Levi's raised its margin guide on a tariff refund while direct sales slowed to 2.3%

Most of the margin gain is a tariff refund

At its October results call Levi Strauss raised its full-year profit guide to an adjusted EBIT margin of about 12.1%. In the August 2026 quarter the margin was 15.5%, against 11.8% a year earlier, and most of the gain came from a refund of tariffs paid, counted net of what the company chose to spend back.

Net is the operative word. The company is putting most of the refund, about $60 million of roughly $80 million, back into marketing, distribution and promotions: $25 million in the third quarter and about $35 million planned for the fourth. That let it raise the guide and also cover a shortfall in direct sales. Singh put it this way: "tariff refunds were timely. The business, as Michelle mentioned, soften, especially on DTC and women's and we acted with agility and speed".

Without the refund the year guide is a shade lower

Take the refund out and the quarter was about 12.2% by our arithmetic, a little above the company's own guide from July. The full-year figure moved the other way. The new guide holds about 0.3 point of net refund, so the underlying figure is about 11.8% by our arithmetic, below July's guide. The raise is the refund.

Direct sales slowed where growth was meant to come from

In July the company guided direct-to-consumer sales, through its own stores and websites, to a mid-to-high single-digit pace for the rest of the year. They grew 2.3%. The channel is nearly half of sales so the miss matters more than its size. Management blamed warm weather in Europe and a back-to-school campaign built around loose fits just as US buyers moved to low-rise styles, and said September improved.

Total sales growth slowed in each of the last two quarters, though a shift of European shipments between the first and second quarters of last year flattered the 14.1% quarter and held down the one after it, so neither is a clean trend point; adjusted for it, growth still slowed each quarter, to about 11.9% and 10.3% by our arithmetic, then 4.3%. Wholesale did the lifting. The company now guides it to mid-single digits for the year, up from low single digits in April; Singh said July's wording was low to mid.

The fourth-quarter guide is for direct sales to grow at least at a mid-single-digit rate, and for the year at a high single-digit rate. "At least" has no ceiling. By our arithmetic, if high single digit means 7% or more for the year, the fourth quarter has to grow at about that rate, above the mid-single-digit rate guided for the quarter. That rests on our estimate of last year's fourth-quarter direct sales, a base we estimated.

The distribution saving moved out to next year

Levi's has been moving its US shipping to a third-party operator while running its own centre in parallel. A year ago it expected the parallel running to end early in the year. In July it said it would close the Hebron centre by the end of the quarter, and expected distribution cost in the second half to be better than in the first, mostly in the fourth quarter. Now Hebron has closed, the savings come next year, and this year is the peak of transition cost. Adjusted SG&A, a non-GAAP measure that leaves out restructuring-related charges ($18.8 million this quarter, including some distribution-centre transition costs), rose as a share of sales.

What the next finance chief inherits

Harmit Singh gave his last call as chief financial and growth officer; John Vandemore, most recently CFO of Skechers, succeeds him. Singh was plain about the base. Asked about next year, he said: "Our view is, all in, 12.1, we will lap that going forward. So that's our new base." That base holds some refund that will not recur, so lapping it is a harder hurdle than lapping the underlying figure, by our arithmetic. Singh argued that advertising above its usual share of sales and the duplicate distribution centres will not repeat next year. That is a claim, not a result.

The plan for next year belongs to the chief executive, Michelle Gass, and Vandemore, and is due early in the new year. Singh said it is not complete, and the new team did not say on this call whether it will frame it as he did. The next report will show whether direct sales reached at least mid-single-digit growth in the fourth quarter, and where the margin landed against the guided range.

Given the refund, this company spent $25 million of it back into the business in one quarter and plans more in the next. What it does in a year with no refund is the part still to be seen.