Levi Strauss (LEVI) Q3 2025: DTC Channel Drives 9% Growth, Margin Expansion Continues
Levi Strauss delivered a fourth straight quarter of high single-digit organic revenue growth, powered by robust direct-to-consumer sales and international momentum. Margin expansion outpaced tariff headwinds as the company sharpened its DTC-first strategy, drove SKU productivity, and benefited from premiumization and global brand strength. Management raised full-year guidance, citing continued consumer resilience and strong holiday positioning, while also flagging ongoing supply chain and tariff mitigation efforts.
Summary
- DTC Channel Outperformance: Direct-to-consumer sales led growth, supported by higher full-price selling and improved store productivity.
- International Markets Fuel Expansion: Asia and Europe delivered strong gains, with Asia accelerating to double-digit growth.
- Margin Leverage Amid Tariffs: Gross margin improved despite increased tariff headwinds, aided by pricing, mix, and disciplined SG&A management.
Performance Analysis
Levi Strauss posted another quarter of broad-based growth, with both direct-to-consumer (DTC) and wholesale channels contributing equally to the 7% organic revenue increase. DTC sales climbed 9% globally, driven by high single-digit comp growth, higher units per transaction (UPT), average unit retail (AUR), and reduced promotional activity. E-commerce was a standout, up 16%, and is on track to reach 15% of total sales in coming years. In wholesale, net revenues rose 5%, with growth across all segments and continued momentum in U.S. and international markets.
Gross margin reached a record 61.7%, expanding 110 basis points year-over-year, more than offsetting an 80 basis point tariff drag. The margin expansion was fueled by a favorable shift toward higher-margin DTC, international, and women’s categories, as well as targeted pricing and lower promotions. SG&A leverage improved, with expenses below 50% of revenue—driven by performance-based compensation, new store investments, and distribution network transformation. Operating profit and EPS outpaced expectations, with EBIT margin reaching 11.8%.
- International Strength: International markets accounted for 75% of growth, with Asia up 12% and Europe up 3% despite weather-related volatility.
- Women’s and Tops Outperformance: The women’s segment contributed 40% of growth, and tops grew 9%, supporting the head-to-toe lifestyle strategy.
- Inventory Build for Holidays: Inventory dollars rose 12% in anticipation of the holiday season, with 70% of U.S. holiday product already in place.
Levi’s fourth consecutive quarter of high single-digit growth, margin expansion, and raised guidance underscores the effectiveness of its DTC-first transformation and brand-led strategy.
Executive Commentary
"We delivered another very strong quarter with upside across the P&L, giving us the confidence to raise our full-year revenue and EPS guidance. Strength was once again broad-based across our business, including DTC and wholesale, international and domestic, women's and men's, and tops and bottoms."
Michelle Goss, President and CEO
"Net revenue grew 7%, reflecting the power of our diversified business model. International markets drove approximately 75% of our growth, and the U.S. contributed 25%. This international strength reflects our continued expansion and brand resonance in key markets globally, while our U.S. business maintained solid underlying momentum."
Harmeet Singh, Chief Financial and Growth Officer
Strategic Positioning
1. DTC-First Model Accelerates Brand Control
Levi’s DTC-first strategy, defined as prioritizing sales through company-owned stores and e-commerce, is delivering higher margins and improved consumer data. DTC now represents over 40% of U.S. sales, with global DTC up 9% and e-commerce up 16%. Store optimization, enhanced labor scheduling, and a new global selling model are driving higher productivity and a better consumer experience. As DTC grows, Levi’s expects continued margin expansion and greater pricing power.
2. International Diversification Reduces Regional Risk
Nearly 60% of Levi’s business is now international, providing a meaningful buffer against U.S. market volatility. Asia led with 12% growth, especially in India, Japan, Korea, and Turkey. Japan’s transition to a DTC-led market, now 75% DTC, is a template for global expansion. Europe saw 3% revenue growth and 80 basis points of margin improvement, with September and pre-books for spring showing momentum despite a promotional environment.
3. Portfolio Expansion and SKU Rationalization
Levi’s is executing a dual strategy of expanding its lifestyle assortment while reducing SKU count for efficiency. Women’s and tops are key focus areas, with women’s up 9% and tops up 9% in Q3. SKU count is down 15% year-over-year, and globally common SKUs now make up 40% of the assortment, up from under 10% two years ago. This simplification is driving SKU productivity up 20% and enabling global merchandising consistency.
