Business
Levi Strauss raises prices, helping to boost profit and outlook
Levi Strauss‘s profits are growing more than Wall Street expected despite higher costs from tariffs, thanks to targeted price increases and a shift away from wholesalers, the company said Thursday as it reported fiscal third quarter results.
During the quarter, Levi’s gross margin grew 1.1 percentage points to 61.7%, up from 60.6% in the year-ago period and better than the 60.7% analysts had expected, according to StreetAccount.
In an interview with CNBC, CEO Michelle Gass said the company has started to raise the price of some of its jeans and clothes and will hike more prices in the U.S. and other markets next year.
“As we’ve been taking these targeted actions, we’ve not seen an impact to demand. We’ll of course, stay very, very close to that but … we’re taking a surgical, thoughtful approach on any pricing,” said Gass. “We know that we’re a brand that is known for great quality and value. We don’t take that for granted. We know we have to earn that every day.”
Finance chief Harmit Singh added demand is “really strong” and most of the company’s revenue growth is not coming from price increases.
Price hikes are helping Levi’s margins, but the company is also discounting less and selling more through its own website and stores instead of wholesalers, which comes at a higher margin.
The denim maker said its strong results led it to raise its full-year outlook, but added it’s still taking a “prudent” and “conservative” look at the rest of the year as it navigates ongoing macroeconomic volatility, Singh said.
Here’s how Levi’s performed during the quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: 34 cents adjusted vs. 31 cents expected
- Revenue: $1.54 billion vs. $1.50 billion expected
Though Levi’s posted better-than-expected results, shares dropped more than 6% in extended trading. Its stock had climbed about 42% this year through Thursday’s close.
The company’s reported net income for the three-month period that ended Aug. 31 was $218 million, or 55 cents per share, compared with $20.7 million, or 5 cents per share, a year earlier. Excluding one-time items related to impairment and restructuring charges, among other expenses, Levi posted adjusted earnings of 34 cents per share.
Sales rose to $1.54 billion, up 7% from $1.44 billion a year earlier.
Levi’s is now expecting its full year sales to rise 3%, up from its prior guidance of between 1% and 2% growth, far exceeding expectations of a 2.9% decline, according to LSEG.
It’s expecting its full year adjusted earnings per share to be between $1.27 and $1.32, up from a prior range of between $1.25 and $1.30. At the high end, the outlook is in line with Wall Street estimates of $1.31 per share, according to LSEG.
The jeans company said it’s expecting its operating margin to be between 11.4% and 11.6%, which is also in line with expectations of 11.6%, according to StreetAccount. It’s now expecting its gross margin to rise by 1 percentage point, which is the outlook Levi’s delivered earlier this year before it factored tariffs into its forecast. At the time, its guidance didn’t reflect any tariff impact. The following quarter, it cut its gross margin guidance by 0.2 percentage points because of the new duties.
Now, Levi’s is returning to that original outlook, as long as U.S. tariffs on imports from China remain at 30% and rest-of-world duties stay at 20% for the remainder of the year.
Under the direction of Gass, Levi’s has been working to grow its direct sales, expand beyond jeans and win over more female shoppers – strategies that helped the business grow both its top and bottom lines.
During the quarter, direct-to-consumer revenue, or sales from Levi’s website and stores, grew 11%, driven by strength in the U.S. market, while women’s was up 9%. Levi’s is benefiting from strong momentum in the denim category, but the company is growing its assortment outside of just jeans, which gives it a hedge if fashion trends change.
Other types of clothes beyond denim bottoms, including tops, now make up nearly 40% of the business. The company’s efforts to sell more tops is also resonating with consumers, as that category was up 9% during the quarter.
Chancellor Rachel Reeves should avoid “directionless tinkering and half-baked fixes” when trying to boost the government’s tax take in next month’s Budget, a leading think tank has said.
Taxes are widely expected to go up in the Budget, with pressure on the chancellor to raise money in order to meet her self-imposed rules for government finances.
However, the Institute for Fiscal Studies (IFS) – regarded as one of the UK’s most influential economic voices – has said some tax rises could be “especially economically harmful”.
The Treasury said the chancellor had been clear the Budget would strike the right balance between funding public services, while also encouraging growth and investment.
Some analysts have estimated that Reeves will have to raise tens of billions of pounds through either increasing taxes or cutting spending in order to meet her rules which she has described as “non-negotiable”.
The two main rules are:
- Not to borrow to fund day-to-day public spending by the end of this parliament
- To get government debt falling as a share of national income by the end of this parliament
Before the 2024 general election, Labour promised not to increase income tax, National Insurance or VAT for working people.
The IFS said it would be possible for the chancellor to raise tens of billions of pounds a year more in revenue without breaking these manifesto promises, but this would not be straightforward.
Its director Helen Miller told BBC’s Radio 4’s Today programme: “The politics is important and we’re going to hear lots and lots about whether Rachel Reeves can raise the money she wants without breaking one of her manifesto pledges – and that’s worth thinking about – but the economics is important too.”
The IFS said there are “serious constraints” on the next four biggest taxes – corporation tax, council tax, business rates and fuel duties – while “some other tax-raising options would be especially economically harmful”.
The IFS’s comments came in an extract from its annual Green Budget, which analyses the challenges facing the chancellor.
In it, the think tank urged wider reform to the tax system which would align “overall tax rates across different forms of income”, something it says would be “fairer and more growth friendly”.
“There is an opportunity to be bold and take steps towards a system that does less to impede growth and works better for us all,” said Ms Miller who is one of the authors of the report.
It suggests reforms to property tax and capital gains tax as “good places to start”.
Speaking to the Today programme Ms Miller said that stamp duty is an “absolutely awful tax” and said council tax, which is based on 1991 property valuations, is “ludicrously out of date” and “regressive”.
