Levi’s Stock Jumps 12% on Earnings. Why Tariffs Weren’t a Problem.

A shopper with a Levi’s branded bag in Tokyo, Japan, on Saturday, June 17, 2023. (Shoko Takayasu/Bloomberg)

Levi-Strauss topped second-quarter earnings expectations and raised guidance for the fiscal year, sending the stock surging.

The apparel retailer reported adjusted earnings of 22 cents a share for the quarter ended June 1, ahead of analysts’ expectations for 13 cents, according to FactSet. Gross margins expanded 1.4 percentage points to a record 62.6%, Levi’s said, driven by lower product costs.

Revenue rose 6% from last year to $1.45 billion, compared with Street estimates for $1.37 billion.

Levi’s stock was up 12% to $22.04 in Friday trading. Shares have gained 14% this year. The company increased its third-quarter dividend to 14 cents per share, up from a 13-cent dividend paid out in the first and second quarters.

Levi’s also raised guidance for the fiscal year. The new outlook factors in current tariff rates, assuming imports from China get penalized at a 30% rate and merchandise brought in from other countries receive a 10% levy.

“Given our strong H1 and continued momentum across the business—and despite higher tariffs—we are raising our full-year revenue and EPS expectations,” said Harmit Singh, Levi’s chief financial officer.

Adjusted earnings per share are expected to be between $1.25 and $1.30, higher than an earlier forecast for a range of $1.20 to $1.25. Analysts were forecasting $1.23 a share. The higher earnings projection comes even as the company is expecting tariffs to modestly affect margins. Levi’s previously projected gross margins would grow by one percentage point; tariffs will clip that growth down to 0.8 percentage points after factoring in tariff-mitigation strategies. Singh told investors earlier this year that the company was in the process of scenario-determining strategies to offset the tariff impact, such as raising prices and shuffling sourcing. Levi’s procures products from 28 countries.

Net revenue should grow between 1% and 2% from the prior year, better than previous guidance for revenue to decrease between 1% and 2% year over year. Analysts were forecasting revenue would decrease by 5% from last year.

Write to Sabrina Escobar at sabrina.escobar@barrons.com