Levi Strauss slips as tariff-related costs overshadow forecast raise

(Reuters) -Levi Strauss & Co shares fell about 9% on Friday as investors focused on the denim maker's warning of a tariff-related hit to its fourth-quarter margin, overlooking a higher annual profit forecast. The margin-hit forecast highlights the impact of the Trump administration's changing trade policies on consumer-facing companies, especially those with suppliers in countries that do not have trade deals with Washington in place yet. Levi's has capitalized on the resurgence of baggy, loose-fit apparel among Gen Z customers and raised its 2025 sales and profit forecasts on Thursday, but the company still warned of a 130-basis-point hit to its fourth-quarter gross margins. "While management calls this (growing expenses) transitory, the concern is that Levi's has struggled to show an ability to scale expenses for 3-5 years now, thus creating lower levels of visibility into 2026 margin," Ike Boruchow, equity analyst at Wells Fargo, said. The company sources the bulk of its products from South Asia, including Bangladesh, Cambodia and Pakistan – countries that face high tariffs currently. Wall Street analysts called the forecast "conservative," with Barclays analysts saying that the lackluster forecast came in despite the company not seeing any adverse changes in shopping trends in September. Trump's trade policies have also pressured the margins of other retailers such as Ralph Lauren, Abercrombie & Fitch and Coach handbag owner Tapestry. However, companies that cater to more affluent customers face less burden as they can pass on the higher costs to the consumer.  Levi's has secured about 70% of its holiday inventory early and slightly raised prices to mitigate tariff impact and prepare for the holiday quarter, executives said in a post-earnings call. It has also broadened its product offerings, leaned into full-price sales and kept a tight leash on inventory to offset weaker consumer sentiment and tariff-related pressures. This has helped the company's stock to climb about 40% so far this year. Its forward price-to-earnings multiple, a common benchmark for valuing companies, is 16.94, compared with Ralph Lauren's 20.59, Abercrombie's 7.48 and American Eagle Outfitters' 11.38. (Reporting by Kanchana Chakravarty and Prerna Bedi in Bengaluru; Editing by Janane Venkatraman and Shinjini Ganguli)

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