Levi Strauss raised its full-year profit forecast on Wednesday after booking $79 million in tariff refunds in its fiscal third quarter. The denim maker said it will redeploy about $60 million of that windfall this year into promotions and marketing, betting on strong holiday demand for premium denim and sweaters.
The refunds cover tariffs the company had paid under the International Emergency Economic Powers Act (IEEPA). For the quarter ended August 30, net revenue rose 4% to $1.61 billion, roughly in line with the $1.62 billion analysts expected, while adjusted earnings hit 48 cents a share — well above the roughly 36 cents Wall Street had penciled in.
Barron's calculates that stripping out the net tariff-refund benefit leaves adjusted earnings at roughly 37 cents a share — still ahead of last year's 34 cents, but a far more modest beat. In other words, a large part of the earnings surprise was a one-off rebate, not underlying momentum.
The new full-year guidance reflects that: adjusted earnings per share are now expected at $1.54 to $1.56, up from $1.46 to $1.52, including the refund benefit. Full-year sales growth is projected at 7% — the low end of the prior 7% to 7.5% range, according to the Wall Street Journal.
What spooked investors was the sales picture. Comparable sales in the direct-to-consumer business — Levi's own stores and website — were flat in the third quarter. CEO Michelle Gass said the business fell short of expectations: US sales softened as shoppers contended with higher inflation, while "unseasonably" warm weather weighed on traffic in Europe.
The back-to-school campaign also misfired, leaning too heavily on loose-fitting pants when shoppers wanted popular low-rise styles. Independent retail consultant Bruce Winder called the direct-to-consumer showing softer than expected, noting the US market remains challenging with elevated fuel prices.
The bright spots sit at both ends of the portfolio. The women's business emerged as a standout, driven by demand for baggy jeans and a push beyond denim into tops, skirts and dresses — categories outside denim bottoms accounted for about half of the quarter's sales growth. The premium Blue Tab denim line grew at a double-digit pace, helping draw higher-income shoppers.
Asia helped too, with a 13% sales increase in China and a collaboration with singer Rosé. Gass said the direct-to-consumer business has started to improve and should return to at least mid-single-digit growth in the fourth quarter.
Despite the raised outlook, Levi's shares fell more than 2% in extended trading, erasing a brief 7% pop after the results. Investors are doing different math: a one-off refund flattered the profit line, but soft US and European demand is the real story.
The stock closed Wednesday at $19.51, down 24% from its late-July peak and about 5% lower so far this year. A raised forecast couldn't buy applause — the market wants real sales momentum, not a rebate.