4. Premiumization and Brand Heat
Premiumization, or shifting the product mix toward higher-priced, higher-margin items, is a core lever. The launch of Blue Tab, a premium collection, and collaborations with Nike and Toy Story are generating brand heat and attracting new consumers. Full-price selling is up, and price increases have been absorbed without demand erosion, supporting further margin expansion.
5. Supply Chain Transformation and Tariff Mitigation
Levi’s is overhauling its distribution network for omni-channel efficiency, running parallel distribution centers (DCs) in the U.S. as it transitions. Distribution costs are elevated in the near term but are expected to decline as the transformation completes by early 2026. The company is actively mitigating tariff headwinds through pricing, supply chain diversification, and vendor negotiations, limiting the net margin impact.
Key Considerations
This quarter marks a decisive inflection in Levi’s transformation into a global, DTC-led denim lifestyle brand, with broad-based growth and margin gains despite macro and cost pressures. The company’s ability to execute on both top-line and margin levers is increasingly visible, yet supply chain and market risks remain relevant.
Key Considerations:
- DTC and E-commerce Scaling: Continued double-digit e-commerce growth and DTC expansion are critical for margin and brand control.
- Women’s and Tops Growth: Outsized gains in women’s and tops are expanding Levi’s addressable market and supporting premiumization.
- Tariff and Supply Chain Headwinds: Tariffs remain a material gross margin drag, though mitigation strategies are offsetting most of the impact.
- SKU Rationalization and Productivity: Fewer, more productive SKUs are driving higher sales per item and reducing complexity.
- International Opportunity: Asia and Europe are delivering growth and margin expansion, with DTC conversion in Japan serving as a global playbook.
Risks
Tariff escalation and ongoing supply chain transformation introduce near-term cost and execution risk, with distribution costs elevated as Levi’s runs parallel DCs. U.S. wholesale is expected to decline in Q4 due to a tough comparison and macro uncertainty, and inventory build ahead of the holidays could pressure working capital if demand softens. Management’s prudent guidance reflects these uncertainties, even as underlying trends remain robust.
Forward Outlook
For Q4, Levi Strauss guided to:
- Organic net revenue growth of approximately 1% (9% on a two-year stack)
- Reported net revenue down 3% due to 53rd week and portfolio exits
- Gross margin contraction of 100 basis points, primarily from tariffs and 53rd week impact
- Adjusted EBIT margin of 12.4% to 12.6%
- Adjusted diluted EPS of $0.36 to $0.38
For full-year 2025, management raised guidance:
- Reported net revenue growth of approximately 3%
- Organic net revenue growth of approximately 6%
- Gross margin expansion of 100 basis points (up from prior 80bps guidance)
- Adjusted EBIT margin of 11.4% to 11.6%
- Adjusted diluted EPS of $1.27 to $1.32
Management highlighted several factors that will shape Q4 and 2026:
- Tariff mitigation remains a top priority, with continued pricing and supply chain actions
- Holiday season is well planned, with 70% of U.S. inventory already in place and robust lifestyle assortment
Takeaways
Levi Strauss is demonstrating consistent execution on its DTC-first, lifestyle-led transformation, with broad-based revenue and margin growth and a clear path to sustained improvement.
- DTC and International Mix Drive Upside: Margin and revenue gains are increasingly powered by DTC and international, with Asia and Europe leading growth and profitability improvement.
- SKU Productivity and Premiumization: Fewer, more productive SKUs and premium collections are supporting higher AUR and gross margin gains.
- Tariff and Supply Chain Execution Remain Key Watchpoints: The ability to offset rising tariffs and execute on distribution network transformation will be critical to sustaining margin progress and capital efficiency.
Conclusion
Levi Strauss delivered another quarter of broad-based growth and margin expansion, with DTC, international, women’s, and tops all contributing to performance. Raised guidance and robust holiday preparation signal management confidence, but execution on supply chain transformation and tariff mitigation will be key to sustaining momentum into 2026.
Industry Read-Through
Levi’s results highlight the competitive advantage of a DTC-first, global brand model in the apparel sector, with premiumization, SKU rationalization, and international diversification emerging as critical levers for growth and margin expansion. The ability to offset tariff and supply chain headwinds through pricing and operational agility will be a key differentiator for branded apparel companies. Retailers and brands with high DTC penetration, strong brand equity, and global reach are best positioned to weather macro and cost volatility, while those reliant on wholesale or with less pricing power may face greater risk as tariffs and promotional intensity rise.