Levi Strauss & Co. (NYSE: LEVI)

Levi Strauss & Co.’s Q2 2025 financial performance demonstrated strong momentum across key metrics. Net revenues increased 6% on a reported basis and 9% on an organic basis to $1.4 billion, with the Levi’s® brand growing 9% globally on an organic basis. This growth was driven by strong performance across multiple regions and channels, particularly in DTC operations.

The standout achievement was the record gross margin of 62.6%, representing a 140 basis point expansion from 61.3% in Q2 2024. This improvement was primarily driven by lower product costs and favorable channel mix, demonstrating the company’s successful strategic focus on higher-margin direct-to-consumer sales and operational efficiency improvements.

Operating income increased dramatically to $108 million from $21 million in Q2 2024, representing a 417% increase. Operating margin expanded to 7.5% from 1.5% in the prior year, while adjusted EBIT margin increased 190 basis points to 8.3%. This significant improvement reflects both the gross margin expansion and effective SG&A leverage.

Net income from continuing operations was $80 million compared to $17 million in Q2 2024. Adjusted diluted earnings per share increased 37% to $0.22 from $0.16 in the prior year period, exceeding expectations and demonstrating the company’s strong operational execution and margin expansion strategy.

The company’s effective tax rate normalized to 22.3% compared to (56.3%) in Q2 2024, which had been impacted by certain discrete tax benefits. Interest and other expenses decreased to $6 million from $10 million in the prior year, reflecting improved working capital management and lower foreign exchange losses.

Americas delivered solid performance with net revenues increasing 5% on a reported basis and 9% on an organic basis to $748 million. Within the Americas, the U.S. grew 7% on an organic basis, demonstrating continued strength in the core domestic market. Operating income increased 21% to $153 million, reflecting strong margin expansion and operational leverage.

Europe was the standout regional performer with net revenues increasing 14% on a reported basis and 15% on an organic basis to $403 million. This strong growth was broad-based across the region and reflected successful brand positioning and market share gains. Operating income increased 30% to $69 million, demonstrating excellent operational leverage.

Asia faced some headwinds with net revenues declining 1% on a reported basis but remaining flat on an organic basis at $258 million. This performance reflected ongoing challenges in certain Asian markets, though the flat organic performance suggests underlying stability when currency impacts are excluded. Operating income decreased 13% to $30 million.

Beyond Yoga® continued its growth trajectory with net revenues increasing 12% on both reported and organic basis to $37 million. While still generating an operating loss of $4 million, this represented an improvement from the $3 million loss in the prior year as the brand continues to scale and optimize operations.

The geographic performance highlights the global strength of the Levi’s® brand and the company’s successful execution of its regional strategies. The strong performance in Europe particularly demonstrates the brand’s international appeal and growth potential outside core markets.

Levi Strauss & Co.’s channel strategy continued to drive strong results, with the direct-to-consumer (DTC) business demonstrating particular strength:

Direct-to-Consumer (DTC)

• DTC Revenue Growth: Net revenues increased 11% on a reported basis and 10% on an organic basis
• Global DTC Performance: Organic growth reflected a 9% increase in the U.S., 9% increase in Europe, and 10% increase in Asia
• E-commerce Strength: Net revenues from e-commerce grew 13% on both reported and organic basis
• Channel Mix: DTC comprised 50% of total net revenues in Q2, demonstrating the success of the DTC-first strategy
• 13th Consecutive Quarter: This marked the 13th consecutive quarter of global DTC comparable sales growth

Wholesale

• Net revenues increased 3% on a reported basis and 7% on an organic basis
• Performance reflects strategic focus on premium wholesale partnerships while prioritizing DTC growth
• Wholesale continues to serve as an important channel for brand awareness and market penetration

The strong DTC performance validates the company’s strategic transformation into a DTC-first organization. The achievement of 50% DTC mix represents a significant milestone and demonstrates the company’s successful execution of its channel strategy. The consistent growth across all DTC regions shows the global applicability of this approach.

E-commerce growth of 13% highlights the continued digital transformation and the company’s ability to meet evolving consumer preferences for online shopping. This digital strength positions Levi’s well for continued growth in the evolving retail landscape.

Levi Strauss & Co. continued to execute on its strategic agenda to transform into a denim lifestyle brand and best-in-class DTC retailer:

Transformation into Denim Lifestyle Brand

• Brand Heritage & Future: Leveraging 172-year heritage while building “an even bolder future with a bigger legacy”
• Product Innovation: Continued focus on expanding beyond traditional denim into lifestyle categories
• Premium Positioning: Strategic elevation of brand positioning and product quality

DTC-First Strategy Execution

• Achieved 50% DTC revenue mix in Q2 2025
• 13 consecutive quarters of global DTC comparable sales growth
• Continued investment in retail operations and e-commerce capabilities
• Enhanced customer experience and brand engagement through owned channels

Project Fuel Restructuring

• Ongoing restructuring program to optimize operations and improve margins
• Q2 2025 restructuring charges of $7 million related to Project Fuel
• Focus on operational efficiency and cost structure optimization
• Distribution center consolidation and operational streamlining

Financial Performance Improvements

• Record gross margin achievement of 62.6%
• Higher growth rate and margin profile emerging
• Stronger cash flows and higher returns on invested capital
• Focus on operational leverage and SG&A efficiency

The strategic initiatives demonstrate a clear transformation in the company’s business model, with the successful shift to a DTC-first approach driving both revenue growth and margin expansion. The company’s ability to execute on this transformation while maintaining brand heritage positions it well for continued success.

