Rising Global Middle Class And Sustainability Will Drive Apparel Demand

Key Takeaways

• Expansion of direct-to-consumer channels and international markets is boosting revenue growth, profit margins, and market share.
  
• Investments in sustainability, product innovation, and supply chain modernization are enhancing brand loyalty, operational efficiency, and long-term earnings potential.
  
• Heavy reliance on denim, lagging digital growth, macroeconomic pressures, and evolving consumer trends threaten Levi Strauss's margins, market share, and long-term brand relevance.

Catalysts

Designs, markets, and sells apparels and related accessories for men, women, and children in the United States and internationally.

• Rapid expansion of direct-to-consumer channels, particularly through e-commerce and company-operated stores, is accelerating revenue growth and improving net margins due to higher average selling prices and increased full-price sales, as evidenced by DTC now exceeding half of total global net revenues and driving significant margin expansion.
  
• Strong international presence and focus on underpenetrated emerging markets, where rising incomes and a growing middle class are increasing demand for premium branded apparel, position Levi Strauss to capture substantial top line growth as nearly 60% of revenue now comes from outside the U.S. and international segments are growing at high single-digit to double-digit rates.
  
• Levi’s investments in sustainability, water-saving technologies, and ethical sourcing are resonating with consumer shifts toward eco-friendly and ethically made products, increasing brand loyalty and enabling the company to command premium pricing, ultimately supporting higher gross margins and enhancing long-term earnings power.
  
• A robust innovation pipeline—including expansion into women’s, tops, dresses, and lifestyle categories, as well as successful collaborations and premium collections—enables Levi’s to address a much larger addressable market, diversify revenue streams, and grow market share among both existing and new demographics, strengthening revenue and long-term earnings growth.
  
• Ongoing modernization of supply chain, inventory management, and cost structure is driving operating efficiency, reducing costs, and allowing the company to better navigate macroeconomic volatility, which supports continued margin improvement and underpins bullish projections for future EBIT margin expansion and overall profitability.

Levi Strauss Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Levi Strauss compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Levi Strauss's revenue will grow by 3.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.6% today to 11.3% in 3 years time.
• The bullish analysts expect earnings to reach $806.3 million (and earnings per share of $2.05) by about July 2028, up from $360.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, down from 20.7x today. This future PE is lower than the current PE for the US Luxury industry at 16.0x.
• Analysts expect the number of shares outstanding to decline by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.63%, as per the Simply Wall St company report.

Levi Strauss Future Earnings Per Share Growth

Risks

• Levi Strauss remains heavily reliant on the denim category, and while the company reports growth in newer lifestyle products and diversification efforts, it still faces long-term shifts as younger consumers increasingly prioritize comfort apparel and athleisure, potentially leading to long-term stagnation or decline in core product revenue.
  
• Despite current success in DTC and e-commerce, these channels only account for 12% of net revenues, and the company lags behind more agile competitors; slower-than-expected progress in digital transformation could result in compressed net margins and lost revenue growth as consumer buying rapidly shifts online.
  
• The macroeconomic environment is described as highly uncertain with new tariffs, rising sourcing and production costs, and foreign exchange volatility; if Levi Strauss is unable to fully pass these costs to consumers, gross margins and earnings could be pressured over the long term.
  
• The fashion and denim industry remains highly promotional and exposed to discounting and oversupply, which can cause margin compression and increase the risk of declining profits in a more competitive global market.
  
• Persistent secular consumer trends—especially increasing demand for sustainability, ethical sourcing, and personalized fashion—may leave Levi Strauss exposed if it cannot accelerate ESG initiatives or keep pace with technology-driven industry changes, which could impair brand relevance, revenue, and pricing power.

Valuation

• The assumed bullish price target for Levi Strauss is $24.82, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Levi Strauss's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.82, and the most bearish reporting a price target of just $15.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $7.1 billion, earnings will come to $806.3 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 8.6%.
• Given the current share price of $18.87, the bullish analyst price target of $24.82 is 24.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.