Levi Strauss & Co. (LEVI) Q3 2026 earnings review
Tariff refund lifts Levi's profit, but its stores stop growing
Levi Strauss & Co., the maker of Levi's jeans, booked a tariff refund, but its stores stopped growing. Chief executive Michelle Gass said store and online sales missed internal expectations. Sales from businesses it owned a year ago rose 4.5%, matching its plan, because retailers bought more. Without the refund and the promotions it funded, profit per share would have been $0.37.
| Sales from businesses owned a year ago | +4.5% outlook: 4% to 5% |
|---|---|
| Profit per share, excluding one-offs | $0.48 $0.34 a year ago |
| Comparable sales in its own stores and website | +0.4% high single digits a year ago |
| Full-year profit-per-share outlook | Raised $0.06 middle of the range: $1.55, up 16% |
⚖️ Verdict: 🔴 Bearish
The story got worse because the new outlook asks less of the fourth quarter. By our math, the plan now puts that quarter's profit margin near 13% before the refund-funded spending, down from about 14% three months ago. The good news: retailers and overseas shoppers kept buying, so the yearly sales plan stayed on track.
The question now is whether Levi's own stores recover. Gass expects mid-single-digit growth there in the fourth quarter. If they do, this quarter was a one-off; if not, Levi's depends on retailers more than its plan intends. January's results will tell.
🐂 Bull Case
Retailers and Overseas Shoppers Drove Sales Growth
Levi Strauss & Co. sells to retailers such as department stores, and through its own stores and website. Chief executive Michelle Gass pointed to "strong growth in our international and wholesale businesses" this quarter.
- Sales to retailers: up 6.3%, excluding currency swings
- Asia: up 9.6%, excluding currency swings
- Europe: up 4.7%, excluding currency swings
This matters because the Americas, the jeans maker's largest region, grew slowly, so retailers and overseas shoppers kept total sales on plan. Asia also earned more on each dollar, with operating margin rising to 14% from 12%.
What to watch: fourth-quarter sales to retailers, reported in January. A similar pace would let Levi's meet its yearly sales plan even if its own stores recover slowly.
Without the Refund, Profit Margins Still Rose
Levi's booked a refund of US tariffs against the cost of its products this quarter. It spent $25 million of the money on "additional promotion and marketing expenditures", the company said.
Without both items, the business still improved. By our math, operating margin excluding one-offs was 12.1%, above the 11.9% in the outlook.
- Cost of making the products: down 0.8 percentage points of sales, excluding the refund items
- Selling and overhead: up 0.5 percentage points of sales, excluding one-offs and refund-funded spending
- Profit per share without the net refund: $0.37, against $0.34 a year ago
What to watch: fourth-quarter gross margin, the share of sales left after product costs, due in January. A rise without refund help would show that the cheaper products last.
Smaller Brands Grew Faster Than Levi's Itself
Besides its main Levi's label, the group sells Levi Strauss Signature, a lower-priced line, and Beyond Yoga, an activewear brand. Chief executive Michelle Gass cited "continued momentum across our lifestyle categories".
- Levi Strauss Signature: up 12.6%, excluding currency swings
- Beyond Yoga: up 9.1%, with an operating loss of $5 million
- Levi's brand: up 4.0%, excluding currency swings
This matters because a cheaper line and an activewear brand reach shoppers the main label misses. But Beyond Yoga still loses money, and the release gave no sales figures for clothing beyond jeans.
What to watch: the share of sales from products other than denim bottoms, reported in the quarterly filing. A higher share than last year would show the denim group's new categories add sales.
Positives this quarter didn't test
Three standing strengths got no clear test in the press release. Each item names the event or disclosure that would test it next.
- Selling through its own stores and website: chief executive Michelle Gass expects mid-single-digit growth there in the fourth quarter; January's results will test that claim.
- Blue Tab, the premium jeans line: Levi's again gave no sales figure; any disclosure would show whether it adds to the business.
- Returns to shareholders: Levi's plans a new $100 million buyback; the delivery of those shares will show the effect on the share count.
🐻 Bear Case
Sales in Levi's Own Stores Stopped Growing
Levi Strauss & Co. has said it wants to lead with its own stores and website, which it calls direct-to-consumer, or DTC. Chief executive Michelle Gass said this business "fell short of our internal expectations" in the quarter.
- Own stores and website: up 2.3% from a year ago
- Comparable sales, from stores open at least a year and websites: up 0.4%, after high-single-digit growth a year earlier
- US own stores and website: down 1%
- Online sales: up 10%
Online sales grew, so the weakness sat in the physical stores, especially in the US. Sales to retailers grew more than twice as fast as direct sales, which runs against the jeans maker's stated direction.
"Based on the acceleration in recent trends, our DTC business is on track to deliver mid-single-digit growth in the fourth quarter," Gass said. That requires a clear pickup from this quarter's pace, and Levi's gave no monthly figures to show it.
