Weaker demand for denim products could prove a major headwind for shares of Levi Strauss in the near future, according to Citigroup. Analyst Paul Lejuez downgraded the jeans maker to neutral from a buy rating, citing comments from other management teams indicating a slowdown in denim trends that began during the back-to-school season and persisted into the holidays. “While LEVI is a strong brand with good global prospects long-term, in the near to medium term we expect a challenging U.S. backdrop characterized by weaker denim trends to pressure results,” he wrote in a note to clients Wednesday, noting that Levi Strauss gets 60% to 65% of sales from denim. Even after plummeting 38% in 2022 and underperforming Citi’s broader coverage group over the past 12 months, Lejuez said Levi shares still don’t look cheap. As a result, he trimmed Citi’s price target to $17 from $19, suggesting that shares will only stay near Tuesday’s closing price. He also views consensus 2023 earnings estimates as too high and lowered his estimate to $1.20 from $1.29 a share, compared to a Wall Street consensus of $1.39. “LEVI’s ability to reduce promos and raise prices will likely be diminished in F23 as the denim category is facing a broad slowdown,” Lejuez wrote, adding that he expects caution from management when it shares the outlook for 2023. Shares fell about 2% before the market open. — CNBC’s Michael Bloom contributed reporting
