The nation’s pants ecosystem is showing signs of rebalancing, potentially at the expense of jeans maker Levi Strauss & Co., BofA analysts said on Wednesday.

Demand for denim is slowing, they say, pointing to recent commentary from executives. More customers have begun buying cargo pants, chinos and other nondenim pants as they return to the office and other places that demand more formal attire.

In addition, the BofA analysts said the wave of clothing discounts that stretched through much of last year could last into the spring. That would mean better bargains for customers but a weaker bottom line for Levi Strauss

In turn, those analysts, Christopher Nardone and Lorraine Hutchinson, downgraded Levi Strauss to neutral from buy. They also lowered their price target to $17 from $19. Shares were largely flat in afternoon trading.

“Denim remains challenged (roughly 65% of sales) as evidenced by recent comments from peers,” the analysts said.

Among those peers, the analysts noted, were American Eagle Outfitters Inc.
whose president and executive creative director, Jennifer Foyle, said in November that while denim was “the heritage of our brand,” the chain was “definitely seeing a shift into new bottoms, silhouettes, cargo, cords and some wider silhouettes.”

The analysts pointed to other recent earnings calls as well. Abercrombie & Fitch Co.
Chief Executive Fran Horowitz noted during the company’s earnings call in November that there was “a lot happening in nondenim bottoms. We’ve chased into categories like cargo pants, which the consumer responded to quite well during back-to-school. We didn’t have enough, so we’ve chased into those.” And at Gap Inc.
executives noted that men were turning “from denim to a chino fabric” at the clothing retailer.  

Other analysts have said that customers were likelier to seek out cheaper alternatives for items like jeans than for, say, handbags. Levi Strauss executives, during their earnings call in October, cited NPD data finding that overall jeans sales “declined by mid-single digits during the June through August quarter.”

However, Levi’s management said their U.S. results were stronger than those NPD figures, even as some stores that sell the company’s clothing slowed the rate at which they ordered items. And they said they remained confident about the “long-term trend of casualization” that took off during pandemic lockdowns.

In the U.S., the BofA analysts said Wednesday, retailers will be aiming for tighter inventories after ending up with too much unwanted clothing, as higher prices last year kept more shoppers away from leisure buying. In Europe, a warmer winter and an ongoing energy crisis seem likely to hurt demand as well.

Still, the analysts said Levi’s retail business was strong. And they didn’t see any disturbance to the company’s strategy overall as Michelle Gass prepares to take over as the company’s CEO in the months ahead.

“That said, visibility on making strong headway toward its medium-term 15% operating margin goal will remain cloudy in the near term, limiting a catalyst for upside to numbers until demand improves,” the analysts said.

Shares of Levi Strauss are down 27% over the past 12 months. By comparison, the S&P 500
has fallen 14% over that time.