What to watch: direct sales growth in the fourth quarter, reported in January. Growth below mid-single digits would mean the stores are lagging the plan Levi's built around them.
The Fourth-Quarter Profit Plan Got Smaller
Levi's profit plan for this year depends heavily on the fourth quarter. Finance chief Harmit Singh raised the full-year profit outlook. By our math, about two-thirds of the increase comes from the tariff refund.
By our math, the plan leaves fourth-quarter profit per share at about $0.36, down from $0.41 a year earlier. Part of that drop is refund money Levi's plans to spend back into the business in that quarter.
- Fourth-quarter operating margin excluding one-offs: about 11.4% by our math, against 12.1% a year ago
- The same margin before the refund-funded spending: about 13.3%
- The same margin implied by the outlook three months ago: about 14%
Even before the extra spending, the planned margin gain is smaller than three months ago, so the year's improvement now rests more on the refund. Currency also turned: Levi's trimmed its sales growth outlook to about 7% because of exchange rates.
What to watch: fourth-quarter operating margin excluding one-offs, due in January. A reading below 13% before the refund-funded spending would mean the year's profit gain came mostly from the refund.
Risks this quarter didn't answer
Several standing risks got no clear answer in the press release. Each item below names the disclosure or event that would move it.
- Hebron distribution center: Levi's gave no update on a closure it had set for early in the fourth quarter; January's cost figures will show whether the savings arrived.
- Finance chief succession: Harmit Singh still holds the post, and the company has named no successor; an appointment would settle it.
- Tariff rates: the outlook still assumes current rates hold; any new tariff action would change product costs again.
- Reliance on denim bottoms: the release gave no product mix; the quarterly filing will show the share of other products.
- Sales to retailers: they grew this quarter, but Levi's has been dropping some US accounts; fourth-quarter retailer sales will show whether growth holds.
👓 Other Themes
US Tariff Refunds Reached Levi's This Quarter
The US government refunded tariffs Levi's had paid under the International Emergency Economic Powers Act. The jeans maker booked $79 million against product costs and $5 million as interest income. Finance chief Harmit Singh said Levi's will "redeploy a majority of our tariff refund benefit back into the business", about $60 million this year.
💲 Other KPIs
The share count fell again. Diluted shares averaged 390.6 million, down 2.2% from a year ago. Levi's finished its earlier buyback this quarter and plans a new one worth $100 million. It also raised the quarterly dividend 14%.
Inventories, the stock of unsold goods, fell 2.5% from a year ago while sales rose. A year earlier they had grown 12%, so Levi's has moved from building stock to holding less of it for each dollar it sells.
Cash generation improved. Adjusted free cash flow is the cash left after running the business and paying for investment. It reached $427 million in the first nine months, against $93 million a year earlier. The third quarter alone produced $44 million.
🔮 Guidance
Unchanged, but now at the bottom of the earlier range. The plan has sales up about 7% this year, and Levi's blamed exchange rates for the trim. By our math, that leaves about 2% growth for the fourth quarter, the slowest this year.
Unchanged, now at the top of the earlier range. The plan has sales from businesses owned a year ago up about 6%. By our math, that leaves about 4.6% for the fourth quarter, close to this quarter's pace. The middle of the range has risen at every update this year; this step was the smallest.
Raised. The plan now has gross margin, the share of sales left after product costs, about 1.3 percentage points above last year. By our math, that leaves about 61.6% for the fourth quarter, up 0.8 points. The refund booked this quarter explains most of the raise.
Raised by 0.1 points. By our math, the plan leaves about 11.4% for the fourth quarter, below last year's 12.1%. Levi's plans to spend about $35 million of refund money in that quarter. Before that spending, the quarter's margin would be about 13.3%.
Unchanged. The plan still has a tax rate of about 23%, two points above last year. This quarter's rate came in at 23.4%, close to the full-year figure.
Raised. The middle of the range moved up $0.06, so the plan has profit per share growing about 16% this year. By our math, that leaves about $0.36 for the fourth quarter, below last year's level. The middle has risen at every update this year, and this step was the largest.
❓ Key Questions
When will the Hebron distribution center close?
Levi's had tied part of its year-end margin gain to closing this center early in the fourth quarter. The release gave no update, so investors cannot tell whether the savings will arrive on time.
Who will replace Harmit Singh as finance chief?
Singh announced his retirement earlier this year, and he leads the profit plan. The release named no successor and gave no timeline.
What did the promotions do for store sales?
Levi's spent part of its refund on promotion and marketing, yet comparable sales barely grew. Investors need to know which channels got the money and what it returned.
How much of sales now comes from products beyond jeans?
The share of sales from products other than denim bottoms appears in the quarterly filing. It shows whether new categories add sales or only grow in line with jeans.
Will more tariff refunds arrive, and will Levi's spend them?
The outlook includes the refund already received and the spending it funds. Any further refund would lift profit again, and the company has not said whether it would spend that money too.