Key Takeaways
- Shares of LEVI declined following third-quarter results showing $1.6 billion in revenue.
- The company’s direct-to-consumer channel delivered only 2% growth during the period.
- Quarterly earnings per share on an adjusted basis jumped to $0.48 versus $0.34.
- Full-year EPS outlook increased to a target of $1.54 to $1.56 from prior range.
- Management authorized another $100 million accelerated buyback and hiked the dividend 14%.
Shares of Levi Strauss & Co. retreated following the release of third-quarter earnings that showed improved revenue and margins but lackluster performance in direct-to-consumer channels. LEVI stock finished regular trading at $19.51, representing a 4.97% decline, before falling an additional 1.18% to $19.28 in extended trading. Despite elevated profitability and an upward revision to full-year earnings forecasts, investor sentiment remained pressured by persistent weakness in U.S. markets and sluggish DTC comparable sales.
Third-Quarter Revenue Grows to $1.6 Billion
Levi Strauss delivered net revenues of $1.61 billion for the quarter, marking a 4% increase on a reported basis compared to the same period last year. On an organic basis, revenues climbed 5%, driven by solid performance in European and Asian markets alongside contributions from wholesale channels and the Beyond Yoga brand. Conversely, U.S. revenues contracted 1%, weighing on results from the company’s core geographic region.
The Americas segment posted revenues of $839 million, up from $806 million in the prior-year quarter, representing a 4% gain. Europe delivered $442 million in revenues, while Asia contributed $293 million, with both regions posting reported growth of 4% and 5%, respectively. Beyond Yoga revenues advanced 9% to reach $36 million during the three-month period.
Profitability metrics showed substantial improvement as the operating margin expanded to 13.8% from 10.8% in the year-ago quarter. The adjusted EBIT margin rose to 15.5%, while gross margin widened by 450 basis points to reach 66.2%. Significant tariff refunds drove much of the margin expansion, though the company reinvested a portion of these benefits back into the business.
Direct-to-Consumer Channel Underperforms Expectations
Direct-to-consumer revenues advanced just 2% during the quarter, while comparable store sales remained essentially unchanged. Given that DTC represents 45% of total company revenues, the channel’s underwhelming performance emerged as a primary concern among investors. Additionally, the U.S. DTC business declined 1% despite more encouraging results in select Asian markets.
Asia’s DTC segment grew 8% on a reported basis and expanded 11% organically during the period. In contrast, European DTC revenues fell 2% as reported and declined 1% on an organic basis. The e-commerce platform demonstrated stronger traction, posting 10% growth on both reported and organic measures.
Wholesale revenues, by comparison, climbed 6% as all geographic regions contributed to the increase. Europe and Asia proved particularly robust in wholesale performance, helping to balance out the softer direct sales trends. Company leadership anticipates DTC growth will accelerate in the fourth quarter as seasonal holiday shopping activity picks up.
Earnings Outlook Revised Higher for Full Year
Net income from continuing operations totaled $169 million for the quarter, compared with $122 million in the corresponding period last year. Adjusted net income rose to $189 million from $136 million, benefiting from higher sales volumes and expanded operating margins. On a per-share basis, adjusted diluted earnings reached $0.48, up sharply from $0.34 in the prior year.
Management lifted its full-year adjusted EPS guidance to a range of $1.54 to $1.56. The previous forecast had called for adjusted earnings between $1.46 and $1.52 per share. Levi Strauss also projects organic revenue growth of approximately 6% with reported growth approaching 7% for the full fiscal year.
The company announced plans for an additional $100 million accelerated share repurchase under its existing authorization program. Management also declared a quarterly dividend of $0.16 per share, representing a 14% increase over the prior year. Despite these shareholder-friendly initiatives and improved profitability metrics, the stock’s decline underscored investor concerns that sluggish DTC momentum and U.S. market softness overshadowed the positive earnings developments.
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