Shares of Levi Strauss fall 9% as tariff-related costs overshadow expected gains

Shares of Levi Strauss & Co fell about 9% on Friday as investors focused on the denim maker’s warning of a tariff-related hit to fourth-quarter margins while overlooking a higher annual profit forecast.

The margin hit forecast highlights the impact of the Trump administration’s changing trade policies on consumer-facing businesses, especially those with suppliers in countries that have not yet reached trade deals with Washington.

Levi’s has benefited from the resurgence of loose-fitting clothing among Gen Z customers and on Thursday raised its sales and profit forecasts for 2025, but the company still warned of a 130 basis point hit to gross margins in the fourth quarter.

“While management calls these (growing costs) transitory, the concern is that Levi’s has struggled for three to five years to demonstrate its ability to scale spending, leaving less visibility on its 2026 margin,” said Ike Boruchow, equity analyst at Wells Fargo.

The company sources most of its products from South Asia, including Bangladesh, Cambodia and Pakistan – countries currently facing high tariffs.

Wall Street analysts called the forecast “conservative,” with Barclays analysts saying the lackluster forecast came true despite the company seeing no adverse changes in shopping trends in September. Trump’s trade policies have also squeezed the margins of other retailers such as Ralph Lauren, Abercrombie & Fitch and Coach handbag owner Tapestry. However, companies that target affluent customers face fewer burdens because they can pass on the higher costs to consumers. Levi’s secured about 70% of its holiday inventory early and raised prices slightly to soften the tariff impact and prepare for the holiday quarter, executives said in a post-earnings call.

It has also expanded its product offering, focusing on full-price sales and keeping a tight leash on inventory to offset weaker consumer confidence and tariff-related pressures.

This has caused the company’s shares to rise about 40% so far this year. Its price-to-earnings ratio, a common measure for valuing companies, is 16.94, compared to Ralph Lauren’s 20.59, Abercrombie’s 7.48 and American Eagle Outfitters’ 11.38.