[LEVI] Levi Strauss: Q3 2026 Earnings Preview and the Slower Second-Half Outlook

Levi Strauss & Co. (LEVI) is one of the world's largest brand-name apparel companies, built around Levi's jeans and sold in approximately 120 countries through approximately 50,000 retail locations[1]. The Levi Strauss Q3 2026 earnings call is scheduled for 2026-10-08 and will cover the third quarter of fiscal 2026, ended August 30, 2026[2]. The latest disclosed period is the second quarter ended May 31: net revenues were $1.562 billion, up 8% as reported and 6% organically, direct-to-consumer (DTC) comparable sales rose 6% and company-operated e-commerce grew 17% organically[3]; gross margin was 62.7%, up 10 basis points, adjusted EBIT margin was 9.0%, and adjusted diluted EPS was $0.28 against $0.22 a year earlier[4]. On July 8 the company guided third-quarter reported and organic net revenue growth of 4% to 5% and a gross margin of about 61.8%, which already includes roughly 70 basis points of foreign-exchange headwind[5]; it also raised full-year guidance for the second consecutive quarter, to reported net revenue growth of 7.0% to 7.5%[6], an adjusted EBIT margin of 12% and adjusted diluted EPS of $1.46 to $1.52[7]. On the analyst side, the 10 analysts compiled by FXEmpire put consensus third-quarter EPS at $0.36[8], and the 14 analysts compiled by stockanalysis.com put consensus full-year EPS at $1.54, above the top of the company's own range[9].

Three things are worth watching in this report. The first is the quality of revenue growth: management calls the slower second half intentional prudence rather than weaker demand[10], yet the shares fell after hours even though the second quarter beat expectations and full-year guidance went up, and Investing.com read that as investors focusing on the moderation implied by the outlook[11]; whether third-quarter DTC comparable sales stay close to the second quarter's 6%, and whether Europe's organic revenue turns positive after a 1% decline[3], will show whether the slowdown is a cushion or a cooling. The second is whether gross margin reaches the guided level of about 61.8%: nearly all of the company's products come from independent contract manufacturers[12], tariffs already cut the Americas segment's second-quarter operating margin by 40 basis points year over year[13], and full-year gross margin guidance leaves only about 10 basis points of expansion[7], so the third quarter is the next reading on whether pricing, fewer promotions and channel mix can still cover tariffs and currency. The third is cost and execution: the handover of the U.S. Hebron distribution center to a third-party operator has slipped to the start of the fourth quarter[14], and the 12% full-year adjusted EBIT margin target depends mainly on the fourth quarter[5], so whether adjusted SG&A keeps growing more slowly than revenue in the third quarter, and whether the handover finishes on schedule, determines how much confidence that target still deserves.

Company Background and Business Structure

Levi Strauss is an old apparel company whose fiscal year does not match the calendar year, so its quarters have to be placed on the calendar before they can be read. The company was founded in San Francisco in 1853, traces its beginnings to the California Gold Rush and has grown into one of the world's largest brand-name apparel companies[15]. Its fiscal year ends on the Sunday closest to November 30, which means the third quarter covers June through August and the fourth quarter includes Black Friday, the day after Thanksgiving, and is typically the largest revenue quarter; in fiscal 2025 the four quarters represented 24%, 23%, 25% and 28% of full-year net revenues[16].

The company has slimmed down noticeably over the past two years, and what remains is almost entirely the Levi's brand. It announced the discontinuation of its value brand Denizen in the first quarter of 2024[15], sold the Dockers intellectual property and operations in the U.S. and Canada on July 31, 2025, and reports Dockers as discontinued operations for all periods[17], with the final closing of the remaining Dockers operations on February 27, 2026[18]. Of the three brands that remain, Levi's represents approximately 94% of net revenues[19], Levi Strauss Signature is a value line sold primarily through mass-channel retailers in the Americas, and Beyond Yoga is a separately managed premium activewear brand; more than half of fiscal 2025 net revenues came from outside the United States[20].

The company reports its Levi's Brands business in three geographic segments, the Americas, Europe and Asia, and the Americas is the largest. Fiscal 2025 net revenues were $6.282 billion, of which the Americas contributed $3.297 billion, Europe $1.699 billion and Asia $1.134 billion, with Beyond Yoga presented separately at $151 million; by brand, Levi's generated $5.883 billion and Signature $246 million[21]. In the second quarter of fiscal 2026, segment net revenues were $815.5 million in the Americas, $420.2 million in Europe and $283.7 million in Asia, plus $42.6 million at Beyond Yoga, or about 52%, 27%, 18% and less than 3% of the quarter's net revenues[22]. On the July call management described Mexico as Levi's second-largest market globally and said it grew 15% in the second quarter[23].

The company sells through two routes, wholesale and DTC, which each account for about half of revenue, and its wholesale customers are not concentrated. Wholesale means selling to department stores, chains, specialty retailers, third-party e-commerce sites and franchisees; fiscal 2025 wholesale net revenues were $3.205 billion, the top ten wholesale customers totaled 24% of net revenues and no single customer reached 10%[24]. DTC consists of 1,231 company-operated stores in 38 countries, approximately 500 company-operated shop-in-shops and company-operated e-commerce[1], and it generated $3.077 billion of net revenues in fiscal 2025, up 9.5%[21]. In the first quarter of fiscal 2026 DTC was 52% of net revenues, company-operated e-commerce was 13% of total net revenues, and sales to franchise partners, which are counted in wholesale, were 7% of net revenues[19]; in the second quarter DTC was 51%, and management said e-commerce was about 12% of total revenue and remains underpenetrated[25].

