Up 20% This Year, Is Levi Strauss Worth a Look?

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Although I personally don’t have Levi Strauss (LEVI) shares, the company experienced a surge last week following its announcement of better-than-anticipated earnings and an upward revision of its annual guidance. This news led to an 11% increase in share price, pushing year-to-date gains above 20%. The question arises: With such a rise in stock value, is there still potential for further profitability?

The second quarter

In their latest quarter, Levi’s has some appealing aspects. Sales grew by 5% in the Americas and a robust 14% in Europe, while Beyond Yoga saw a 12% increase as well. However, Asia was a challenge for the company, experiencing a decrease in sales of 1%. This resulted in operating margins of 7.5% during the second quarter, contrasting significantly with the 1.5% margins from the previous year.

Last year’s net income grew by 6% on a reported basis, while there was an organic growth of 9%. The company’s financial health, as depicted by its balance sheet, improved significantly, with stockholders’ equity climbing up to $2.09 billion from $1.97 billion in the previous year. Compared to the earnings from the same period last year, the results were markedly stronger.

The total net income for the year, amounting to $67 million, surpassed last year’s income by a substantial margin ($18 million). Moreover, the company’s earnings per share have shown a notable improvement. Specifically, Levi Strauss reported quarterly diluted earnings of $0.17 per share in 2025, compared to just $0.04 per share in 2024.

Updated guidance

The positive update on the company’s full-year projection isn’t as thrilling to me as others might feel, but it’s still good news. Instead of predicting a decrease of 1% to 2%, net revenue growth is now expected to be between 1% and 2%. Similarly, organic revenue growth is anticipated to rise by 1% to 4.5% to 5.5%. However, there are some less positive aspects to consider. The company now expects gross margins to expand by just 80 basis points, down from a previous estimate of up to 100 basis points. This adjustment is due primarily to the impact of tariffs.

The forecasted adjusted diluted earnings per share are projected to rise by five cents, from $1.20 to $1.25. This means that on an adjusted basis, the stock would have a forward price-to-earnings (P/E) ratio of approximately 16, based on full-year earnings. Notably, this is lower than Levi’s historical average P/E ratio of 38.11 over the past seven years, as indicated by fullratio.com, suggesting a more favorable outlook for investors.

Given this valuation, the stock appears reasonably priced considering the current state of affairs. However, a crucial point for consideration is how significantly tariffs might disrupt the situation.

Answering this question isn’t straightforward due to the unpredictable nature of President Donald Trump’s tariff policies. As talks progress, these tariffs may fluctuate and vary. As reported by CNBC, however, it’s certain that Levi’s imports goods from Pakistan and Bangladesh – two countries potentially facing tariffs of 30% or higher as per Trump’s threats.

Levi’s has mentioned that it intends to mitigate as many tariff costs as possible. The company anticipates tariffs could pose a financial burden between $25 million and $30 million in 2025, equating to approximately 2 cents to 3 cents per share. Given the uncertainty surrounding the impact of tariffs on Levi’s sales, I always recommend being cautious when making predictions.

Over the past few years, the company’s revenue growth has been disappointing, showing a decline since its recovery in 2021 following the COVID-19 pandemic. If you’re already invested, I suggest either holding onto your shares or selling them because there are potential profits to be made. This doesn’t seem like the right time to invest in a new position as the stock has already seen significant gains recently. The stock experienced a surge last week, and it appears that most of this year’s growth is already factored into its current price. While I acknowledge the company’s strong performance, it has historically shown large increases followed by sharp declines, as can be seen in the five-year chart.

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For novice investors, it’s advisable to monitor this investment closely for potential price dips that could offer better entry points. However, avoid being lured into buying based solely on the initial quarter’s performance as the rest of the year may not yield significant excitement.

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2025-07-20 03:40