Levi Strauss Raises Profit Forecast on Tariff Refund, as U.S. Store Sales Stall

Levi Strauss & Co. raised its full-year profit forecast on Wednesday, even as it acknowledged that fewer American shoppers are buying jeans directly from its stores and website than it had expected. The company's fiscal third-quarter results, disclosed in a filing with the Securities and Exchange Commission, showed profit growing far faster than sales, and much of that gap traces back to a one-time windfall: tens of millions of dollars in tariffs the government had collected unlawfully and was now being forced to repay.

Net revenue for the quarter ended Aug. 30 rose 4 percent to $1.61 billion, roughly matching Wall Street estimates. Adjusted earnings of 48 cents a share beat analyst forecasts of about 36 cents and were up 41 percent from the 34 cents the company earned a year earlier. Levi, the San Francisco-based maker of denim and the Beyond Yoga activewear line, told investors it now expects adjusted earnings of $1.54 to $1.56 a share for the full fiscal year, up from a prior range of $1.46 to $1.52, according to the quarterly report the company filed with regulators.

The numbers

Operating margin reached 13.8 percent, up from 10.8 percent a year ago, while adjusted earnings before interest and taxes rose to $248.7 million from $182.3 million, a margin of 15.5 percent. Net income from continuing operations climbed to $168.6 million from $122 million. Gross margin expanded by 450 basis points to 66.2 percent.

Much of that improvement came from a single line item. Levi recognized $78.6 million in refunded tariffs during the quarter, plus $5 million in related interest income, which together added 490 basis points to operating margin and 16 cents to earnings per share. The company said it chose to plow most of that money back into the business — about 160 basis points of margin, or 5 cents a share, went toward promotions and marketing — leaving a net benefit of roughly 11 cents a share. For the full year, Levi expects to redeploy about $60 million of tariff-refund money, including $35 million in the current quarter.

Sales growth was uneven by channel and geography. Wholesale revenue rose 6 percent to $882.3 million, outpacing direct-to-consumer sales, which grew just 2 percent to $727.4 million and now make up 45 percent of the total. Within that, comparable store and digital sales were flat. By region, Asia grew fastest, up 10 percent organically to $292.8 million, while revenue in the Americas segment rose only 2 percent organically, with sales inside the United States actually falling 1 percent on a reported basis. Europe grew 5 percent organically. The company also declared a quarterly dividend of 16 cents a share, up 14 percent, and said it would launch a new $100 million accelerated share buyback after completing a $200 million repurchase program during the quarter.

A refund rooted in a court defeat

The money flowing into Levi's results this quarter originated far from the fitting room. In February, the Supreme Court ruled that the International Emergency Economic Powers Act did not give the president authority to impose the sweeping tariffs his administration had placed on imports from dozens of countries, including the duties on apparel and footwear that fell heavily on clothing retailers. The ruling forced the government to begin repaying duties it had collected since 2025, a process that has since run through the U.S. Court of International Trade, which ordered the refunds, and U.S. Customs and Border Protection, which built an online system to process the claims.

Levi is one of many apparel importers caught up in the refund process, given how much of its merchandise is produced overseas and imported into the United States. Other retailers have handled the windfall differently: some have used it to cut prices or issue customer refunds, while others are holding the cash or still waiting for payments to clear. Levi's approach was to take roughly a third of the benefit to the bottom line and spend the rest on marketing and promotions, a choice executives described as an investment in demand heading into the holiday season rather than a pure profit gain.

A widening gap in demand

Set the tariff refund aside, and the underlying picture is more mixed. Wholesale accounts, where Levi sells to department stores and other retailers, grew faster than the company's own stores and website for the second straight quarter. The weakness was concentrated in the United States, where the company's direct-to-consumer business — its highest-margin channel — essentially stalled. Levi said it still expects a recovery to mid-single-digit direct-to-consumer growth in the fourth quarter, but the current quarter fell short of its own internal targets.

Michelle Gass, Levi's president and chief executive, said the quarter "highlighted the power of our diversified portfolio" and pointed to strong growth in the company's international and wholesale businesses. On the weaker channel, she was direct: "While our direct-to-consumer business fell short of our internal expectations, we moved quickly to address the shortfall," she said, adding that the company expects DTC sales, including in the U.S., to return to mid-single-digit growth in the fourth quarter.

"We made the decision to redeploy a majority of our tariff refund benefit back into the business during Q3 and Q4 to support future growth," said Harmit Singh, Levi's chief financial and growth officer.

Independent retail consultant Bruce Winder, describing the quarter to a Reuters dispatch on the results, said direct-to-consumer performance was softer than expected this quarter, and that the U.S. market remains difficult because of elevated fuel prices squeezing household budgets.

Investors gave the results a muted reception. Shares briefly jumped as much as 7 percent in after-hours trading before giving back the gain and trading about 1 percent lower, suggesting the market focused more on the softer U.S. store traffic than on the raised profit guidance.

What happens next

Levi narrowed its full-year revenue guidance to the low end of its prior range, about 7 percent reported growth, even as it raised its profit and margin targets — a combination that signals the company expects the tariff windfall and cost discipline to carry results more than a surge in demand. The $35 million of tariff-refund spending planned for the fourth quarter will land squarely in the holiday shopping season, a test of whether extra marketing can revive U.S. store and online traffic before the fiscal year closes in late November.

The broader refund process is also still unfinished. Billions of dollars in IEEPA tariff refunds remain tied up in processing at Customs and Border Protection, and the government has separately imposed a new round of tariffs under different legal authority, which is itself being challenged in court. For a company like Levi, which depends on imported denim and sportswear for nearly all of its merchandise, how that litigation and the refund pipeline unfold will likely matter as much to next year's profit as how many pairs of jeans it can sell to Americans heading into winter.