The product range is dominated by bottoms and production is almost entirely outsourced, which defines the company's exposure to import tariffs. In fiscal 2025 pants represented 67% of units sold and tops 29%, men's products generated 60% of net revenues and women's 39%, and products other than denim bottoms represented 36% of net revenues[1]. Nearly all products are sourced through independent contract manufacturers, with the remainder coming from a company-operated plant in South Africa[12]; in fiscal 2025 those manufacturers were located in approximately 32 countries, with no more than 30% sourced from any single country[26]. The 10-K also states that sourcing countries such as Bangladesh, Pakistan, Cambodia and Vietnam have been subject to U.S. reciprocal tariffs and that the cost of inventory in the U.S. has increased as a result[27].

Financial History and Current Position

Fiscal 2025 was a year of margin repair: revenue growth was moderate, but the improvement in the income statement was clear. On a continuing-operations basis that excludes Dockers, net revenues were $6.282 billion, up 4.1% as reported and 7.2% organically, driven by DTC growth across regions[28]; gross margin rose from 60.6% to 61.7%[29], which the 10-K attributes to favorable channel mix, price increases and lower product costs, partially offset by tariffs, with currency adding approximately 40 basis points[30]. Operating income was $677.6 million and operating margin was 10.8%, against only 4.4% a year earlier, because the prior year carried $185.6 million of restructuring charges and $116.9 million of goodwill and other intangible impairment charges[31]. Adjusted EBIT was $719.0 million, a margin of 11.4% that was 70 basis points higher than the prior year, and adjusted diluted EPS rose from $1.24 to $1.34[28].

Cash flow was the weak spot of fiscal 2025, and margins were already under pressure in the fourth quarter. Full-year operating cash flow was $529.6 million, down from $898.4 million, and after $221.4 million of capital expenditures adjusted free cash flow was $308.2 million, compared with $670.9 million a year earlier[32]. In the fourth quarter of fiscal 2025 net revenues grew only 0.9% as reported and 5.0% organically, with wholesale flat organically and declining in the Americas; adjusted EBIT fell from $243.1 million to $213.4 million, a margin of 12.1% that was 180 basis points lower, because of higher adjusted SG&A and lower gross margins[33].

Revenue accelerated sharply in the first quarter of fiscal 2026, but tariffs and advertising held margins down. For the quarter ended March 1, 2026, net revenues were $1.7425 billion, up 14.1% as reported and 9.2% organically, and adjusted EBIT rose 6.8% to $217.8 million, a margin of 12.5% that was 90 basis points lower than a year earlier[34]; the gap between reported and organic growth came mainly from approximately $70.8 million of currency translation[35]. Gross margin was 61.9% against 62.1% a year earlier, a decline the company attributed to tariffs, and adjusted diluted EPS was $0.42 against $0.38[36]. First-quarter operating cash flow was $211.5 million, compared with only $52.5 million a year earlier, on higher collections of receivables and lower spending on inventory; the company executed a $200 million accelerated share repurchase and paid $53.8 million of dividends in the quarter[37], ending it with $717 million of cash and total liquidity of approximately $1.6 billion[18].

Second-quarter revenue and margins both came in above the guidance the company gave in April, and cash kept improving. The guidance at that time called for reported revenue growth of 4% to 5%, organic growth of 3% to 4% and an adjusted EBIT margin of 8% to 9%[38]; actual net revenues were $1.562 billion, gross profit was $979.1 million, SG&A was $843.4 million, operating income was $122.2 million and net income from continuing operations was $94.8 million[39]. Operating margin was 7.8% against 7.5% a year earlier, and adjusted EBIT margin rose from 8.3% to 9.0%[4]. Cash stood at $849 million at quarter end, inventories were down 7% in dollar terms, and adjusted free cash flow for the six months was $383.0 million against $131.9 million a year earlier; the company raised its quarterly dividend to $0.16 per share and said the $200 million accelerated repurchase is expected to settle in the third quarter[40]. Management added on the call that adjusted free cash flow for the second quarter alone grew nearly 60% to $231 million[41].

Operating Model

Revenue splits into two channels, wholesale and DTC, and growth in each comes from units and average unit retail. Wholesale revenue depends on retailers' pre-orders and replenishment and was $768.4 million in the second quarter; DTC revenue equals comparable sales in existing stores and e-commerce plus the contribution of new stores, and was $793.6 million[42]. Management disclosed that about two-thirds of second-quarter growth came from units and one-third from average unit retail (AUR), compared with an even split in the first quarter and a full-year target of roughly half each; AUR is driven by more full-price selling as promotions are reduced, a rising share of the higher-AUR DTC channel, premium lines such as BlueTab and higher-AUR categories such as women's[43]. On timing, European wholesale pre-orders lead shipments by one to two quarters[44], and most of the 50 to 60 net new stores planned for the year are weighted to the second half, so the contribution of new stores to DTC revenue is also concentrated there[45].

Gross margin is the net result of four forces, tariffs, pricing, product cost and mix, with currency layered on top. Gross profit equals net revenues minus contract-manufacturing costs, import tariffs and freight; the 10-Q explains that DTC generally carries a higher gross margin than wholesale, the Europe segment generally a higher one than the Americas and Asia, and bottoms a higher one than tops, so consolidated gross margin is pulled upward when the higher-margin channels, geographies and categories grow faster[46]. Tariffs first raise the cost of U.S. inventory and then enter cost of goods sold with a lag of roughly one to two quarters as that inventory turns, which is why they depress the Americas segment margin first[27]. On fiscal 2025 net revenues of $6.282 billion, every 100 basis points of gross margin corresponds to about $63 million of gross profit[29].

