While I do own its jeans, I don't own Levi Strauss (LEVI 1.33%) stock. The company saw some attention last week when it reported better-than-expected earnings results, in which it raised its guidance for the year. As a result, shares went on an 11% run, bringing total year-to-date gains to over 20% at the time of this writing. The question now becomes: After such a run in the stock price, is there still value here?
The second quarter
There's a lot to like in Levi's most recent quarter. Sales increased by 5% in the Americas and a strong 14% in Europe, with a 12% increase for Beyond Yoga. The one weak spot for the company was Asia, where sales declined by 1%. Overall, this led to operating margins of 7.5% in the second quarter, compared to margins of 1.5% in the year prior.
Image source: Getty Images.
Net revenues rose 6% for a reported basis, and there was an organic basis increase of 9% versus a year ago. I like the company's balance sheet, which saw stockholders' equity increase to $2.09 billion versus $1.97 billion a year ago. Earnings were substantially better than the year prior.
Total net income of $67 million was much better than last year's income of $18 million, and earnings per share are significantly improved. Levi Strauss reported Q2 diluted net income of $0.17 per share, versus earnings of $0.04 per share in 2024.
Updated guidance
The good news extended to the company's full-year outlook, though I find it slightly less exciting than some do. Net revenue growth is expected to be 1% to 2%, compared to a previous forecast of a decline of 1% to 2%. Organic revenue growth is expected to be up a comparable 1%, to 4.5% to 5.5%. It wasn't all good news, however. Gross margins are expected to expand by 80 basis points, versus a previous estimate of "up to" 100 basis points. The main reasoning for this decline is based on the effect of tariffs.
Adjusted diluted earnings per share are expected to increase by $0.05 to $1.25, compared to previous guidance of $1.20. Granted, we're going on an adjusted basis here, but it would give the stock a forward price-to-earnings (P/E) ratio of roughly 16 times full-year earnings. This is a positive, as according to fullratio.com, Levi's historical average over the last seven years is 38.11.
With that valuation, the stock seems pretty fairly priced for what is happening now. The question is: How badly will tariffs mess things up?
This is a very difficult question to answer. For one, we don't always know exactly what President Donald Trump's tariffs will be. They can shift and change as negotiations continue. According to CNBC, what is known is that Levi's sources goods from Pakistan and Bangladesh, both of which Trump has threatened with tariffs of 30% or higher.
Levi's noted that it plans to "absorb" as much of the tariffs as it can. It's expecting that tariffs will be a problem of about $25 million to $30 million in 2025, which amounts to $0.02 to $0.03 per share. I always say to err on the side of caution. Who can say for sure how much tariffs will truly end up affecting Levi's sales figures?
The last few years haven't been overly inspiring, with the company's overall revenue growth trending downward since its bounce-back in 2021 post-COVID-19. I think this is a stock that should be rated as a "hold" or "sell" if you've already been involved, as there are gains to be taken. This does not seem like a time to add a new position. The stock took off last week, and baked in a lot of what could be expected this year. I credit the company on its stronger results, but historically this is a stock that has big ups, followed by heavy downward drops as demonstrated in this five-year chart.
NYSE: LEVI
Key Data Points
For new buyers, I say keep an eye on this one for any pullbacks that present better opportunities, but don't chase these first-quarter results. The rest of the year might not be that exciting.
