Levi Strauss Q3 FY2026 Earnings: A $79M Tariff Refund Inside a 66.2% Gross Margin

Levi Strauss reported fiscal third-quarter revenue of $1,609.7 million on October 7, 2026, up 4.3%, with a gross margin of 66.2%, up 450 basis points, and operating income up 32.8% to $222.3 million. One line explains most of that gap between a 4% top line and a 33% profit gain: $78.6 million of refunded tariffs, booked as a reduction of cost of goods sold. Take the refund out and gross margin was about 61.3%, slightly below last year's 61.7%. Management raised its full-year margin and earnings outlook and trimmed reported revenue growth to the bottom of the old range.

The Headline Numbers​

Levi's fiscal year ends on the Sunday closest to November 30, so the third quarter of fiscal 2026 covers the 13 weeks ended August 30, 2026. Every figure below comes from the Form 10-Q and the earnings release.

Two rows need a note. Reported net income fell 22.7% because the prior-year quarter included a $96.1 million gain from discontinued operations, the sale of the Dockers business; on a continuing basis net income rose 38.2%. And the last two rows are our arithmetic, not the company's: they subtract the $78.6 million refund from gross profit and operating income and divide by the same revenue. The 10-Q gives the matching figure, saying the refund "drove 490 basis points of gross margin expansion."

The refund is real money, and $57.1 million of it had been received in cash by quarter end. It is also money for tariffs paid in earlier periods, so it says nothing about what a pair of jeans cost to make and sell in the summer of 2026. The quarter has to be read twice: once as reported and once without the refund.

Revenue Deep Dive​

The Q2 post ended on a test. Direct-to-consumer (DTC) had grown 11% and wholesale 5%, and the question was whether wholesale would hold. It did. The surprise came from the other side.

Wholesale grew 6.0% and DTC grew 2.3%. DTC comparable sales were up 0.4%, against high-single-digit growth in the same quarter a year earlier and 6% in Q2. DTC's share of revenue was 45.2%, down from 46.1% in Q3 FY2025. The chief executive said so directly in the release: "our direct-to-consumer business fell short of our internal expectations."

The 10-Q locates the shortfall in stores, not online. E-commerce revenue grew 10%. In the Americas, DTC growth from new stores and e-commerce was "largely offset by slower traffic in our company-operated stores." In Europe, DTC revenue fell 2.0% to $208.7 million "primarily due to lower store performance driven by softer traffic." Asia was the exception, with DTC up 8.3% to $154.8 million on store performance and expansion.

Wholesale growth came more from price than from volume. The 10-Q says Americas wholesale revenue "increased due to price increases partially offset by a slight decrease in volume," and that Asia's wholesale increase "was primarily due to price increases." Europe is the one region where wholesale grew on "higher volumes," up 9.4% to $233.4 million.

Management's forward statement is about demand returning. The release says the company is "encouraged by the strength we are seeing heading into the holiday season, including in the U.S." and that "our DTC business is on track to deliver mid-single-digit growth in the fourth quarter." That is a forecast. The quarter's own numbers show flat comparable sales and a U.S. business down 1%.

The Margin Story​

A 66.2% gross margin is the highest in the ledger by more than three points, and the mechanics are simple. Cost of goods sold fell 8.1% to $543.9 million while revenue rose 4.3%. The refund accounts for $78.6 million of that. Without it, cost of goods sold would have been $622.5 million, up 5.2%, a little faster than revenue.

The company spent part of the refund on purpose. The release says it "redeployed" tariff refunds into "additional promotion and marketing expenditures," adding $25 million of expense in the quarter: $19 million that reduced gross margin and $6 million in SG&A. Add that $25 million back to the ex-refund figure and operating margin is about 10.5%, still below last year's 10.8%. On either reading, the underlying margin did not expand.