SG&A is the heaviest line on the income statement, and a rising DTC share lifts gross margin and the expense ratio at the same time. First-quarter fiscal 2026 SG&A was $871.7 million, or 50.0% of net revenues, of which selling expenses such as stores were 22.0%, advertising and promotion 7.1%, distribution 7.1% and other 13.9%[47]. Selling expenses rise with store expansion, advertising depends on the rhythm of brand campaigns, and distribution expense depends on shipment volume and on whether the distribution network is owner-operated or run by third parties[48]. Whether margins can expand therefore depends on adjusted SG&A growing more slowly than revenue; the company's fiscal 2026 target is an adjusted EBIT margin of 12%, 60 basis points above fiscal 2025's 11.4%[7].

Swings in cash flow come mainly from working capital, and the company has an explicit framework for how cash is used. Operating cash flow equals net income plus non-cash items such as depreciation and amortization, minus the cash absorbed by working capital, which consists mainly of inventory and wholesale receivables and moves with holiday-season stocking. The company plans to reinvest 3.5% to 4% of revenue in capital each year, concentrated in new stores, distribution capacity and technology, and to return 55% to 65% of adjusted free cash flow to stockholders through dividends and repurchases, with a dividend payout target of 25% to 35% of net income[49]. Adjusted free cash flow was $308.2 million in fiscal 2025[32] and had already reached $383.0 million in the first half of fiscal 2026[40].

This model has three disclosure limits that matter when reading the third quarter. The company does not disclose absolute units, average unit retail or promotional depth, and only gives the approximate split of growth between units and AUR on its calls, so any judgment about pricing can only be directional. For the tariff effect on gross margin the company offers only qualitative attribution and the tariff-rate assumptions in its guidance, not quarterly dollar amounts. In addition, the second-quarter breakdown of distribution and advertising expenses is not part of the accessible disclosure, so the latest figures for those two lines stop at the first quarter and year-over-year judgments for the third quarter can only be measured against the company's own guidance.

Industry and Competitive Position

The global apparel industry is highly fragmented with low barriers to entry, and Levi Strauss faces many kinds of competitors. The 10-K lists its primary competitors as vertically integrated specialty stores, other jeanswear brands, khakiwear brands, athletic and activewear companies, retailers' private labels and certain e-commerce sites, and acknowledges that some of them are larger and have more resources[50].

Levi's is a leading brand in both men's and women's jeans, and what separates it from peers is mainly channel and geography. Management said on the July 2026 call that the company holds a leading market share in both men's and women's denim and is extending it, and that women's grew 11% in the second quarter, faster than men's[51]. About half of revenue already comes from company-operated channels, and the global loyalty program added 3 million members in the second quarter to reach nearly 50 million[25]; in the first quarter of fiscal 2026 the international business, which includes Europe, Asia, Canada and Latin America, represented 61% of net revenues[19].

Its weaknesses are just as clear, and the comparison that can be made is limited. Tops carry a lower gross margin than bottoms, and DTC carries a higher gross margin but also higher selling expenses and may not be more profitable[46]; the premium denim line BlueTab has grown 40% year to date, but management itself describes the premium segment as underpenetrated for Levi's[51]. Every statement about market share comes from management, and the accessible disclosure contains neither third-party share data nor peer financials that can be compared line by line, so the competitive position here can be described in direction but not quantified as a gap.

Core Debates

After 17 straight quarters of positive direct-to-consumer comparable sales, is management's slower second-half outlook deliberate conservatism or the first sign of cooling demand?

The DTC channel drives both revenue growth and gross margin, so the meaning of the slower second half is the most important question for the third quarter. DTC net revenues grew 9.5% to $3.077 billion in fiscal 2025[21] and made up more than half of net revenues in the first half of fiscal 2026, and the company itself states that DTC carries a higher gross margin than wholesale[46]. After a second-quarter beat and a raised full-year outlook the shares still fell after hours, and Investing.com's reading is that investors focused more on the outlook, which implies a moderation in revenue growth after a strong first half[11]: organic growth in the two first-half quarters was 9.2%[34] and 6%[3], while third-quarter guidance is only 4% to 5%[5]. If comparable sales and e-commerce hold up in the third quarter, the moderation is simply management's cushion; if comparable sales slow markedly, the full-year organic growth of 5.5% to 6.0%[6] would have to be delivered by the fourth-quarter holiday season alone.

The evidence so far broadly supports management's account, and the reference figures are clear. Second-quarter DTC net revenues were $793.6 million[42], up 11% as reported and 8% organically, with comparable sales up 6%[3] for a 17th consecutive positive quarter and company-operated e-commerce up 17% organically, which management attributed to reduced promotional activity, improved conversion, higher units per transaction and AUR growth[25]. In the Q&A management stated plainly that the second-half moderation is intentional prudence, said demand is resilient across channels, geographies, categories and price segments, and noted that the company has beaten top- and bottom-line consensus estimates for seven consecutive quarters and raised guidance two quarters in a row[10]. Aggregated outside expectations do not read the slowdown more severely either: the 14 analysts compiled by stockanalysis.com put consensus fiscal 2026 revenue at $6.76 billion, equal to growth of 7.62% and slightly above the top of the company's 7.0% to 7.5% range[52].

A second explanation is equally valid, and current disclosure cannot yet separate the two. Comparable sales growth has already slowed from 7% in the first quarter[53] to 6% in the second[3] while the prior-year base is rising; reported e-commerce growth slipped from 21% in the first quarter[54] to 19% in the second, and part of that growth comes from the AUR lift created by fewer promotions, an effect that fades as it is lapped. The 10-Q also warns that tariffs, inflation, energy prices and recession fears are creating a complex retail environment in which consumers may reduce discretionary spending[55]. The financial transmission runs as follows: comparable sales and e-commerce growth, plus the new stores opening mostly in the second half, make DTC grow faster than wholesale and so set consolidated organic growth; a higher DTC share lifts gross margin but also brings higher store selling expenses[46].