“Make it a tax based on up-to-date property values, make it proportional, and raise revenue from that rather than the current council tax and stamp duty,” she added.
The report goes on to look at a number of trade-offs the government could make in an effort to bring in more income.
It warns against a wealth tax – which it said would face “huge practical challenges”, potentially penalising savings and encouraging wealthier people to leave the country.
“If the chancellor wants to raise more from the better-off, a better approach would be to fix existing wealth-related taxes, including capital gains tax,” it noted.
It says property taxation is “an area in desperate need of reform”. It calls for a reformed council tax based on current property values, rather than the current system that “ludicrously” uses values from 1991.
Extending the current freeze on income tax thresholds, which is due to end in 2028, could raise “a significant amount”. Speaking to the BBC in September, Rachel Reeves did not rule this out.
The IFS noted that restricting income tax relief for pension contributions could potentially raise a large sum – but should be avoided as it would be “unfair and distortionary”.
It said there were “better options” for increasing tax on pensions, such as reforming the tax-free element.
A Treasury spokesperson said: “The chancellor has been clear that at Budget she will strike the right balance between making sure that we have enough money to fund our public services, whilst also ensuring that we can bring growth and investment to businesses.”
Jane ChambersBusiness reporter, Asunción, Paraguay
Gabriela CibilsGabriela Cibils is on a mission – to help turn Paraguay into the Silicon Valley of South America.
When she was growing up in the landlocked country, nestled between Brazil and Argentina, she says the nation “wasn’t super tech focused”.
But it was different for Ms Cibils, as her parents worked in the technology sector. And she was inspired to study in the US, where she got a degree in computing and neuroscience from the University of California, Berkeley.
After graduating she spent eight years working in Silicon Valley, near San Francisco, with roles at various American start-ups.
But rather than staying permanently in the US, a few years ago she decided to return home to Paraguay. She’s now helping to lead efforts to build a large and successful tech sector that puts the country of seven million people on the world map – and attract some of the globe’s tech giants.
AFP via Getty Images“I saw first hand the impact that technology can have on your life,” says Ms Cibils. “After being exposed to such a different world [in Silicon Valley], it’s my responsibility to bring that mindset back and combine it with the talent I see in Paraguay.”
She is now a partner at global technology and investment firm Cibersons, whose headquarters is in Paraguay’s capital Asunción.
While most countries would love to build a world-class tech sector, Paraguay has a distinct advantage in one regard – an abundance of cheap, green electricity.
This is thanks to 100% of its generation now coming from hydroelectric power.
This is centred on the giant Itaipu Dam on the Paraná River, which forms part of the border between Paraguay and Brazil. This huge hydroelectric power station, the largest in the world outside of China, supplies 90% of Paraguay’s electricity needs, and 10% of Brazil’s.
In fact, such is Paraguay’s surplus of electricity that its electricity prices are the lowest in South America.
And it is the world’s largest exporter of clean energy.
The Paraguayan government hopes that the country’s abundance of cheap, green electricity will attract global tech firms increasingly focused on the massive energy demands of AI computing.
“If you want to install any technology investment like AI data centres, keep in mind hydroelectric power is both renewable and steady,” says Paraguayan software development entrepreneur Sebastian Ortiz-Chamorro.
“Compared to other renewable energy sources like wind or solar, that have their ups and downs, it’s much more attractive for creating data centres or any other electro intensive activity that requires a steady electricity source.”
He adds that in addition to Itaipu, and Paraguay’s other large state-owned hydroelectric plant, the Yacyretá Dam, private companies can easily build their own smaller facilities.
On a visit to California last year Paraguay’s President Santiago Peña spoke with companies like Google and OpenAI to encourage them to invest in Paraguay. It remains to be seen if such industry giants open large operations in the country.
Minister of Technology and Communication Gustavo Villate is working closely with the president on the continuing efforts.
“We have the youngest population. We have a lot of renewable green energy. We have low taxes and economic stability,” he says proudly.
I’m taken on a tour with the minister of a planned new digital park near Asunción’s main airport. It’s currently green fields and some army barracks.
Mr Villate unfurls plans to show off the lakes, a childcare centre and other buildings which he says should be ready in under two years.
“The government are going to invest around $20m (£15m) for the first stage, but the idea is for private companies to invest the rest,” he says.
Even though the park isn’t ready yet, Mr Villate says the collaboration already happening between the public, private and university sectors is key to building an ecosystem to attract foreign investors.
The government thinks the country’s young population will be a key attraction, and able to provide a large tech workforce. The average age in Paraguay is 27.
Vanessa CañeteBut more young people will need to be trained. The technology minister says the new digital park will also be home to The University of Technology, which is a joint venture between Taiwan and Paraguay.
Meanwhile, there are other initiatives to train young people in the country. “We are working really hard to create a mass of software engineers, programmers and everything you need to provide software services,” says Vanessa Cañete, president of trade group Paraguayan Chamber of the Software Industry.
Ms Cañete says she is also passionate about encouraging more women to study computer engineering. In 2017 she set up Girls Code, a non-profit association which aims to close the tech gender gap.
It organises programming and robotics workshops for teenagers and young women, with more than 1,000 receiving some sort of training to date.
Ms Cañete adds that software developers are also given English lessons for up to four years to improve their communication with overseas firms.
The people I met are brimming with positivity about what Paraguay has to offer the tech world, but they are also pragmatic.
Ms Cibils says there are still “growing pains” for foreign investors, with issues like bureaucracy, which can hold things up adapting local contracts to standardised international ones.
But she is adamant that “if you put innovation at its core and leverage all the benefits that the country has I think Paraguay can be a superpower”.
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