The reason is below gross profit. SG&A grew 7.8% on 4.3% revenue growth and reached 51.9% of revenue, from 50.3%. Selling expense rose 6.9%, and the 10-Q ties the higher ratio to "lower revenues in our company-operated stores due to slower traffic": the store base grew, with 42 more company-operated stores in the Americas than a year earlier, and sales through it did not keep pace. Advertising rose 11.1%, distribution 11.9%. Corporate expenses rose 19.0% to $158.1 million.

Pricing helped the top line, as the wholesale commentary shows, but the filing credits "lower product costs," not price, for the gross margin gain outside the refund. Currency took about 70 basis points off gross margin.

The One Big Question: Is the Guidance Raise Holding?​

In July, Levi raised its full-year reported revenue growth outlook to 7.0–7.5%. Three months later the outlook moved again, in two directions.

On revenue, the raise held at its low end. Reported growth went from a range to its bottom, which the company attributes to foreign exchange, and organic growth went to the top of its range. The implied fourth quarter is modest. Fiscal 2025 revenue was $6,282.0 million, so 7.0% growth is about $6.72 billion. Nine-month revenue is $4,914.2 million, which leaves roughly $1.81 billion for Q4 against $1,765.8 million a year earlier. That is growth of 2% to 3%, after 8.8% in the first nine months. "Approximately" covers a wide band here, since each tenth of a point of full-year growth is about $6 million of Q4 revenue.

On profit, the raise is mostly the refund. The gross margin outlook rose by 120 basis points. Tariff refunds recorded in the first nine months total $80.7 million, which is about 1.2% of $6.72 billion. The two numbers match. The company also says it is redeploying about $60 million of refunds for the full year, including about $35 million in the fourth quarter. That is roughly 90 basis points of spending back out. Refunds of 120 basis points less 90 of redeployment would leave about 30, and the adjusted EBIT margin outlook rose by 10. The arithmetic is ours and rounded, but it does not show an underlying business running ahead of the July plan.

The adjusted EPS range of $1.54 to $1.56 less the $1.19 earned in nine months leaves $0.35 to $0.37 for the fourth quarter. The company put the third-quarter refund benefit at $0.16 per share, or $0.11 after redeployment.

So the answer is split. The revenue raise is intact, narrowly. The profit raise is a one-time item that management chose to spend partly on marketing and promotion and partly on a higher earnings number. The 10-Q adds that the company "continues to assess loss recovery on tariff refunds under future phases," so further refunds are possible and not yet recorded.

Tracking a $6.3B company in plain text​

A double-entry ledger makes a one-off visible, because it has to be posted somewhere. The transaction below is the quarter as pushed to open_ledger/levi-strauss, following how we model every company. Income is negative and expenses are positive, and the check line proves they sum to zero.

; FY2026Q3 Income Statement — 13 weeks ended August 30, 2026
; Check: -1609.7 + 622.5 - 78.6 + 0 + 835.9 + 7.6 + 12.9 - 6.0 - 4.7 + 51.5 + 168.6 = 0 ✓
 
2026-08-30 * "Levi Strauss & Co." "FY2026Q3 Income Statement"
  Income:Revenue                         -1609.7 MUSD
  Expenses:CostOfRevenue                   622.5 MUSD  ; cost of goods sold before the tariff refund (filed 543.9 + 78.6)
  Expenses:CostOfRevenue                   -78.6 MUSD  ; Note 10: IEEPA tariff refunds recorded as a reduction of cost of goods sold
  Expenses:ResearchAndDevelopment               0 MUSD  ; not separately disclosed
  Expenses:SellingGeneralAdministrative    835.9 MUSD
  Expenses:OtherNet                         7.6 MUSD  ; restructuring charges, net
  Expenses:OtherNet                        12.9 MUSD  ; interest expense
  Income:OtherNet                          -6.0 MUSD  ; other income (expense), net, excluding refund interest (filed 10.7 - 4.7)
  Income:OtherNet                          -4.7 MUSD  ; Note 14: interest income on IEEPA tariff refunds
  Expenses:IncomeTax                       51.5 MUSD
  Equity:Adjustments                      168.6 MUSD  ; net income offset (RE set by balance assertion)

The refund appears twice, each time as its own posting: $78.6 million against cost of revenue and $4.7 million of interest in other income. The two CostOfRevenue lines sum to the $543.9 million the filing reports, so the ledger ties to the 10-Q while keeping the one-off readable. Delete the two refund lines and you have the quarter without it.

