear exit, 53rd week, and foreign exchange headwinds. For the full year, organic net revenue grew by 3%, with a record gross margin of 60% and adjusted EBIT margin expansion of 120 basis points, leading to a double-digit increase in earnings per share to $1.25. Looking forward to 2025, Levi Strauss expects organic net revenue growth of 3.5% to 4.5%, with reported net revenues expected to be down 1% to 2% due to currency and other headwinds. Gross margin is anticipated to expand by 100 basis points to approximately 61%, with an adjusted EBIT margin of around 10.9% to 11.1%.

The company plans to continue its DTC-first strategy, with high single-digit organic growth in direct-to-consumer channels and a cautious approach to wholesale, expecting it to be flat for the year. The effective tax rate is expected to be approximately 23%, with adjusted diluted EPS in the range of $1.20 to $1.25.

Breakdown Of Potential Impacts And Considerations

Tariff Exposure and Supply Chain Dynamics

Sourcing and Manufacturing

Levi’s relies on global sourcing, with significant production in Asia (Vietnam, Bangladesh, China). High U.S. tariffs on apparel/textiles could increase costs for imported finished goods or raw materials (e.g., cotton, denim).

Mitigation Strategies: Levi’s has diversified production to countries like Mexico and the U.S. (“nearshoring”) to reduce tariff risks. Their "Project FUEL" initiative aims to optimize supply chains and lower costs, which could offset some tariff pressures.

Cost Pressures

Tariffs would raise COGS (cost of goods sold), potentially squeezing gross margins if price hikes aren’t feasible. Levi’s gross margin in Q4 2024 was ~58%, so resilience depends on pricing power and efficiency gains.

Pricing Power and Consumer Demand

Pricing Strategy

Levi’s brand strength allows some ability to pass tariff costs to consumers (e.g., mid-single-digit price increases in 2024). However, aggressive hikes risk demand erosion, especially in a weak macroeconomic environment.

Demand Sensitivity

Apparel is discretionary spending. If tariffs coincide with inflation/recessionary pressures, U.S. consumers may trade down to cheaper alternatives, hurting Levi’s DTC (direct-to-consumer) and wholesale channels.

International sales (~40% of revenue) might offset U.S. weakness if tariffs are region-specific. The Levi's women's business grew 12% in Q4, reaching nearly $2 billion in sales for the full year, marking a significant milestone as Levi's becomes the number one women's denim brand.

Financial Metrics to Watch

Gross Margin: A decline would signal tariff impacts outweighing cost controls. Look for management commentary on pricing, tariffs, and supply chain efficiency.

Net revenues increased 12% on a reported basis and 8% on an organic basis in Q4, marking a strong finish to the fiscal year. The all-time record gross margin of 61.3% was achieved, reflecting a 350 basis point expansion compared to the previous year.

SG&A Expenses: Higher costs from supply chain restructuring or tariff-related logistics adjustments could pressure operating margins. SG&A expenses in Q4 increased 17% year-over-year, driven by higher sales volume, advertising, distribution expenses, and compensation incentives.

Inventory Levels: Elevated inventory (e.g., $1.3B in Q4 2024) might lead to discounting if demand softens, further eroding margins.

Despite growth in Q4, the wholesale channel is approached with caution due to past volatility, with expectations for flat performance in 2025.

Macro and Competitive Landscape

Economic Conditions

Strong labor markets and consumer spending could cushion tariff impacts. Conversely, a recession would amplify risks.

Operating margin in Asia contracted by 360 basis points due to losses in China and higher spend on DTC expansion and advertising.

Competitor Actions

Rivals like Kontoor Brands (Lee, Wrangler) or fast-fashion retailers (H&M, Zara) with localized production or lower pricing could gain market share if Levi’s raises prices.

Global direct-to-consumer business posted its 11th consecutive quarter of positive comps, with a 14% growth in Q4, achieving 11% growth for the full year. E-commerce grew 14% in Q4, contributing to strong overall DTC performance and further margin expansion in 2024.

The exit of Denizen and the footwear business is expected to result in a combined 300 basis point headwind to reported net revenues in 2025.

Potential Upside Catalysts

Tariff Exemptions: Lobbying efforts or government exemptions for specific apparel categories could reduce costs.

DTC Growth: Higher-margin DTC sales (47% of revenue in Q4 2024) and digital adoption (e.g., Levi.com) could offset wholesale tariff pressures.

International Expansion: Growth in Europe/Asia (where tariffs may not apply) could diversify revenue streams.

Levi Strauss (LEVI) Price Target

Based on 12 Wall Street analysts offering 12 month price targets for Levi Strauss & Co in the last 3 months. The average price target is $21.00 with a high forecast of $25.00 and a low forecast of $17.00. The average price target represents a 25.52% change from the last price of $16.73.

If we were to look at how LEVI price target going to move with the DTC growth and now with the tariffs coming from President Trump on Liberation Day.

Tariff Exemptions: Lobbying efforts or government exemptions for specific apparel categories could reduce costs.

DTC Growth: Higher-margin DTC sales (47% of revenue in Q4 2024) and digital adoption (e.g., Levi.com) could offset wholesale tariff pressures.

International Expansion: Growth in Europe/Asia, as we are seeing heavier tariffs going to be applied could diversify revenue streams.

Technical Analysis - Exponential Moving Average (EMA)

From the technical, we are seeing a good momentum coming from RSI rising towards the overbought region, and the stock have responded well by moving near 50-day MA, but now with the tariffs announced on Europe and some Asia countries where LEVI has its production facilities, this could affect the share price.

The key metric to watch would be gross margin trajectory and management’s confidence in maintaining FY2025 EPS guidance (~1.30–1.30–1.40).

But the persistent tariffs + weak demand = margin contraction, inventory write-downs, and lowered 2025 guidance would make a bear case.

LEVI would need to have effective pricing, supply chain agility, and DTC growth offset tariffs, stabilizing margins and surprising analysts.

Summary

If Levi’s demonstrates strong pricing discipline and cost controls, the stock could rebound post-Q1. However, high tariffs remain a material headwind requiring cautious positioning.

Long-term tariffs without mitigation could structurally harm margins. Currency fluctuations in sourcing countries (e.g., Vietnamese Dong) could amplify cost pressures.

A move toward casual/work-from-home attire post-pandemic might reduce demand for Levi’s core denim products.

Appreciate if you could share your thoughts in the comment section whether you think LEVI would be able to navigate the higher tariffs environment for a better earnings guidance.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.