Third-quarter comparable sales and e-commerce growth are the most direct observations that can separate the two explanations. Four items deserve attention: whether DTC comparable sales growth holds above 5% and extends the streak to an 18th quarter; whether company-operated e-commerce keeps growing at a double-digit organic rate, and whether management still attributes it to conversion and units per transaction rather than AUR alone; where consolidated organic growth lands within the 4% to 5% range and whether management raises full-year guidance a third time; and whether the plan for 50 to 60 net new stores is reaffirmed. There are three observable falsifiers: comparable sales growth below 4% would indicate that the moderation reflects weaker demand rather than conservatism; e-commerce growth falling to single digits would indicate that the benefit of reduced promotions has faded; and growth coming mainly from price while units turn negative would indicate that price elasticity is starting to show.

With tariffs now fully in the cost base, can Levi's keep expanding gross margin through pricing, fewer promotions and channel mix?

Gross margin has been the starting point of the company's profit improvement in recent years, and fiscal 2026 leaves it very little room. Nearly all products are made by contract manufacturers overseas[12], Bangladesh, Cambodia, Pakistan and Vietnam all fall within the scope of additional U.S. tariffs[27], and the Americas segment contributes more than half of revenue[22]. Gross margin rose from 60.6% to 61.7% in fiscal 2025[29], and guidance for fiscal 2026 is only about 10 basis points of further expansion[7]; on the conversion above, every 100 basis points of gross margin corresponds to about $63 million of gross profit, or roughly 9% of fiscal 2025 adjusted EBIT of $719.0 million[28]. Full-year guidance assumes incremental U.S. tariff rates stay at 30% on imports from China and 20% on the rest of the world, and it excludes any benefit from a potential refund of about $80 million of tariffs already paid[56]; the background is that the U.S. Supreme Court ruled on February 20, 2026 that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were invalid, the company had paid approximately $80 million of those tariffs through the first quarter, and the U.S. government then imposed new tariffs under a separate authority[57].

Two quarters of data show the pressure concentrated in the Americas while consolidated gross margin has returned to expansion. First-quarter gross margin was 61.9%, down 20 basis points, which the 10-Q attributes to tariffs, partially offset by price increases and less promotional activity, with currency contributing approximately 30 basis points of benefit[58]. Second-quarter gross margin recovered to 62.7%, up 10 basis points, with the company citing lower product costs and pricing as tailwinds and tariffs and foreign exchange as headwinds[41]. At the segment level, Americas operating margin fell from 21.7% to 19.1% in the first quarter[59] and declined a further 40 basis points year over year in the second quarter, to about 20.1% when $164.1 million of segment operating income is divided by $815.5 million of segment net revenues[22][13]; over the same period Europe's margin rose to 21.1% and Asia's expanded 350 basis points to 15.0%[60]. Third-quarter guidance is a gross margin of about 61.8%, up roughly 10 basis points year over year, including approximately 70 basis points of currency headwind[5].

What remains unresolved is how much of this offset can last. Disclosure cannot distinguish how much of the second-quarter improvement came from durable pricing and mix and how much from a temporary decline in product costs; the contribution of AUR to growth fell from half in the first quarter to one-third in the second, which suggests the marginal contribution of pricing is shrinking[43]. Because the company does not disclose tariff amounts, hitting the gross margin guide only shows that the net of all forces is positive, not that the tariff burden itself has eased. The financial transmission has a clear lag: tariffs raise inventory cost and reach cost of goods sold about one to two quarters later, showing up first in the Americas segment margin, while pricing and fewer promotions, a higher share of DTC, women's and international revenue, and lower product costs push gross margin up, and the net of the two sets consolidated gross margin and then operating income.

In the third quarter the things to watch are the level of gross margin and how the company decomposes it. Specifically: whether gross margin reaches about 61.8% and how the company splits the contributions of tariffs, pricing, product cost and currency; whether the year-over-year decline in Americas operating margin keeps narrowing; whether the AUR contribution to growth returns to about half and whether promotions are still being reduced; and whether the company updates its tariff-rate assumptions or reports progress on the refund of about $80 million of tariffs paid. The observable falsifiers are a third-quarter gross margin below 61.5% that turns into a year-over-year contraction, a renewed widening of the decline in Americas margin that shows tariffs are not covered by pricing, or pricing that begins to suppress volume, with the AUR contribution rising while units turn negative.

The U.S. distribution-centre handover is running late and costing more — can second-half cost relief still deliver the 12% full-year adjusted EBIT margin?

The 12% full-year adjusted EBIT margin target was not ahead of plan in the first half, and its delivery has been placed in the fourth quarter. SG&A is the heaviest line on the income statement at 50.0% of net revenues in the first quarter[47]; the full-year target is 60 basis points above fiscal 2025's 11.4%[7], while adjusted EBIT margin fell 90 basis points year over year in the first quarter[34] and rose 70 basis points in the second[4], which together do not put the company ahead of the target. Management gives four reasons for faster expansion in the fourth quarter: the comparison base begins to include the full 2025 tariff impact, currency pressure eases, advertising spending normalizes, and duplicative U.S. distribution costs disappear[5]. The first three are largely matters of calendar, while the last is a matter of execution, and it has already been delayed once.

