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Levi Strauss CFO says trade war could tarnish American brands around the world

Key Points
  • The new 25 percent tariffs in place on American jeans by the European Union and a trade war with China could spell trouble for the iconic Levi Strauss & Co., its CFO said.
  • Levi's growth was the strongest in Europe, with net revenue there up 31 percent and operating income up 51 percent through the quarter ended May 28.
  • Levi Strauss CFO Harmit Singh, told CNBC that the tariffs could impact how consumers view American companies.

Levi Strauss & Co. has had a good run over the past three quarters, continuing to outpace industry peers even in a strong denim fashion cycle.

But the new 25 percent tariffs on U.S. jeans in the European Union and a trade war with China, could spell trouble for Levi's and other iconic American brands, the apparel brand's financial chief said.

"Long term, it could have an impact at how people look at American products and American companies. And that is something that we do worry about." Levi Strauss' CFO, Harmit Singh, told CNBC.

Products associated with American ideals — jeans, bourbon, motorbikes and boats — are just some of the 180 goods the EU is targeting with new import taxes in retaliation for the Trump administration's tariffs on imported steel and aluminum. Many are beginning to fear that trade disputes between the U.S. and the rest of the world will begin to tarnish the reputation of the country, and the companies most closely associated with it.

Privately held Levi Strauss' second-quarter results beat the company's own expectations with a third straight quarter of double-digit sales growth across all regions, the company said in a press release Tuesday. The denim maker has confidence in its future, and is raising its full-year revenue forecast.

Levi's growth was the strongest in Europe, with net revenue up 31 percent and operating income up 51 percent through the quarter ended May 28, about a month before the EU put a 25 percent tariff on imported jeans. Women's apparel and tops were the strongest sales drivers in the quarter in Europe. Revenue grew 13 percent in Asia compared with the year prior and 11 percent in the Americas, the company said.

"We are a global company, we have a fairly complex supply chain, so diversification is important," Singh said. "We source from about 26 countries globally, no country supplies more than 20 percent of our needs. We are a company that has been around for more than 160 years, we support trade policies that encourage free trade where everybody wins."

As for whether or not consumers will have to pay more for their Levi's jeans, Singh said that it's something the company "will consider" and that much of it depends on if these tariffs are here to stay.

"We realize there’s been a lot of discussion about tariffs, we will adjust as the environment adjusts," Singh said, adding that "if tariffs are imposed, it probably hurts the end consumers."

President Donald Trump's trade decisions may not benefit Levi's at this point, but its direct-to-consumer business and retail partnerships are both growing. Direct to consumer, both store and online combined, logged its 10th straight quarter of double-digit sales growth, the company said.

Singh acknowledged that there's been a lot of negativity surrounding brick-and-mortar retailers, but for Levi's, it's still a key part of its strategy, he said. In fact, wholesale revenue improved 14 percent year over year in the most recent quarter, up in all geographic regions.

Singh explained that if a store closes, which Levi has encountered with a number of its retail partners, it's been able to "quickly re-map with other customers," essentially, finding replacement incremental floor space at either new or existing retailers. Nordstrom's new men's store in New York City and Bloomingdale's (owned by Macy's) are two examples Singh points out with growing Levi Strauss inventory.

But the denim maker makes sure that it's where its customers are, and that means the biggest online retailer of them all.

"Amazon is a great partner, we have been selling through there for a long time, they are one of our top 10 customers globally, it has been growing at a decent clip for a long time" according to Singh.

Levi Strauss was featured by Amazon Prime Wardrobe, a "try before you buy" service, when it first launched, and it will participate in the upcoming Prime Day event, Singh said.