LEVI — Q3 2026 Financial Report Analysis

A record-looking margin, mostly paid for by a tariff refund

Levi Strauss & Co. grew third-quarter revenue 4.3% to $1,609.7 million (quarter ended August 30, 2026) and lifted diluted earnings per share from continuing operations to $0.43 from $0.31. The jump in profit did not come mainly from selling more jeans. In February 2026 the U.S. Supreme Court struck down the tariffs imposed under the International Emergency Economic Powers Act (IEEPA), and this quarter Levi's booked $78.6 million of refunds of those previously paid tariffs as a reduction in cost of goods sold. The company says that refund alone added 490 basis points (4.9 percentage points) to both gross margin and operating margin. Strip it out and the quarter looks like modest sales growth with slightly thinner underlying margins, held back by a soft store business in the U.S. and Europe.

At a glance

• Revenue $1,609.7M, +4.3% (+4.5% organic). Organic growth strips out currency moves and the brands Levi's has sold or closed, so it is the cleaner read on demand. Wholesale (sales to other retailers) carried the quarter at +6.0%; Levi's own stores and websites grew only 2.3%.
• Gross margin 66.2% vs 61.7%. Gross margin is the share of each sales dollar left after paying for the product itself. The one-time tariff refund alone was worth 4.9 points, more than the whole gain. Without it, gross margin would have been about 61.3%, a little below last year (a figure that also carries $19 million of extra promotional spending the refund paid for).
• Full-year adjusted EPS guidance raised to $1.54–$1.56 from $1.46–$1.52. Management explicitly includes the tariff refund (net of about $60 million it is spending back into the business) in that outlook.

The numbers

"Continuing operations" excludes Dockers, which Levi's sold in stages through February 2026. The total net income line fell because last year's third quarter included $96.1 million of Dockers income, mostly tied to the July 2025 sale of the U.S. and Canada business. The continuing figure is the like-for-like one, and it is the one used in the figures strip above.

Where the sales growth came from

• The U.S. went backwards. Revenue in the U.S. fell 1%, and U.S. DTC fell 1%, according to the earnings release. The Americas segment still grew 4.0%, but about $12 million of that came from currency translation (a stronger Canadian dollar or Mexican peso turns into more U.S. dollars), which is why organic growth there was only 2.5%. The 10-Q says Americas wholesale grew "due to price increases partially offset by a slight decrease in volume" — retailers paid more per item but bought slightly fewer items.
• Levi's own stores lost foot traffic. DTC comparable sales — sales at stores and sites open at least a year, so new openings don't flatter the number — rose just 0.4%, against high-single-digit growth a year earlier. The 10-Q blames "lower store performance driven by softer traffic" in both the Americas and Europe; Europe's DTC revenue fell 2% reported. E-commerce (+10%) and new stores (42 more company-operated stores in the Americas than a year ago) kept the channel positive. CEO Michelle Gass said DTC "fell short of our internal expectations."
• Asia was the bright spot, up 9.6% organically, with growth in both stores and wholesale. Reported growth was only 5.4% because a stronger dollar shaved about $11 million off Asian sales when converted.
• The Levi Strauss Signature value brand grew 12.2%, "due primarily to price increases."

What the headline numbers hide

1. Most of the margin gain is a one-off refund. The $78.6 million IEEPA refund was 4.9% of quarterly revenue. Levi's says it spent about $25 million of it straight back into the business this quarter — "additional promotion and marketing expenditures," $19 million of it hitting gross margin and $6 million in SG&A (selling, general and administrative costs). By management's own breakdown:

Take that net $0.11 out and diluted EPS from continuing operations is about $0.32 against $0.31 a year ago; operating margin is about 10.5% against 10.8%. On management's adjusted basis the picture is a little better — roughly $0.37 versus $0.34 — but note that the company's "adjusted" EPS of $0.48 does not exclude the refund. It only strips out restructuring costs. A reader comparing adjusted EPS to last year's $0.34 is seeing the refund baked in.

