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Levi Strauss & Co. (LEVI) shares traded sharply lower Thursday as investors reacted to stronger-than-expected third quarter earnings and the potential for growth from its emerging business in China.

Levi Strauss said adjusted earnings for the three months ending on August 25 came in at 31 cents per share, down 8.8% from the same period last year but 3 cents ahead of the Street consensus forecast. Group revenues, Levi Strauss said, rose 4% to $1.45 billion, fractionally ahead of analysts' estimates. 

Looking into the 2019 fiscal year, which will end prior to the November Black Friday shopping even, Levi Strauss reaffirmed its prior forecast of net revenues growing at the high end of the mid-single digit range, compared to a 6% advance over the first half of the year, as well as an adjusted profit margin that is "slightly up in the range of 10 basis points."

Shares in the group were marked lower in overnight trading, however, thanks in part to reported weakness in its Latin American wholesale business, but reversed course in pre-market trading after a report from Bloomberg that suggested China is ready to a agree at least a partial trade deal with the United States ahead of key high-level trade talks tomorrow in Washington.

"China is still a huge opportunity for us. It represents about 3% of our total business overall," CEO Charles Bergh told investors on a conference call late Tuesday. "We've been evolving our China business over the last couple of years. Go back two fiscal years, we declined in China. Last fiscal year we were flat."

"We took a number of steps in China last year to set ourselves up for success long term in China," he added. "China remains on track to post growth for the full year after being flat last year. You have the right people and strategies in place to accelerate China's growth in 2020."

Levi Strauss shares were marked 6% lower in early Wednesday trading to change hands at $17.85 each, a move that would trim the stock's gain since its March IPO to around 7%.