The second-quarter expense ratio and the European precedent are the main evidence supporting the target. Second-quarter adjusted SG&A grew 6.5% to $838 million, slower than the 8% growth in revenue, and the expense ratio improved by 80 basis points[41]. Europe offers a precedent that has already paid off: after the omnichannel distribution network consolidation was completed, the Europe segment's second-quarter operating margin rose nearly 400 basis points to 21.1%, which management attributed to gross margin gains and lower distribution expenses[60]. In the United States, the transition of the Hebron distribution center to a third-party operator is slightly delayed, which management explained as balancing the operational shift against strong demand, and it is now due to complete by the start of the fourth quarter[14], with modest incremental costs in the meantime that should be eliminated once the transition is done[61]. As a reference point, first-quarter distribution expense was $123.3 million, or 7.1% of net revenues, against 7.5% a year earlier[47].

Another reading is that the delay itself shows the handover is harder than planned, and that the expense ratio is not determined by distribution alone. The 10-Q acknowledges that moving distribution centers to third-party logistics providers has caused and may continue to cause shipping delays, order cancellations and increased costs[62], and wholesale shipments in Europe were hurt in the first quarter of fiscal 2025 during the transition to the distribution center in Dorsten, Germany[54]. The first-quarter expense structure is a further reminder: advertising and promotion expense rose 47.6% and climbed from 5.5% to 7.1% of net revenues[47], and store expansion is still pushing selling expenses higher[48]; the chief financial and growth officer said on the April call that SG&A was a little over 49% of revenue at the time and should be in the mid-to-high 49% range by year end[63]. Zacks made the same point in its July 28 commentary, noting that reported SG&A rose to $843 million from $791 million a year earlier and that duplicate distribution costs tied to the U.S. distribution-network transition could persist[64].

Both the transmission and the test for this debate come down to expense growth relative to revenue growth. While a distribution center moves from owner-operated to third-party operation, the old and new networks run in parallel and create duplicate costs, which keeps the distribution expense ratio high; once the handover is complete those costs disappear and, together with normalized advertising and store expenses being spread over higher revenue, adjusted SG&A grows more slowly than revenue, which is what allows adjusted EBIT margin to expand. In the third quarter, watch whether the company confirms that the Hebron handover completes at the start of the fourth quarter and says when duplicate costs leave the expense base, whether adjusted SG&A growth stays below revenue growth, whether distribution expense falls as a share of net revenues year over year, and whether the company keeps its 12% full-year guidance and its description of the fourth-quarter expansion. The observable falsifiers are another delay that drags duplicate costs into fiscal 2027, a handover that causes shipping delays or order cancellations and hurts U.S. wholesale revenue, or growth in advertising and new-store expenses that offsets the distribution savings so that the expense ratio rises instead of falling.

Wholesale is still almost half of Levi's revenue — will Europe's high-single-digit second-half order book turn into shipments in the third quarter?

The DTC-first narrative makes wholesale easy to overlook, yet full-year revenue guidance cannot be met without it. Second-quarter fiscal 2026 wholesale net revenues were $768.4 million, still 49% of net revenues[42], and the top ten wholesale customers accounted for 24% of fiscal 2025 net revenues[24]. The channel was still flat organically, with declines in the Americas, in the fourth quarter of fiscal 2025[33] and only returned to growth in the first half of fiscal 2026, at 8.4% organically in the first quarter[35] and 3% in the second[3]; full-year organic growth guidance of 5.5% to 6.0%[6] implies that wholesale stays at least positive in the second half. Europe is the most uncertain piece: its organic revenue fell 1% in the second quarter, which management explained as a distortion in the base caused by the prior-year distribution center transition, and management points to high-single-digit growth in second-half wholesale pre-orders to support its view that Europe grows at a mid-single-digit rate for the full year[44].

On management's account both wholesale and Europe are healthy, and the reference figures are as follows. Second-quarter wholesale grew 5% as reported and 3% organically, which management said was led by the U.S. channel, with healthy sellout trends and growing partner adoption of the expanded lifestyle assortment[25]. Europe segment net revenues were $420.2 million in the second quarter[22], of which wholesale was $168.5 million[42]; management said that excluding a drag of about 8 percentage points from the prior-year base, Europe's underlying organic growth was about 7%, that first-half growth was mid-single-digit and in line with full-year guidance, and that European DTC should grow at a mid-to-high single-digit rate in the second half[44]. In the first quarter management also mentioned that about $30 million of wholesale revenue had moved from the first quarter into the second[63].

The alternative explanation that has to be kept open is that all of these adjustments come from management's own framing, and the disclosure contains no order amounts. Pre-orders can be cancelled or deferred, and the 10-Q also warns that macroeconomic pressure is creating a more complex retail environment for the company and its customers[55]. In addition, the U.S. Hebron distribution center is in the middle of its handover, and because wholesale shipments were affected during Europe's previous transition, the same risk now sits in the United States[62]. The third quarter is the first one free of the distortion in Europe's base, so Europe's organic growth and consolidated wholesale growth will give a cleaner reading.

The transmission path for wholesale runs from pre-orders to shipments to revenue, and the checkpoints line up along that path. Retailers' pre-orders and replenishment become wholesale revenue only after they ship through the distribution centers, and European pre-orders lead shipments by one to two quarters; wholesale is still almost half of net revenues, so its growth determines whether consolidated revenue growth can reach guidance, and because wholesale gross margin is lower than DTC, changes in its share move consolidated gross margin in the opposite direction. In the third quarter, watch whether Europe's organic revenue growth turns positive and reaches mid-single digits, whether consolidated wholesale organic growth stays above 3% and U.S. wholesale keeps growing, whether management reaffirms the high-single-digit second-half pre-orders in Europe and mentions any cancellations or deferrals, and whether the U.S. distribution center handover delays wholesale shipments. The observable falsifiers are Europe's organic revenue staying negative because pre-orders did not convert, consolidated wholesale organic growth turning negative, or the distribution handover pushing wholesale shipments into the fourth quarter.