2. Costs are growing faster than sales. SG&A rose 7.8% to $835.9 million, against 4.3% revenue growth, taking it to 51.9% of revenue from 50.3%. Store selling costs rose 6.9% (more stores, weaker sales per store), advertising rose 11.1%, and distribution costs rose 11.9% "due to increased volume and higher rates." The company is also still moving its warehouses to outside logistics operators, a shift the 10-Q says has caused "shipping delays, order cancellations and increased costs," and it disclosed a fire at one distribution center during the quarter (insured; "not significant" to results). Unallocated corporate expenses rose 19.0% to $158.1 million, including higher restructuring consulting fees, technology costs and global sourcing costs.

3. Fewer shares helped, a higher tax rate hurt. Diluted shares fell 2.2% to 390.6 million after a $200 million accelerated share repurchase (a buyback where the bank delivers most shares up front) that settled this quarter, retiring 9.4 million shares in total at an average $21.32. That accounts for roughly 2 points of EPS growth. Working the other way, the effective tax rate rose to 23.4% from 21.9%, which the 10-Q attributes to "a lower foreign-derived intangible income benefit."

4. Cash flow is genuinely strong. For the first nine months, cash from operations was $585.2 million against $431.7 million of net income, and free cash flow (operating cash minus $157.9 million of capital spending) was $427.3 million versus $92.5 million a year earlier. The 10-Q credits "higher collections of receivables and lower spending on inventory"; $57.1 million of the tariff refunds had been received in cash by quarter-end, with the rest still to come. Inventory was down 3% from a year ago while sales rose 4% — the opposite of the warning sign where unsold stock piles up faster than sales.

5. Below the operating line, also a small boost. Other income was $10.7 million versus $1.3 million, including $4.7 million of interest paid on the tariff refunds. The nine-month figure also includes a $33.0 million legal settlement gain booked earlier in the year, which management excludes from adjusted earnings.

Takeaway: Levi's reported a 3-point jump in operating margin, but by the company's own breakdown the one-time tariff refund contributed 3.3 points even after what it spent back on promotions — more than the entire gain. Underneath, U.S. sales slipped, its own stores saw flat comparable sales, and costs grew nearly twice as fast as revenue — so the raised full-year guidance mostly reflects the refund, not a stronger business.

Outlook

Management raised its fiscal 2026 targets (year ending November 29, 2026). The new guidance includes the tariff refunds, of which Levi's plans to redeploy about $60 million for the full year, including about $35 million in the fourth quarter, and assumes current tariff rates stay in place.

Reported revenue growth was nudged to the bottom of the old range because of currency; organic growth moved to the top. The midpoint of EPS guidance rose about $0.06. By our rough arithmetic, that is about the size of the full-year net refund benefit: roughly $85 million of refunds booked so far (in cost of goods sold and interest income), minus about $60 million redeployed, leaves about $25 million pre-tax, or around $0.05 a share after a 23% tax rate on about 391 million shares. In other words, the raise looks like the refund passing through, not an upgrade to the underlying business. Guidance implies fourth-quarter adjusted EPS of roughly $0.35 to $0.37 after $1.19 for the first nine months.

The company also plans a new $100 million accelerated share repurchase (it had $240 million left under its authorization) and declared a $0.16 quarterly dividend, payable November 4.

What to watch in the fourth quarter (Levi's biggest quarter, 28% of last year's revenue):

• Whether DTC actually recovers. Gass said recent trends put DTC "on track to deliver mid-single-digit growth in the fourth quarter," including in the U.S. After a 0.4% comparable-sales quarter, that is the claim most worth checking.
• New tariffs replacing the refunded ones. On July 23, 2026 the U.S. announced new Section 301 tariffs on most imports from certain countries. Levi's sources heavily from Bangladesh, Cambodia, Pakistan and Vietnam, and the 10-Q warns that tariff costs "could lead to a significant increase in cost of sales." Once the refund stops flattering the numbers, gross margin will show how much of that Levi's can pass on through pricing.
• Whether the $60 million of redeployed spending buys growth. If the extra promotion and marketing doesn't lift Q4 sales, the refund will have been spent without a lasting return.