LEVI — Levi Strauss & Co.

Summary of Levi Strauss & Co. Q4 2025 Earnings Call

1. Key Financial Results and Metrics:

• Q4 Revenue Growth: Total revenues increased by 5%, following an 8% growth in the prior year.
• Full-Year Revenue Growth: Organic net revenue growth of 7% for 2025, with the Levi's brand also growing by 7%.
• Gross Margin: Q4 gross margin was 60.8%, down 100 basis points year-over-year, primarily due to tariffs.
• Adjusted EBIT Margin: Adjusted EBIT margin contracted to 12.1%, down 180 basis points, influenced by tariffs and increased SG&A costs.
• Adjusted Diluted EPS: Q4 adjusted diluted EPS was 41 cents, exceeding expectations despite a 3-cent headwind from a higher tax rate.
• Shareholder Returns: Returned $55 million in Q4 and $363 million for the year, including a 7% increase in dividends.

2. Strategic Updates and Business Highlights:

• DTC Transformation: Direct-to-consumer (DTC) sales grew 10% in Q4, now representing about half of total business, with significant margin expansion.
• Product Pipeline: Launched a robust head-to-toe product pipeline, with notable growth in women's tops (up 11%) and a successful rollout of the premium Blue Tab collection.
• International Growth: International business grew 8% in Q4, with strong performance in Europe and Latin America.
• AI Integration: Leveraging AI to enhance e-commerce and in-store experiences, including the launch of an AI-powered outfitting feature in the Levi's app.

3. Forward Guidance and Outlook:

• 2026 Revenue Growth: Anticipating organic net revenue growth of 4-5%, with reported growth of 5-6% including favorable foreign exchange impacts.
• DTC Growth Expectations: DTC expected to grow high single digits, with plans to open 50-60 new stores.
• Margin Expectations: Gross margin expected to be flat year-over-year, with initiatives to mitigate tariff impacts through pricing and cost reductions.
• Adjusted EBIT Margin: Expected to expand by 40-60 basis points in 2026, with adjusted diluted EPS projected between $1.40 and $1.46.

4. Bad News, Challenges, or Points of Concern:

• Tariffs Impact: Continued tariff impacts are expected to affect gross margins, with a projected 150 basis points headwind.
• Wholesale Channel Challenges: US wholesale is expected to be flat to slightly up due to rationalization of non-strategic accounts, which may limit growth in this channel.
• Distribution Network Delays: Transition to a new distribution center in the US has taken longer than anticipated, leading to higher transitory costs.
• SG&A Costs: Adjusted SG&A dollars grew by 2.6%, driven by higher selling expenses and costs related to the distribution network transition.

5. Notable Q&A Insights:

• Gross Margin Discussion: Analysts questioned the guidance for flat gross margins; management indicated confidence in offsetting tariff impacts through pricing and improved product mix.
• DTC Margin Potential: Michelle Gass emphasized the potential for DTC margins to increase through sales productivity and improved operational capabilities.
• Wholesale Strategy: Management reiterated the importance of wholesale as a complementary channel, with positive sell-through rates in strategic accounts.
• Supply Chain Improvements: Progress in shortening go-to-market timelines and enhancing global consistency in product development was highlighted as a key focus area.

Overall, Levi Strauss & Co. reported solid financial performance in Q4 2025, driven by a strong DTC strategy and product innovation, while navigating challenges related to tariffs and distribution transitions. The company remains optimistic about growth prospects for 2026, despite some headwinds.