Risks and Falsifiers

Currency is turning from a tailwind into a headwind, and it affects both reported revenue and gross margin. In the first quarter currency translation added about $71 million to net revenues, producing reported growth of 14.1% against organic growth of only 9.2%[35], and it contributed approximately 30 basis points to gross margin[58]; third-quarter guidance no longer includes a currency benefit and assumes a drag of about 70 basis points on gross margin[5], while more than half of the company's revenue comes from outside the United States[20]. The current understanding of this risk would be falsified if third-quarter gross margin still reaches about 61.8% with the currency headwind included and reported revenue growth is not below organic growth.

The transition of the chief financial and growth officer is happening in the middle of two large operating projects, which is an execution risk that is hard to quantify. The company announced in April that Harmit Singh will remain in his role until a successor is appointed, then become a special advisor and retire, and that a search for his successor has begun[18]; at the same time the global ERP migration is not due to finish until mid-2027 and the U.S. distribution network is still being handed over[14]. What is exposed is not a single dollar amount but the fiscal 2026 adjusted EBIT margin target of 12% and the capital allocation framework of returning 55% to 65% of adjusted free cash flow to stockholders[65]. The risk would be falsified if the company names a successor, reaffirms fiscal 2026 guidance and the capital allocation framework, and keeps the ERP migration and distribution handover on their stated timelines.

A marked slowdown in DTC comparable sales after a high base and price increases is the most direct risk on the revenue side. DTC is 51% of net revenues[3] and second-quarter DTC net revenues were $793.6 million[42], so each percentage point of lower comparable growth corresponds to roughly $7 million to $8 million of quarterly DTC revenue, and that revenue carries a higher gross margin than wholesale. The view that the second-half moderation reflects cooling demand would not hold if third-quarter DTC comparable sales growth is at least 5% and consolidated organic revenue growth is at least 4%.

Tariff costs continuing to flow into cost of goods sold as inventory turns, while the marginal contribution of pricing and reduced promotions fades, would interrupt the year-over-year expansion of gross margin. On fiscal 2025 net revenues of $6.282 billion, every 100 basis points of gross margin corresponds to about $63 million of gross profit[29]; the company had paid approximately $80 million of IEEPA tariffs through the first quarter of fiscal 2026[57], and full-year gross margin guidance leaves only about 10 basis points of expansion[7]. The current understanding of this risk would be falsified if third-quarter gross margin is at least 61.8% and the company maintains its guidance for full-year gross margin expansion of about 10 basis points.

Another delay or an operational disruption in the U.S. distribution center handover would prolong duplicate costs, spill over into shipments and put the 12% full-year margin target out of reach. First-quarter distribution expense was $123.3 million, or 7.1% of net revenues[47]; on fiscal 2025 net revenues, every 10 basis points of adjusted EBIT margin corresponds to about $6.3 million, and the full-year target is only 60 basis points above fiscal 2025's 11.4%[7]. The risk would be falsified if the company confirms that the Hebron handover completes at the start of the fourth quarter of fiscal 2026 and third-quarter adjusted SG&A growth is no higher than revenue growth.

Retailers cutting orders or cancelling pre-orders under macroeconomic pressure would interrupt wholesale growth and undermine the view that Europe grows at a mid-single-digit rate for the full year. Wholesale is 49% of net revenues, and second-quarter wholesale net revenues were $768.4 million, of which Europe was $168.5 million[42]; each percentage point of lower wholesale organic growth corresponds to roughly $7 million to $8 million of quarterly revenue, and the top ten wholesale customers accounted for 24% of fiscal 2025 net revenues[24]. The current understanding of this risk would be falsified if Europe's organic revenue growth turns positive in the third quarter and consolidated wholesale organic growth is at least 3%.

What to Watch Next

The points below tie the four core debates and two company-level risks to metrics that can be checked directly in the third-quarter results.

• Durability of DTC comparable growth. Reference point: second-quarter comparable sales up 6%, e-commerce up 17% organically and consolidated organic growth of 6%, against third-quarter guidance of 4% to 5%. Watch whether the streak extends to an 18th quarter, whether e-commerce growth rests on conversion or on AUR, and whether full-year guidance is raised a third time. Comparable sales of at least 5% with organic growth of at least 4% would confirm; comparable sales below 4%, single-digit e-commerce growth or negative units would falsify.
• Tariffs versus gross margin. Reference point: second-quarter gross margin of 62.7%, Americas operating margin of about 20.1%, down 40 basis points, and an AUR contribution of about one-third of growth. Watch whether gross margin reaches about 61.8% and how the company splits tariffs, pricing, product cost and currency. A gross margin of at least 61.8% with full-year expansion of about 10 basis points maintained would confirm; a level below 61.5% or a renewed widening of the Americas decline would falsify.
• Distribution outsourcing and the expense ratio. Reference point: second-quarter adjusted SG&A growth of 6.5% and an adjusted EBIT margin of 9.0%, with a first-quarter distribution expense ratio of 7.1%. Watch whether the Hebron handover completes at the start of the fourth quarter, whether expense growth stays below revenue growth and whether the 12% full-year target is kept. A completed handover with expense growth no higher than revenue growth would confirm; another delay, disrupted shipments or a rising expense ratio would falsify.
• Wholesale and European pre-order conversion. Reference point: second-quarter wholesale organic growth of 3% on $768.4 million of net revenues, a 1% organic decline in Europe and high-single-digit second-half pre-orders. Watch whether Europe turns positive at a mid-single-digit rate, whether U.S. wholesale keeps growing and whether cancellations or deferrals are mentioned. Positive European growth with wholesale organic growth of at least 3% would confirm; continued declines in Europe, negative wholesale growth or shipments slipping into the fourth quarter would falsify.
• Currency turning into a headwind. Reference point: currency added about $71 million to first-quarter revenue, and third-quarter guidance includes roughly 70 basis points of gross margin headwind. Watch whether reported growth falls below organic growth and whether the currency drag exceeds guidance. Reaching about 61.8% with the headwind included, and reported growth not below organic growth, would confirm.
• Chief financial and growth officer transition. Reference point: no successor has been named, and the ERP migration is due to complete by mid-2027. Watch whether the company names a successor and reaffirms guidance and the capital allocation framework. A named successor with both projects on schedule would confirm.

