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Levi Strauss (LEVI) traded higher at the open, but has pulled back after reporting a huge EPS beat with its Q1 (Feb) results last night with in-line revs. The Q2 (May) guidance was mixed with upside revs, but EPS was a bit light. Importantly, LEVI reaffirmed full year guidance, which we think is a big catalyst for the strong move today. LEVI guided FY25 lower last quarter, so a reaffirm despite the tariffs and macro pressures is being seen as a pleasant surprise.

• As a quick housekeeping matter, LEVI has reclassified its Dockers segment as discontinued operations as LEVI explores a sale of the brand. This makes LEVI's comparison to consensus a bit more difficult. However, LEVI said it exceeded expectations across sales, margins and EPS, driven by the momentum of its strategy. A key driver of growth has been loose and baggy fits, which now make up roughly 15% of its bottoms portfolio.
• LEVI says FY25 is off to a strong start in terms of its shift to becoming more of a Direct-to-Consumer company (owned stores, online). DTC continues to be LEVI's primary growth driver, up 12% organically, fueled by client growth, new openings and strong e-com performance. DTC reached a milestone with over half of global sales now being DTC, it was at 52% in Q1. Looking ahead, LEVI believes ecommerce offers a significant runway for growth as it comprises just 12% of revs right now. Its Wholesale business delivered another quarter of positive growth, up 5% organically, driven by strong growth in the US.
• For most of its history, LEVI has been known as a men's jeans business. However, over the last couple of years, the company has significantly expanded its head-to-toe offering, especially with women, while maintaining dominance with men. Its women's business continues to accelerate, growing double digits over the last two quarters and now represents 38% of revs. LEVI's recent launch of the Cinch Baggy for women went viral on TikTok.
• LEVI addressed the tariff situation on the call. Given that the changes were just announced last week, LEVI said the impacts are uncertain. It is in the process of scenario planning and determining different mitigation strategies. For now, its full year outlook remains unchanged and includes no impact from proposed tariffs. LEVI also said tariffs will have minimal impact on Q2 margins, as most of the product for spring, early summer is already in the US.
• LEVI also noted that it has made good progress with expense reductions, which has aided margins and should help withstand tariff pressures. LEVI also noted it sources from 28 countries, 20 of which, are countries that it sources into the US. Pricing is another lever in tis tariff playbook. LEVI believes it has pricing power. Also, LEVI noted that almost 60% of revenue is generated outside the US.

Overall, this was a good quarter. Investors like the large EPS upside and LEVI reaffirming guidance despite the macro/tariff pressures. The guidance also follows some recent guide downs, so investors are taking the reaffirm as a win. The caveat we see here is that the tariffs were just announced and LEVI is still evaluating the impact. As such, pressure may increase later in the year.