Levi Analyst Downgrades Pile Up as Slowing Denim Demand Sparks Concern

Wall Street is turning increasingly cautious on Levi Strauss & Co. ahead of its quarterly earnings report amid signs shoppers are cooling on denim.

(Bloomberg) — Wall Street is turning increasingly cautious on Levi Strauss & Co. ahead of its quarterly earnings report amid signs shoppers are cooling on denim.

JPMorgan analyst Matthew Boss became the third analyst this month to downgrade the jeans maker when he cut his rating on Levi to neutral from overweight Monday. While adults are still snapping up denim in darker washes and wider leg cuts, younger shoppers are opting for cargo, twill and other pant styles, Boss wrote in a research note citing recent field checks.

Boss’s downgrade comes on the heels of cuts from Citi and BofA. Earlier this month, Citi analyst Paul Lejuez said that one of the key takeaways from management meetings, including Abercrombie & Fitch Co. and American Eagle Outfitters Inc., at the ICR Conference was how quickly the trend in bottoms shifted away from denim during the 2022 back-to-school season and through the holidays.

Levi’s consensus rating — a proxy for its ratio of buy, hold and sell recommendations — is now at the lowest level since April 2020. The stock has seven buy, five hold and no sell ratings among analysts tracked by Bloomberg. The average analyst price target of $19.60 implies return potential of about 17% over the next 12 months.

Levi shares rose 2.8% to $16.80 on Monday, gaining for a second straight session after falling for six days. The stock is up about 9% so far this year, mirroring the advance in the S&P 500 Consumer Discretionary Index, following a 38% drop for both in 2022.

The denim maker will report fiscal fourth-quarter results after markets close on Wednesday, and Wall Street will be paying close attention to the company’s initial outlook for fiscal 2023.

Stifel analyst Jim Duffy expects margins to be under pressure in the first half of the year following sales promotions during the holiday season and January. Still, Duffy, who has a buy rating on Levi, anticipates earnings will improve in the latter half of fiscal 2023 — after the company has worked though its elevated inventory levels and as commodity costs ease.

–With assistance from Katrina Lewis.

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