The balance sheet carries the other half of the story. In Q2 we said to watch inventory, and that a rebuild past $1.3 billion would mean the growth had been channel fill. Inventory at August 30 was $1,253.6 million. That is up $96.0 million from the end of Q2, a normal build ahead of the holiday quarter, and the release says inventories were down 3% from a year earlier. The test passed.

The line that moved more is trade receivables: $745.2 million, up $159.0 million from $586.2 million at the end of Q2. Wholesale customers pay on terms and shoppers in Levi's own stores pay at the register, so receivables rise when the mix shifts toward wholesale. Some of the increase is seasonal. It is also what a wholesale-led quarter looks like on the balance sheet.

The Multi-Year Arc​

* FY2024 DTC was 46% as filed including Dockers; the FY2025 10-K restates it to 47% on the continuing-operations basis. Each ledger year keeps its own 10-K's as-filed presentation.

For five years the story in this table was one direction: DTC share up from 36% to 49%. The third quarter is a pause in that line. DTC share is seasonally lower in Q3 than in Q2, so 45% against 51% overstates the change; the fair comparison is 46.1% a year earlier, and on that basis the share slipped by about a point. Through nine months DTC is still 49% of revenue and up 9.8%.

The capital story is steadier. Operating cash flow for nine months was $585.2 million, more than double the $262.8 million of the prior-year period, on higher collections and lower inventory spending. The company returned $169.3 million in dividends and $201.0 million through an accelerated share repurchase over those nine months, and says it plans another $100 million repurchase. It had no borrowings on its credit facility, and long-term debt of $1,043.6 million against $779.3 million of cash and short-term investments.

The Verdict: Bull vs. Bear​

Bull Case

• Wholesale held and then some: up 6.0% to $882.3 million, with growth in every segment. The Q2 worry that wholesale growth was borrowed did not come true.
• Inventory is under control: $1,253.6 million, down 3% year over year on revenue up 4.3%.
• Cash is real: nine-month operating cash flow of $585.2 million, including $57.1 million of refunds already received.
• International is carrying growth: Asia up 10% organic, Europe up 5% organic, with Asia DTC up 8.3%.
• Management is forecasting a recovery: the release cites "strength we are seeing heading into the holiday season, including in the U.S." and mid-single-digit DTC growth in Q4.

Bear Case

• The margin gain is the refund: excluding $78.6 million, gross margin was about 61.3% against 61.7%, and operating margin about 8.9% against 10.8%.
• DTC stalled: comparable sales up 0.4%, U.S. revenue down 1%, and store traffic called "slower" or "softer" in two regions. The holiday strength is a forecast the quarter does not yet support.
• Costs are growing faster than sales: SG&A up 7.8% and corporate expenses up 19.0% on revenue up 4.3%.
• Implied Q4 revenue growth is 2% to 3%: the full-year reported outlook settled at the bottom of July's range.
• Price is doing the work in wholesale: Americas wholesale grew on price with "a slight decrease in volume." Price-led growth has a limit that volume-led growth does not.

Our Take

The Q2 raise held on revenue and was overtaken on profit by an item that has nothing to do with selling jeans. We would not pay for the 66.2% gross margin or the 13.8% operating margin; neither repeats. The number that matters from this quarter is DTC comparable sales of 0.4%, because the five-year margin story in the ledger rests on that channel growing faster than wholesale, and this quarter it grew slower. Management says the fourth quarter is already better. That is checkable in January. If DTC returns to mid-single-digit growth and SG&A falls back toward 50% of revenue, the third quarter was a soft patch covered by a windfall. If not, the refund hid the first quarter in years in which Levi's best channel stopped pulling the rest of the business forward. We lean cautious until the Q4 ledger entry is written.