10-Q: Levi Strauss & Co. Q2 2026 Earnings Show Revenue Growth

Levi Strauss & Co. reported an 8.0% increase in net revenues for the second quarter of fiscal year 2026, driven by strong performance in the Americas and Asia regions, and growth in both direct-to-consumer and wholesale channels.

Summary

• Levi Strauss & Co. reported net revenues of $1,562.0 million for the three months ended May 31, 2026, an increase of 8.0% compared to $1,446.0 million in the prior year period. For the six months ended May 31, 2026, net revenues increased by 11.2% to $3,304.5 million from $2,972.8 million in the prior year period.
• Net income from continuing operations for the second quarter of 2026 was $94.8 million, an increase from $79.6 million in the prior year quarter. Diluted earnings per share from continuing operations were $0.24, up from $0.20 in the prior year.
• The company's operating margin for the second quarter of 2026 was 7.8%, an improvement from 7.5% in the prior year quarter.
• The sale of the Dockers business was completed in the first quarter of 2026, with the final closing on February 27, 2026. The Dockers business is reported as discontinued operations.
• The company repurchased approximately $200 million of its Class A common stock through an accelerated share repurchase agreement initiated in January 2026, with final settlement expected in the third quarter of 2026.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a positive report, with strong revenue growth and improved profitability, although rising SG&A and restructuring charges warrant monitoring.

Positives

• Consolidated net revenues increased by 8.0% to $1,562.0 million for the quarter and 11.2% to $3,304.5 million year-to-date, driven by growth in Americas and Asia, and both DTC and wholesale channels.
• Net income from continuing operations increased by 19.1% to $94.8 million for the quarter and 23.7% to $271.9 million year-to-date.
• Diluted earnings per share from continuing operations increased to $0.24 for the quarter and $0.69 year-to-date.
• Operating margin improved to 7.8% in the second quarter of 2026 from 7.5% in the prior year quarter.
• Adjusted EBIT increased by 18.4% to $141.2 million for the quarter and 11.0% to $359.0 million year-to-date.
• The company has adequate liquidity, with $1.8 billion in unused availability, cash, and short-term investments as of May 31, 2026.
• The company declared a cash dividend of $0.16 per share for the upcoming quarter.

Negatives

• Selling, general and administrative expenses (SG&A) increased by 6.6% to $843.4 million for the quarter and 11.3% to $1,715.1 million year-to-date, outpacing revenue growth in some areas.
• Restructuring charges increased significantly to $13.5 million for the quarter and $21.4 million year-to-date, primarily related to cost reduction initiatives and global shared services expansion.
• Interest expense increased by 9.3% to $12.9 million for the quarter and 14.5% to $26.0 million year-to-date.
• The effective income tax rate for the six-month period increased to 22.4% from 21.2% in the prior year, primarily due to a lower foreign-derived intangible income benefit.

Risks

• Reciprocal tariffs and retaliatory actions by other countries create an uncertain environment for global trade, potentially increasing inventory costs and reducing gross margins.
• The current domestic and international political environment, including trade relations and military conflicts, creates uncertainty in the global economy, affecting consumer sentiment, demand, and production costs.
• Transitioning to third-party logistics providers has caused and may continue to cause interruptions, shipping delays, order cancellations, and increased costs.
• Macroeconomic pressures such as inflation, energy prices, and recession fears create a challenging retail environment, potentially reducing discretionary spending.
• Foreign currency volatility, particularly against the Mexican peso and Australian dollar, can adversely impact financial results, revenue, operating margins, and net income.
• Evolving global tax legislation, including Pillar Two and the One Big Beautiful Bill Act, creates uncertainty.
• Increased stakeholder focus on ESG practices, including climate change and social issues, may impact reputation and financial results.
• Potential for future non-cash asset impairment charges, including to goodwill, operating right-of-use assets, and other store assets.
• Risks associated with managing inventory and supply chain, including the ability of business partners to meet obligations and operational challenges at distribution centers.
• Consequences of impacts to wholesale customers, such as store closures or financial distress, due to economic conditions and changing consumer preferences.
• Potential for data security breaches.
• Climate change and the increasing frequency and severity of weather events could impact consumer traffic, demand, and operations of suppliers and manufacturers.

Future Outlook

The company expects to continue reinvesting in its business, returning capital to stockholders through dividends and share repurchases, and pursuing strategic acquisitions. They aim to return 55-65% of Adjusted free cash flow to stockholders. Capital investments will focus on new stores, distribution capacity, and technology.

