Levi Strauss, the global denim major is bracing itself for a tough year as it faces increased costs and bloated inventories, resulting in a predicted crunch on margins. Despite surpassing quarterly result expectations, the company has been unable to protect its margins.

Levi's full-year gross margin is expected to decrease by approximately 50 basis points from the previous year's 57.5%. This is a significant change from its previous prediction of a 20 to 30 basis point expansion. Despite implementing multiple price hikes, the company has been unable to protect its margins from the escalation of costs for freight, labor, cotton, and supply chain disruptions.

Moreover, bloated inventories have forced the company to increase discounts and promotions to clear products, leading to further pressure on margins. Deliberate actions taken by brand to reduce inventories in the U.S. had coupled with a more promotional environment, resulting in greater-than-expected pressure on gross margin. However, the company still had to struggle to attract cost-conscious shoppers despite these promotions.

Levi reported an adjusted profit of 34 cents per share on revenue of $1.69 billion, which exceeded estimates. Nevertheless, the company's cautious outlook for the future has left analysts feeling uncertain.