MW As clothing makers brace for tariff impact, analysts think Levi's can handle it

By Bill Peters

'We see a reasonable "base-case" assumption of 75% mitigation of the tariff headwind,' J.P. Morgan says

On Monday, Levi Strauss & Co. likened the shock from President Donald Trump's expansive new tariffs to the uncertainty brought on by the pandemic in 2020.

But J.P. Morgan analysts on Tuesday said that since the prepandemic era, the company had become far better at driving profits, and they said stronger demand, an array of manufacturing options and greater leeway to keep prices higher could help blunt the impact from escalating trade frictions.

"Put together - we see a reasonable 'base-case' assumption of 75% mitigation of the tariff headwind," they said.

J.P. Morgan analysts upgraded shares of Levi's $(LEVI)$ to their version of a buy. However, the stock was still down 6.7% on Tuesday, as investors digested enduring tariff-related anxieties in the broader market. The stock is down 38.5% over the past 12 months.

But the analysts cited four straight quarters of accelerating global demand for Levi's, along with enthusiasm from younger shoppers - those between 18 and 30 years old - and a potential lift from the spring season. And they said the brand's popularity was growing among both men and women as it focuses on selling more tops, dresses and other items beyond jeans.

They also noted that the company was better able to drive profits compared with 2019, following its decisions to discontinue its footwear business and its Denizen brand of lower-priced jeans, as well as its efforts to offload its Dockers line. Since 2019, the analysts said, the exit from those businesses, a wider clothing assortment and a bigger push to sell more items - particularly higher-end or full-priced ones - through its own stores had given Levi's greater leverage to charge shoppers more.

The analysts also pointed to Levi's more flexible supply chains and said the impact to Levi's bottom line in 2018 and 2019, during Trump's first term, was "negligible."

During the company's earnings call on Monday, executives noted that Levi's sources its clothing from 28 countries, 20 of which supply the United States. Management called out nations like Bangladesh, Cambodia, Egypt, Pakistan, Sri Lanka and Vietnam as key for its manufacturing.

"We make pivots all the time," Chief Executive Michelle Gass said during the call. "We will continue to do so as we look to address the issues both in the short, medium and long term."

Harmit Singh, Levi's chief financial and growth officer, said during the call that China accounted for around 1% of the product brought into the U.S., with around 5% coming from Mexico and "mid- to high single digits" from Vietnam.

Levi's current full-year outlook doesn't include the impact of Trump's tariffs, which are essentially a tax on imports, as it tries to gauge their impact. Management said it had enough product in the U.S. to avoid any major hit to margins for its current quarter. And even as trust in the U.S. frays abroad, Singh said demand internationally was still solid.

During the call, Gass said Levi's had multiple ways of attracting consumers who are seeking out different prices. The company's lower-priced offerings were doing "really well," she said, and there was a bigger opportunity with higher-end fare, some of which can run more than $300.

Stifel analysts on Tuesday cut their target price on Levi's stock to $20 from $25 and said that Levi's "isn't immune to cost shocks or consumer slowdown." But they suggested the company might be more immune than some others.

"We note that globally diversified revenue and supply chain (U.S. sources from 20 different countries) represent structural advantages in offsetting tariff impacts relative to peers," they said.

-Bill Peters

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April 08, 2025 15:02 ET (19:02 GMT)

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