Levi Strauss (LEVI) Q4 2025: DTC Margins Expand 300bps, Accelerating Lifestyle Transition

January 28, 2026 | By EarningsIQ Research

Levi’s Q4 capped a year of accelerated DTC, direct-to-consumer, growth and margin expansion, validating the company’s pivot to a head-to-toe denim lifestyle model. Premiumization, strong women’s and tops growth, and improved inventory discipline drove outperformance, while targeted price increases offset tariff headwinds. Management projects continued margin leverage and disciplined SG&A, selling, general and administrative expenses, as DTC and international mix rise in 2026.

Summary

• DTC Margin Expansion: Levi’s direct-to-consumer channels delivered 300bps margin growth, underpinning profitability gains.
• Category Diversification Momentum: Non-denim and tops growth now represent a third of total expansion, broadening the addressable market.
• Tariff Mitigation Strategy: Targeted pricing and cost controls are set to fully offset $0.20 EPS drag from tariffs in 2026.

Performance Analysis

Levi’s delivered another quarter of broad-based growth, fueled by DTC outperformance and a robust holiday season. Organic net revenues grew 5% in Q4, with the Levi’s brand up 4% and women’s and tops categories delivering double-digit gains. DTC sales rose 10% for the quarter, achieving the 15th consecutive positive comp and comprising roughly half of total revenue. E-commerce was a standout, up 22%, as investments in AI-powered features drove engagement and conversion. International sales, now nearly 60% of the business, grew 8% in Q4, led by Europe and Latin America, with Europe’s operating margin up 330bps year-over-year.

Gross margin contracted 100bps to 60.8%, pressured by tariffs but offset by higher pricing and full-price selling. Adjusted EBIT margin declined 180bps to 12.1% due to the lapping of a 53rd week, tariff impact, and elevated distribution and incentive costs. Despite this, Levi’s achieved its highest-ever annual gross margin and expanded full-year adjusted EBIT margin by 70bps, reflecting the structural benefits of its DTC and category mix shift. Inventory dollars rose 9% YoY, driven by tariffs, but unit growth was a modest 2%, signaling improved inventory quality and positioning for 2026.

• Women’s and Tops Drive Growth: Women’s up 11% and tops double-digit growth, expanding Levi’s relevance and share in new categories.
• International Margin Gains: Europe and Asia both delivered operating margin expansion, validating global lifestyle strategy execution.
• Disciplined Capital Return: $363 million returned to shareholders in 2025, including the largest buyback since IPO and a new $200 million ASAP authorization.

Levi’s operational discipline and diversified growth engines are increasingly visible in the numbers, despite macro and tariff headwinds. Management’s confidence is reflected in continued capital return and guidance for margin expansion in the coming year.

Executive Commentary

Strategic Positioning

1. DTC-Led Business Model Transformation

Levi’s transformation to a DTC-first, lifestyle brand is reshaping its margin structure and growth algorithm. DTC now comprises about half of total revenue, with 15 consecutive quarters of positive comps and 300bps margin expansion in 2025. The company is leveraging AI for merchandising, assortment planning, and consumer engagement, with new features like Outfitting and an upcoming AI stylist chatbot, further driving productivity and personalization. Store productivity and e-commerce are both scaling, supported by new store openings in Asia and enhanced in-store lifestyle merchandising.

2. Premiumization and Category Expansion

Levi’s is successfully expanding beyond denim bottoms into premium, tops, and women’s categories. The Blue Tab, premium denim line, launched globally with strong initial sell-through and price points up to $400, is positioned as a halo for the brand and a new profit pool. Tops now drive nearly half of incremental revenue growth, with sweaters, wovens, and outerwear outperforming. Women’s and non-denim categories are outpacing men’s and core denim, with non-denim now accounting for a third of total growth.

3. International Growth and Operational Leverage

International markets, especially Europe and Asia, are outgrowing the Americas and delivering operating leverage. Europe’s 10% Q4 revenue growth and 330bps margin expansion highlight the benefits of a hybrid distribution model and lifestyle assortment. Asia’s double-digit growth in key markets like Japan and Turkey reflects rising demand for head-to-toe offerings. The company’s global supply chain transformation, led by a new head of supply chain, is shortening lead times and increasing global product consistency, with 50% of the line now globally directed (up from 20% two years ago).

4. SG&A Discipline and AI-Driven Productivity

SG&A leverage is a top priority, with cost actions and AI-enabled productivity set to improve operating margins. The company is limiting headcount growth, expanding global talent hubs, and rolling out an integrated agentic AI platform (in partnership with Microsoft) to automate and simplify task-driven work. Parallel distribution center costs will ease in the back half, supporting further SG&A improvement.

