Levi Strauss Lifts Outlook On Broad-Based Earnings Beat
Levi Strauss ((LEVI)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Levi Strauss’ latest earnings call struck an upbeat tone, with management emphasizing broad-based momentum in sales, stronger profitability and a lift to full-year guidance. Executives acknowledged short-term pressures from tariffs and elevated operating expenses but framed them as manageable headwinds amid robust demand and disciplined execution.
Top-Line Growth Exceeds Expectations
Levi’s delivered a strong start to the year, with organic net revenue up 9% and reported growth of 14%, topping internal expectations. Management highlighted that growth was broad-based across regions and channels, suggesting that demand for the brand is not reliant on any single market or product line.
Direct-to-Consumer (DTC) Momentum
The company’s direct-to-consumer business continued to shine, with global DTC revenues rising 10% and comparable sales up 7%, marking the 16th straight quarter of positive comps. DTC now accounts for roughly half of total revenue, a key strategic milestone that boosts margins and deepens customer relationships.
Wholesale Outperformance
Wholesale, often considered more cyclical, outperformed expectations with 8% growth in the quarter. Management credited increased orders from retail partners, particularly in women’s products and tops, signaling renewed confidence from retailers in Levi’s assortments.
Category and Product Strength
Growth was broad across categories, with women’s up 13% and men’s up 7%, while tops advanced 13% and bottoms 7%. Standout product wins included a 25% surge in the 517 silhouette, ongoing success in baggy and loose fits and strong reception for innovations such as Thermodapt.
International Strength
International markets remained a powerful growth engine, with net revenues abroad rising 12% overall. Europe gained 10% with Italy nearly doubling revenues since 2021, while Asia grew 12% overall and 16% in DTC, and Latin America advanced 14% within the Americas segment.
Margin and Profitability Progress
Adjusted EBIT margin reached 12.5% in the quarter and would have been about 14.1% excluding the timing of advertising and promotion spending. Adjusted diluted EPS climbed 11% year over year to $0.42, reflecting solid operating leverage and cost discipline despite inflationary and tariff pressures.
Cash Flow and Shareholder Returns
Levi’s generated $152 million in adjusted free cash flow in the first quarter, supporting an active capital return strategy. Shareholder distributions surged 163% year over year to $214 million, and the board approved an 8% increase in the quarterly dividend to $0.14 per share.
Loyalty and Digital Engagement
The company’s digital ecosystem continued to scale, with loyalty membership reaching 46 million, up 17% from a year earlier and boosted by about 2 million net additions in Q1. Roughly 70% of new U.S. e-commerce customers came from Gen Z and millennials, helping drive 17% growth in e-commerce revenue.
Tariff Pressure on Gross Margin
Gross margin came in at 61.9%, down 20 basis points from the prior year, mainly due to tariffs on imported goods. Management cautioned that tariffs remain a source of volatility for margins, and the company’s plans incorporate a range of potential outcomes in this area.
SG&A and A&P Timing Impact
Adjusted SG&A expenses rose 16%, reflecting heavier advertising and promotion tied to a large global campaign, higher sales volume and foreign exchange effects. The skewed timing of marketing spend alone reduced adjusted EBIT margin by roughly 160 basis points in the quarter.
Americas Operating Margin Contraction
Despite a 7% revenue increase in the Americas, operating margin in the region contracted by about 260 basis points. Management attributed the decline to the front-loaded advertising investments and tariff effects, and indicated that margin performance should improve as the year progresses.
Distribution Network Transition Costs
Levi’s ongoing distribution center transitions influenced shipment timing, pulling forward around $30 million of revenue from the second quarter into the first. Distribution-related expenses remain elevated during the transition, which is expected to finish around midyear, with associated costs already embedded in guidance.
Elevated SG&A as Percentage of Revenue
Total SG&A ran slightly above 49% of revenue in the quarter and is expected to remain in the mid- to high-49% range for the year. Management pointed to productivity initiatives, including AI tools and talent hubs, and a commitment to keeping headcount flat as levers to gradually improve efficiency.
Residual Operating Loss at Beyond Yoga
Beyond Yoga, Levi’s active and athleisure brand, posted robust 23% revenue growth but continues to operate at a loss. The operating deficit narrowed in the quarter as the company invests for scale and moves the business toward breakeven and eventual profitability.
Guidance and Outlook
Looking ahead, management raised full-year fiscal 2026 guidance, now calling for reported net revenue growth of 5.5% to 6.5% and organic growth of 4.5% to 5.5%. The company expects flat to slightly higher gross margin, an adjusted EBIT margin around 12% and adjusted diluted EPS between $1.42 and $1.48, with stronger margins anticipated in the second half.
Levi Strauss’ earnings call painted a picture of a brand in strong demand and a business model increasingly skewed toward higher-margin direct channels, even as tariffs and elevated SG&A weigh on near-term margins. For investors, the raised guidance, solid cash generation and disciplined capital returns underscore management’s confidence in sustaining profitable growth.
