Levi Strauss (LEVI) Q3 2026 Earnings: DTC Comparable Sales Slow to 0.4%

Levi Strauss & Co. (LEVI) reported fiscal 2026 third-quarter results on October 7, 2026, through its earnings release, Form 10-Q and earnings call, covering the quarter ended August 30. Revenue met guidance, but direct-to-consumer (DTC) sales stalled and most of the margin improvement came from a one-time tariff refund [1][2][3]. The four operating questions in focus before this report moved in different directions: DTC growth slowed sharply, cost savings from outsourcing distribution slipped to fiscal 2027, tariff pressure on gross margin was offset by the refund and lower product costs, and wholesale and European orders converted as expected. Overall, both DTC demand and expense leverage now look weaker than before this report.

Levi Strauss & Co. is one of the world's largest brand-name apparel companies, and the Levi's brand accounts for about 94% of revenue [2]. The company sells through wholesale customers such as department stores and chains, and through its own stores and e-commerce sites; in the first nine months of fiscal 2026, the two channels made up 51% and 49% of revenue [2].

Levi's DTC comparable sales slowed to 0.4%

DTC was the largest shortfall in the quarter. Third-quarter DTC comparable sales grew 0.4%, compared with 6% in the second quarter and high-single-digit growth a year earlier [1][4]. DTC organic revenue rose only 2.3%, and company-operated e-commerce growth slowed to 10% from 17% in the second quarter [1][4]. By region, DTC was flat in the Americas and down 1% in Europe, while Asia still grew 11% [1].

The slowdown was concentrated in store traffic. The 10-Q says store performance declined on softer traffic, with growth coming from e-commerce and new stores [2]. Management said the U.S. back-to-school campaign focused on loose fits while consumers shifted to low-rise styles, and that unseasonably warm weather weighed on Europe [3]. The financial statements do not provide data to verify this attribution.

The DTC slowdown also raised costs, and the recovery has not yet been proven. Weaker store sales lifted selling expenses to 22.3% of revenue from 21.8% [2]. Management said U.S. DTC turned positive in September and that DTC is on track for mid-single-digit growth in the fourth quarter [1][3]; fourth-quarter results will need to confirm it.

Gross margin jumped mainly because of tariff refunds

Third-quarter gross margin reached 66.2%, up 450 basis points from a year earlier and well above the roughly 61.8% the company guided to in July [1][5]. A $78.6 million refund of IEEPA tariffs contributed 490 basis points, and the company redeployed about 120 basis points into additional promotion [1][2]. Based on the disclosed figures, gross margin excluding the refund was 61.3%, or about 62.5% after adding back the promotional spending.

The underlying gross margin still improved after removing one-time items. The 10-Q attributes the rest of the improvement to lower product costs, with currency a headwind of about 70 basis points [2]. The company raised its full-year gross margin outlook to about 63%, of which about 80 basis points comes from the refund [1][3]. The U.S. government announced new Section 301 tariffs in July [2], so it remains to be seen whether lower product costs can keep offsetting tariffs.

Distribution savings pushed to fiscal 2027

Expenses grew faster than revenue, and savings from outsourcing distribution have not yet appeared. Adjusted SG&A rose 6.2% in the third quarter, faster than revenue growth of 4.3%, and the adjusted SG&A ratio rose to 50.8% from 49.8%, including about 40 basis points of redeployed refund [1]. Distribution expense rose to 7.5% of revenue from 7.0%, which the company attributed to higher volumes and rates [2].

The U.S. Hebron distribution center closed at the end of the third quarter, but the transition was more complex than expected and was hit by a fire; management said the full cost benefits will not arrive until fiscal 2027 [3]. The company raised its full-year adjusted SG&A outlook to about 51% of revenue from 49.7% to 49.9% [3].

As a result, the margin target is met only on a reported basis. Third-quarter adjusted EBIT margin was 15.5%, including a net refund benefit of 330 basis points [1]. Full-year guidance is about 12.1%, including about 30 basis points of net refund benefit; excluding it, the margin is about 11.8%, below the earlier 12% target [1][3].

Progress: wholesale and European orders converted

Wholesale filled the DTC gap. Third-quarter wholesale organic revenue grew 6.3%, and Europe's organic revenue swung to 4.7% growth from a 1% decline in the second quarter [1][4]. European wholesale grew on volume, while Americas wholesale relied mainly on price increases [2]. Management said European Spring-Summer 2027 pre-books are up high single digits, warned that U.S. fourth-quarter wholesale may look weaker year over year because of shipment timing, and raised full-year organic revenue growth guidance to about 6% [3]. This progress still needs fourth-quarter confirmation.

Conclusion

This report lowers confidence in both growth and profit conversion. Revenue met guidance, but the growth engine shifted from DTC to wholesale and Asia; lower product costs improved the underlying gross margin, but rising expenses absorbed most of that gain. Cash generation improved from a year earlier: adjusted free cash flow for the first nine months was $427 million, compared with $92.5 million a year earlier, including $57.1 million of refunds already received [1][2]. Whether DTC returns to mid-single-digit growth in the fourth quarter and whether the distribution expense ratio stops rising will determine whether this quarter's weakness carries into fiscal 2027.

Sources

[1] LEVI 8-K filed 2026-10-07 · 3Q26 earnings release, 2026-10-07, Levi Strauss & Co. Form 8-K Exhibit 99.1 press release, https://www.sec.gov/Archives/edgar/data/94845/000009484526000048/exhibit991-3q2026pressrele.htm [2] LEVI 10-Q filed 2026-10-07, 2026-10-07, Levi Strauss & Co. Form 10-Q, https://www.sec.gov/Archives/edgar/data/94845/000009484526000047/lvis-20260830.htm [3] LEVI earnings call 2026-10-07 · summary, 2026-10-07, Levi Strauss & Co. third-quarter earnings call summary [4] LEVI 8-K filed 2026-07-08 · 2Q26 net revenues by channel and segment, 2026-07-08, Levi Strauss & Co. Form 8-K press release, https://investors.levistrauss.com/news/financial-news/news-details/2026/Levi-Strauss--Co--Reports-Second-Quarter-Results/default.aspx [5] LEVI earnings call 2026-07-08 · third-quarter 2026 guidance, 2026-07-08, Levi Strauss & Co. second-quarter earnings call, https://investors.levistrauss.com/events-and-presentations/default.aspx