Levi's expects better yearly sales despite tougher tariff backdrop. Investors aren't buying it.

By Bill Peters

Company says efforts to sell more than just jeans are helping to drive 'a meaningful inflection in our financial performance,' but shares slide after hours

Levi's management said it expects sales gains of around 3% for the fiscal year, up from a prior forecast for 1% to 2% growth.

Levi Strauss & Co. on Thursday nudged its full-year outlook higher despite the prospect of a tougher tariff backdrop, but the denim giant expressed nearer-term caution as it moves into the key holiday season, sending shares lower after hours.

Levi's stock (LEVI) slid 7.7% in after-hours trade, following a 41.9% run higher so far this year.

The iconic jeans-maker offered its expectations as it raises some prices and recalibrates production to deal with tariffs. Levi's is also trying to boost sales by focusing more on tops, shorts, dresses and other women's apparel, while selling more products to customers through its own stores and online.

Shoppers' responses to those efforts - as well as a broader interest in baggier fits and '90s and aughts nostalgia - made the company more optimistic about business for its full fiscal year, which runs through November.

Management said it expects sales gains of around 3% for the fiscal year, up from a prior forecast for 1% to 2% growth. Levi's said it expects adjusted earnings per share of $1.27 to $1.32 over that period, up from $1.25 to $1.30.

However, during Levi's earnings call, Harmit Singh, the company's chief financial and growth officer, said he expected gross margins in the fourth quarter to contract slightly, in part due to tariffs and the absence of a 53rd week, which helped sales last year.

Sales over the fourth quarter, he said, were also expected to fall around 3%, after earlier decisions to exit its footwear business and its Denizen jeans brand. He said he expects adjusted earnings per share to be in the range of 36 cents to 38 cents, below FactSet estimates for 41 cents.

Levi's said its full-year outlook assumes that U.S. tariffs would stay at 30% on imports from China, and at 20% on imports from everywhere else, for the rest of the year. In July, the company's outlook assumed 30% tariffs on imports from China and 10% tariffs on goods from elsewhere.

For its fiscal third quarter, Levi's reported adjusted earnings per share of 34 cents, with revenue of $1.54 billion.

Analysts polled by FactSet expected Levi's to report third-quarter adjusted earnings per share of 31 cents, on revenue of $1.49 billion.

In a statement, Chief Executive Michelle Gass said the company's moves to sell more types of denim clothing besides jeans, and its efforts to sell more of those items directly, were "driving a meaningful inflection in our financial performance."

"With strength across channels, segments and categories, we are raising our full-year outlook and are well-positioned for the holiday season," she continued.

Levi's, like other clothing makers that manufacture outside the U.S., faces concerns about President Donald Trump's tariffs. But in July, management offered an optimistic forecast, calling out tops and dresses and as positives. Executives also said that more people were incorporating Western wear into their wardrobes.

Analysts have said Levi's can handle higher tariffs, citing the company's ability to move production to different countries and its popularity, which allows it to raise prices, if needed, without significantly harming demand.

-Bill Peters

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10-09-25 2009ET