Levi Strauss & Co. delivered exceptional margin expansion in Q2 2025, demonstrating strong operational execution and the benefits of its strategic transformation:

• Gross Margin: Increased 140 basis points to a record 62.6% from 61.3% in Q2 2024, driven by lower product costs and favorable channel mix
• Operating Margin: Expanded significantly to 7.5% from 1.5% in the prior year, reflecting both gross margin gains and SG&A leverage
• Adjusted EBIT Margin: Increased 190 basis points to 8.3% from 6.3% in Q2 2024
• SG&A Efficiency: Adjusted SG&A as a percentage of sales improved 50 basis points to 54.4% from 54.9%, demonstrating operational leverage

The record gross margin of 62.6% represents a significant achievement and reflects several strategic initiatives coming to fruition. Lower product costs resulted from supply chain optimization and Project Fuel efficiencies, while the favorable channel mix reflects the success of the DTC-first strategy, as direct-to-consumer sales typically carry higher margins than wholesale.

SG&A expenses increased to $791 million from $756 million in Q2 2024, but adjusted SG&A improved to $787 million. As a percentage of sales, this represented 50 basis points of leverage, demonstrating the company’s ability to scale operations effectively while investing in growth initiatives.

The dramatic improvement in operating margin from 1.5% to 7.5% showcases the combined impact of gross margin expansion and operational leverage. This represents significant progress toward the company’s goal of becoming a higher-margin, more profitable organization.

Restructuring charges of $7 million in Q2 2025 related to Project Fuel were significantly lower than the $55 million in the prior year, indicating the program is moving toward completion while continuing to deliver operational benefits.

Levi Strauss & Co. maintained a strong financial position with healthy liquidity and continued shareholder returns:

• Cash Position: $654 million in cash and cash equivalents as of June 1, 2025
• Total Liquidity: Approximately $1.5 billion including available credit facilities
• Inventory Management: Total inventories increased 15% on a dollar basis, reflecting growth expectations and strategic positioning
• Working Capital: Continued focus on working capital optimization and operational efficiency

Shareholder Returns

• Returned approximately $51 million to shareholders in Q2, an 8% increase over prior year
• Quarterly dividend of $0.13 per share
• Declared increased dividend for Q3 to $0.14 per share, totaling approximately $55 million
• $560 million remaining under current share repurchase authorization with no expiration date
• Plans to use at least $100 million of net proceeds from Dockers® sale for share repurchases

Capital Allocation Strategy

• Balanced approach to growth investment and shareholder returns
• Continued investment in DTC capabilities and brand building
• Strategic focus on higher-return activities and margin expansion
• Disciplined approach to capital expenditures and working capital management

The strong balance sheet provides flexibility to continue investing in strategic initiatives while returning capital to shareholders. The increase in dividend demonstrates confidence in cash flow generation and the sustainability of the business transformation.

Based on strong H1 performance and continued momentum, Levi Strauss & Co. raised its full-year guidance despite the impact of higher tariffs:

Updated Full-Year 2025 Guidance

• Reported net revenue growth: 1% to 2%, raised from previous guidance of (1%) to (2%)
• Organic net revenue growth: 4.5% to 5.5%, raised from previous 3.5% to 4.5%
• Gross margin: Expansion of 80 basis points, from previous expectation of 100 basis points (20 bp impact from tariffs)
• Adjusted EBIT margin: Maintained at 11.4% to 11.6%, up 70 to 90 basis points to prior year
• Tax rate: Maintained at approximately 23%
• Adjusted diluted EPS: $1.25 to $1.30, raised by $0.05 from previous $1.20 to $1.25

Key Assumptions

• U.S. tariffs on imports from China remain at 30% and Rest-of-World at 10% for remainder of year
• No significant worsening of macro-economic pressures on consumers
• No material increases in inflationary pressures or supply chain disruptions
• Continued execution of strategic transformation initiatives

The raised guidance reflects strong execution in the first half of 2025 and confidence in the company’s strategic direction. Despite the 20 basis point impact from tariffs on gross margin expectations, the company maintained its adjusted EBIT margin guidance, demonstrating operational flexibility and pricing power.

The increase in EPS guidance by $0.05 reflects both the strong operational performance and the company’s ability to navigate challenging external conditions through strategic execution and cost management.