5. Tariff Mitigation and Pricing Power

Tariffs represent a 150bps gross margin headwind in 2026, but management expects to fully offset this via targeted pricing, higher full-price selling, and product cost reductions. Price increases are focused on the U.S. and premium innovation, with no material consumer pushback to date, underscoring strong brand equity and market share gains. The company is leveraging advanced analytics and demand elasticity models to optimize pricing and assortment by geography and channel.

Key Considerations

Levi’s Q4 and full-year results confirm the company’s momentum as a multi-category, global lifestyle brand with a disciplined approach to margin and capital allocation. Investors should weigh the following:

• DTC Productivity and Margin Leverage: Continued comp growth, improved store operations, and AI-driven retail excellence are expected to drive further DTC margin expansion in 2026.
• Premium and Category Expansion: Early success in Blue Tab and tops signal untapped profit pools, while women’s and non-denim growth diversify revenue streams.
• International Outperformance: Europe and Asia are delivering both top-line and margin gains, with scalable distribution and strong local execution.
• SG&A and Supply Chain Transformation: Parallel DC costs are transitory, and AI-enabled productivity is likely to support ongoing operating leverage as the company scales.
• Tariff and Pricing Dynamics: Full offset of tariff headwinds depends on pricing power and elasticity, which management currently sees as robust but must be monitored for consumer sensitivity.

Risks

Key risks include operational delays in U.S. distribution center transformation, potential consumer pushback to ongoing price increases, and macro volatility in core international markets. Tariff mitigation relies on sustained pricing power and full-price sell-through, which could be tested if demand softens or promotional intensity rises. Wholesale rationalization in the U.S. may create short-term revenue drag as non-strategic accounts are exited.

Forward Outlook

For Q1 2026, Levi’s guided to:

• Organic net revenue growth of 4-5%, with reported growth of 7-8% including FX tailwind
• Gross margin slightly down YoY, primarily due to tariff impact
• Adjusted EBIT margin down 140bps to 12%, reflecting front-loaded marketing spend
• Adjusted diluted EPS of $0.35-$0.38, including a $0.07 drag from marketing campaign timing

For full-year 2026, management expects:

• Organic revenue growth of 4-5%, reported growth of 5-6%
• Flat gross margin YoY (offsetting 150bps tariff headwind with pricing and cost actions)
• Adjusted EBIT margin expansion of 40-60bps to 11.8-12%
• EPS of $1.40-$1.46, with $0.20 EPS drag from tariffs fully mitigated

Management highlighted:

• SG&A rate improvement of 40-60bps via cost controls, productivity, and AI leverage
• CapEx of $230 million (3.5-4% of revenue), focused on store growth and digital investments

Takeaways

Levi’s is executing a successful transition to a higher-margin, multi-category lifestyle company, with DTC and international growth engines leading the way. Premiumization, category expansion, and disciplined SG&A are driving sustainable margin gains, while tariff headwinds are being actively managed through pricing and cost actions.

• DTC and Premium Mix Drive Margin Expansion: DTC and premium category growth are structurally lifting gross and EBIT margins, with further runway ahead.
• Operational and AI Leverage: Ongoing supply chain and AI investments are expected to drive efficiency and support scalable growth, despite transitional distribution costs in early 2026.
• Tariff and Pricing Execution Remain Critical: The ability to sustain pricing power and full-price sell-through will be key to fully mitigating external cost headwinds and maintaining margin expansion.

Conclusion

Levi Strauss exits 2025 with strong brand momentum, a proven DTC-first model, and a clear path to further margin gains in 2026. The company’s disciplined approach to category expansion, international growth, and cost management positions it well for continued outperformance—though execution on tariff mitigation and supply chain transformation will remain critical watchpoints.

Industry Read-Through

Levi’s results underscore the value of a DTC-led, lifestyle-focused approach in branded apparel. Retailers with strong brand equity and pricing power can offset macro and cost headwinds through targeted price increases and category expansion. The success of premiumization and international growth at Levi’s signals similar opportunities for other global brands, while the company’s use of AI and supply chain modernization offers a blueprint for margin leverage. Wholesale rationalization and inventory discipline are likely to be recurring themes across the sector as brands seek to balance channel mix and profitability in a dynamic retail environment.

LEVI Consumer Discretionary Apparel DTC Premiumization AI International Tariffs