Levi Strauss is Stitching Together Success Amid the Trade War

For many, the trade war has felt like a tear in the very fabric of fiscal reality. But for Levi Strauss? Well, it’s gonna take a little more to rip these jeans (unless that’s the style you’re going for, of course).

On Tuesday, 24 hours after a rosy earnings call, the denim giant’s stock scored a somewhat surprising upgrade from “neutral” to “overweight” from JPMorgan. It seems quality never goes out of style, even amid a global financial meltdown.

Zipping Up the Supply Chain

Levi Strauss had one big message in its earnings call: Through at least the next quarter, the latest tidal wave of market-crushing tariffs will have “minimal impact” on the company’s profit margins. That sounds pretty swell, given its stellar first three months of the year: In Q1, Levi Strauss posted gross profits of $947 million, up nearly 9% year-over-year, on an operating margin of 12.5%, compared with 0.04% a year earlier.

The forecast comes as a surprising — or maybe shockingly optimistic — projection for a company whose supply chains run through 25 different countries, including many in the now heavily tariffed southeast Asia region. So what gives? The company says that some planning ahead (and possibly a little belt-tightening) is all it needs to stay one step ahead of the trade war: 

• The company has already shipped most of its spring and summer stock into the US, beating out the worst of the tariffs, Chief Financial and Growth Officer Harmit Singh said during this week’s earnings call. Crucially, only about 1% of its products are imported directly from China, among the most heavily tariffed nations.
• Still, the company did not rule out price increases, which CEO Michelle Gass said would be “surgical” if implemented. Gass also pointed to the brand’s pricing power, especially in its higher-end products, saying consumers “buy up into more premium products, so that’s an opportunity.”

Good Jeans: In a note to clients published Tuesday, JPMorgan analyst Matthew Boss agreed with the rosy outlook, specifically citing the company’s diversified supply chains and healthy margins as enough to make the impact of the tariffs “negligible.” Boss’s upgrade comes after Levi’s share price has taken a multi-year beatdown: The stock has fallen some 58% from a 2021 peak, nearly 40% in the past year, and about 28% year-to-date. In denim-speak, this is called an opportunity to buy the rip.