Conclusion

Levi Strauss's business is driven by two channels and one cost line: DTC and wholesale each bring in about half of revenue, the net of tariffs, pricing and mix sets gross margin, and the growth rate of SG&A decides whether margins can expand. The current financial position is clear: second-quarter net revenues were $1.562 billion, up 8%[3], gross margin was 62.7% and adjusted EBIT margin was 9.0%[4], first-half adjusted free cash flow was $383.0 million[40], and the company raised full-year guidance for the second consecutive quarter[56]. The central unresolved relationship is that the company has set third-quarter revenue growth guidance at 4% to 5% and placed its margin expansion in the fourth quarter[5], while first-half data can support both management's account of a deliberate cushion and the reading that demand and costs are both tightening.

Outside interpretations published after the results happen to sit on exactly these two doubts, and they are outside views rather than facts disclosed by the company. Investing.com noted on the night of the results that the shares fell after hours despite the beat and the raised outlook, because investors focused on the second-half moderation implied by guidance and on tariffs remaining a headwind[11], which maps to the debate over the durability of DTC growth. Swagata Bhattacharya of Zacks, writing on July 28, acknowledged the earnings momentum and cash flow, noting that second-quarter adjusted EPS of $0.28 beat the Zacks consensus of $0.24 by 16.7%, that revenue beat by 2.5% and that adjusted free cash flow rose nearly 60% to roughly $231 million, but named costs as the main concern: duplicate distribution costs could persist, tariffs and currency already weighed on second-quarter gross margin, and the full-year outlook assumes current tariff levels remain in place[64], which maps to the gross margin and expense debates. The two agree that the quarter itself was strong and differ in where the worry lands, one on revenue and the other on costs, and both stand in contrast to management's account of intentional prudence and faster fourth-quarter margin expansion; independent commentary that can be cited since the results is so far concentrated in these two directions only.

Which reading is closer to the truth will be settled by a combination of later operating and financial observations. If third-quarter DTC comparable sales grow at least 5%, consolidated organic growth lands in the upper half of the 4% to 5% range, gross margin reaches about 61.8%, adjusted SG&A keeps growing more slowly than revenue, and the company confirms that the Hebron handover completes at the start of the fourth quarter while Europe's organic revenue turns positive, the understanding that the guidance is a cushion and that the 12% full-year margin target is achievable would be materially strengthened. Conversely, if comparable sales fall below 4%, gross margin comes in below 61.5%, the handover slips again or Europe's pre-orders fail to become shipments, any two of these together would materially weaken the current understanding and leave full-year revenue and margin guidance dependent on the fourth-quarter holiday season.

Sources

[1] LEVI 10-K filed 2026-01-28 · retail footprint and product mix · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[2] LEVI earnings calendar · 2026-10-08 third-quarter fiscal 2026 earnings call (calendar last updated 2026-09-18) · 2026-09-18 · earnings calendar

[3] LEVI 8-K filed 2026-07-08 · 2Q26 net revenues by channel and segment · 2026-07-08 · 8-K · https://investors.levistrauss.com/news/financial-news/news-details/2026/Levi-Strauss--Co--Reports-Second-Quarter-Results/default.aspx

[4] LEVI 8-K filed 2026-07-08 · 2Q26 margins and earnings · 2026-07-08 · 8-K · 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 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[6] LEVI 8-K filed 2026-07-08 · fiscal 2026 outlook net revenues · 2026-07-08 · 8-K · https://investors.levistrauss.com/news/financial-news/news-details/2026/Levi-Strauss--Co--Reports-Second-Quarter-Results/default.aspx

[7] LEVI 8-K filed 2026-07-08 · fiscal 2026 outlook margins and EPS · 2026-07-08 · 8-K · https://investors.levistrauss.com/news/financial-news/news-details/2026/Levi-Strauss--Co--Reports-Second-Quarter-Results/default.aspx

[8] FXEmpire LEVI earnings estimate (accessed 2026-09-18) · 2026-09-18 · FXEmpire · https://www.fxempire.com/stocks/levi/earnings

[9] stockanalysis.com LEVI EPS forecast (accessed 2026-09-18) · 2026-09-18 · stockanalysis.com · https://stockanalysis.com/stocks/levi/forecast/

[10] LEVI earnings call 2026-07-08 · Q&A second-half revenue moderation · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[11] Investing.com 2026-07-08 · LEVI beats Q2 estimates but shares fall · 2026-07-08 · Investing.com · https://www.investing.com/news/transcripts/earnings-call-transcript-levi-strauss-beats-q2-2026-estimates-but-shares-fall-93CH-4782960

