Levi Strauss reported improved profitability for its fiscal third quarter on Wednesday, driven by tariff refunds, but issued a more modest outlook for overall revenue. The denim maker raised its full-year adjusted earnings per share projection to between $1.54 and $1.56, up from its previous estimate of $1.46 to $1.52.
However, the company tempered its revenue expectations, lowering its full-year net revenue growth forecast to 7%, which sits at the bottom of its prior range of 7% to 7.5%. Following the announcement, Levi shares climbed approximately 5% in extended trading.
For the quarter ending August 30, Levi posted net revenues of $1.61 billion, slightly missing Wall Street’s expectation of $1.62 billion. Net income fell to $168.6 million, or 43 cents per share, compared to $218.1 million, or 55 cents per share, during the same period last year. Despite the revenue dip, the company reported an operating margin of 13.8%, a significant increase from 10.8% a year ago, largely fueled by tariff refunds that added 4.9 percentage points to both operating and gross margins.
The tariff refunds also provided a 16-cent boost to earnings per share. Of that amount, 5 cents were reinvested into the business, though Levi did not disclose the specific uses for these funds.
Regionally, net revenues in the Americas grew by 4%, although U.S. sales declined by 1%. Wholesale revenues rose 6%, while direct-to-consumer (DTC) net revenues increased by only 2%, with comparable sales remaining flat. The DTC segment accounted for 45% of total net revenue in the third quarter.
CEO Michelle Gass acknowledged that the DTC division underperformed internal targets but expressed optimism about the holiday season. “We moved quickly to address the shortfall and are encouraged by the strength we are seeing heading into the holiday season, including in the U.S.,” Gass said. She added that recent trends suggest the DTC business is positioned for mid-single-digit growth in the fourth quarter.
Levi noted that it continues to see broad-based growth across its segments, including its core Levi’s brand and its premium Blue Tab line.
The share price bump is a classic margin play, not a sign of true consumer demand recovery.
How is DTC flat while wholesale jumps 6%? Seems like they’re losing direct connection with customers.
Interesting that tariff refunds are the real hero here, not actual sales growth. Hope they reinvest wisely.