Management Comments

• Consolidated net revenues increased 8.0% on a reported basis and 5.7% on an organic net revenues basis compared to the second quarter of 2025 reflecting net revenue growth driven by Americas and Asia and in both DTC and wholesale channels.
• Compared to the second quarter of 2025, consolidated net income from continuing operations increased to $94.8 million from $79.6 million. The increase was primarily driven by higher gross profit, partially offset by higher selling, general and administrative expenses (SG&A).
• Compared to the second quarter of 2025, Adjusted EBIT increased 18.4% to $141.2 million from $119.3 million primarily driven by higher gross profit, partially offset by higher SG&A.
• Consolidated net revenues increased 11.2% on a reported basis and 7.5% on an organic net revenues basis compared to the first six months of 2025. Net revenues grew across all regions and in both our DTC and wholesale channels.
• Compared to the first six months of 2025, consolidated net income from continuing operations increased to $271.9 million from $219.8 million, primarily due to higher gross profit and a legal settlement gain, partially offset by higher SG&A and higher income taxes.

Industry Context

StockSavvy.ai notes that Levi Strauss & Co.'s performance reflects broader trends in the apparel industry, with a continued emphasis on direct-to-consumer channels and resilience in key international markets like Asia. The company's ability to navigate global trade uncertainties and inflationary pressures while driving revenue growth positions it within a competitive landscape.

Comparison to Industry Standards

• Levi Strauss & Co.'s reported revenue growth of 8.0% for the quarter is generally in line with or slightly above the mid-single-digit growth observed in many established apparel brands, though specific segment performance varies.
• The company's gross margin of 62.7% for the quarter is strong and competitive within the premium denim and casual wear sector, often exceeding that of fast-fashion retailers.
• The direct-to-consumer (DTC) channel's increasing share of revenue (52% of total net revenues for the quarter) aligns with the industry-wide shift towards higher-margin DTC sales, a strategy employed by many leading apparel companies like Nike and Adidas.
• The company's focus on international markets (60% of net revenues year-to-date) reflects a common strategy for global apparel brands seeking growth beyond mature domestic markets.

Management Changes

Legal Proceedings

• The company is involved in various claims, complaints, and pending cases, including contractual matters, facility and employee-related matters, distribution matters, product liability matters, intellectual property matters, bankruptcy preference matters, and tax and administrative matters. The company does not believe these will have a material impact on its financial condition.
• The company has various pending audit assessments related to customs laws and regulations, for which it has recorded immaterial estimated liabilities. The company does not believe these will have a material impact on its financial condition.
• A U.S. Supreme Court ruling invalidated tariffs imposed under the International Emergency Economic Powers Act (IEEPA). The company estimates it paid approximately $80 million under these tariffs and is seeking refunds, though recovery for further phases is uncertain as of May 31, 2026.

Related Party Transactions

• Donations to the Levi Strauss Foundation by the Company were $0.4 million and $8.1 million for the three and six months ended May 31, 2026, respectively.
• Expenses recognized by the Company related to donation commitments to the Levi Strauss Foundation were $2.5 million and $5.1 million for the three and six months ended May 31, 2026, respectively.

Stakeholder Impact

• Shareholders: Increased revenue and net income, along with a declared dividend, are positive for shareholders. Share repurchases also aim to enhance shareholder value.
• Employees: Restructuring charges indicate potential impacts on employees through severance and post-employment benefits.
• Suppliers: The supplier finance program allows suppliers to receive earlier payment, while the company's payment obligations remain unchanged.
• Creditors: The company's strong liquidity position and compliance with debt covenants are positive for creditors.

Next Steps

• Continue to reinvest 3.5-4% of revenue in capital for growth opportunities.
• Return 55-65% of Adjusted free cash flow to stockholders via dividends and share repurchases.
• Pursue high return on investment acquisitions.
• Repurchase shares to offset dilution or for opportunistic buybacks.
• Final settlement of the accelerated share repurchase transaction is expected in the third quarter of 2026.

Key Dates

Recommendation

Levi Strauss & Co. demonstrates solid revenue growth and improved profitability, driven by strategic channel and geographic expansion. However, rising SG&A expenses, increased restructuring charges, and ongoing global economic and trade uncertainties present headwinds. While the company's brand strength and capital allocation strategy are positive, the current environment warrants a cautious 'hold' rating until these challenges are more clearly mitigated.

Keywords

Levi Strauss & Co., 10-Q, Quarterly Report, Financial Results, Net Revenues, Net Income, Earnings Per Share, Operating Income, DTC, Wholesale, Americas, Europe, Asia, Beyond Yoga, Dockers, Share Repurchase, Dividends, Restructuring Charges, Tariffs, Foreign Currency