[12] LEVI 10-K filed 2026-01-28 · product procurement · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[13] LEVI earnings call 2026-07-08 · Americas margin and tariffs · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[14] LEVI earnings call 2026-07-08 · distribution and ERP transformation · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[15] LEVI 10-K filed 2026-01-28 · overview, brands and segments · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[16] LEVI 10-K filed 2026-01-28 · seasonality and fiscal calendar · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[17] LEVI 10-K filed 2026-01-28 · sale of Dockers · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[18] LEVI 8-K filed 2026-04-07 · 1Q26 balance sheet, leadership and shareholder returns · 2026-04-07 · 8-K · https://investors.levistrauss.com/news/financial-news/default.aspx

[19] LEVI 10-Q filed 2026-04-07 · 1Q26 product, region and channel mix · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[20] LEVI 10-K filed 2026-01-28 · global reach · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[21] LEVI 10-K filed 2026-01-28 · FY2025 net revenues by segment, channel and brand · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[22] LEVI 10-Q filed 2026-07-08 · 2Q26 segment net revenues and operating income · 2026-07-08 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000037/

[23] LEVI earnings call 2026-07-08 · geographic and brand portfolio · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[24] LEVI 10-K filed 2026-01-28 · wholesale customers and concessions · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[25] LEVI earnings call 2026-07-08 · channel strategy · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[26] LEVI 10-K filed 2026-01-28 · sourcing locations and raw materials · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[27] LEVI 10-K filed 2026-01-28 · tariffs and logistics transition · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[28] LEVI 10-K filed 2026-01-28 · fiscal year 2025 results · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[29] LEVI 10-K filed 2026-01-28 · FY2025 gross profit and gross margin · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[30] LEVI 10-K filed 2026-01-28 · FY2025 gross margin drivers · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[31] LEVI 10-K filed 2026-01-28 · FY2025 operating income by segment · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[32] LEVI 10-K filed 2026-01-28 · FY2025 adjusted free cash flow · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[33] LEVI 10-K filed 2026-01-28 · fourth quarter of fiscal 2025 results · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[34] LEVI 10-Q filed 2026-04-07 · first quarter 2026 results · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[35] LEVI 10-Q filed 2026-04-07 · 1Q26 organic net revenues by channel · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[36] LEVI 8-K filed 2026-04-07 · 1Q26 margins and earnings · 2026-04-07 · 8-K · https://investors.levistrauss.com/news/financial-news/default.aspx

[37] LEVI 10-Q filed 2026-04-07 · 1Q26 cash flows · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[38] LEVI earnings call 2026-04-07 · raised outlook and second-quarter guidance · 2026-04-07 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[39] LEVI 10-Q filed 2026-07-08 · 2Q26 consolidated income statement · 2026-07-08 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000037/

[40] LEVI 8-K filed 2026-07-08 · 2Q26 balance sheet and shareholder returns · 2026-07-08 · 8-K · https://investors.levistrauss.com/news/financial-news/news-details/2026/Levi-Strauss--Co--Reports-Second-Quarter-Results/default.aspx

[41] LEVI earnings call 2026-07-08 · core financial performance · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[42] LEVI 10-Q filed 2026-07-08 · 2Q26 net revenues by channel · 2026-07-08 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000037/

[43] LEVI earnings call 2026-07-08 · Q&A units versus AUR · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[44] LEVI earnings call 2026-07-08 · Q&A Signature and Europe second half · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[45] LEVI earnings call 2026-07-08 · net new store openings · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[46] LEVI 10-Q filed 2026-04-07 · gross margin mix by channel, region and category · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[47] LEVI 10-Q filed 2026-04-07 · 1Q26 SG&A by component · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[48] LEVI 10-Q filed 2026-04-07 · 1Q26 SG&A discussion · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[49] LEVI 10-Q filed 2026-04-07 · capital allocation priorities · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[50] LEVI 10-K filed 2026-01-28 · competition · 2026-01-28 · 10-K · https://www.sec.gov/Archives/edgar/data/94845/000009484526000008/

[51] LEVI earnings call 2026-07-08 · product and category expansion · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[52] stockanalysis.com LEVI revenue forecast (accessed 2026-09-18) · 2026-09-18 · stockanalysis.com · https://stockanalysis.com/stocks/levi/forecast/

[53] LEVI earnings call 2026-04-07 · first-quarter segment and channel performance · 2026-04-07 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[54] LEVI 10-Q filed 2026-04-07 · 1Q26 net revenues by channel discussion · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[55] LEVI 10-Q filed 2026-04-07 · macroeconomic pressure on discretionary spending · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[56] LEVI earnings call 2026-07-08 · full-year 2026 guidance · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[57] LEVI 10-Q filed 2026-04-07 · IEEPA tariff ruling and tariffs paid · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[58] LEVI 10-Q filed 2026-04-07 · 1Q26 gross margin drivers · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[59] LEVI 10-Q filed 2026-04-07 · 1Q26 operating income by segment · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[60] LEVI earnings call 2026-07-08 · segment performance · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[61] LEVI earnings call 2026-07-08 · risks · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[62] LEVI 10-Q filed 2026-04-07 · third-party logistics transition · 2026-04-07 · 10-Q · https://www.sec.gov/Archives/edgar/data/94845/000009484526000020/

[63] LEVI earnings call 2026-04-07 · Q&A SG&A, tariffs and distribution center · 2026-04-07 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx

[64] Zacks Investment Research 2026-07-28 · LEVI after the earnings rally · 2026-07-28 · Zacks Investment Research · https://finance.yahoo.com/markets/stocks/articles/levi-stock-still-attractive-strong-130900660.html

[65] LEVI earnings call 2026-07-08 · capital allocation · 2026-07-08 · earnings-call · https://investors.levistrauss.com/events-and-presentations/default.aspx