LEVI Q3 Deep Dive: DTC Growth and International Expansion Offset Margin Pressures

Denim clothing company Levi's (NYSE:LEVI) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 7% year on year to $1.54 billion. Its non-GAAP profit of $0.34 per share was 11% above analysts’ consensus estimates.

Is now the time to buy LEVI? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Levi's third quarter performance surpassed Wall Street revenue and profit expectations, yet the market responded negatively, indicating lingering concerns despite headline outperformance. Management attributed growth to strong direct-to-consumer (DTC) sales, international market acceleration—particularly in Asia—and category expansion, including women's and tops. CEO Michelle Gass emphasized strategic brand partnerships and product newness as key drivers. However, the company acknowledged ongoing margin pressures from tariffs and higher distribution costs, with CFO Harmit Singh noting, "We have implemented a $120 million accelerated share repurchase program and returned $283 million to shareholders year to date," but also highlighting the impact of increased inventory and supply chain transformation.

Looking ahead, Levi's raised its annual profit forecast, reflecting confidence in continued DTC momentum and the resilience of international markets. Management sees further upside from ongoing product innovation, marketing campaigns, and supply chain optimization, while also remaining cautious about macroeconomic complexities and tariff headwinds. Michelle Gass stated, “We have several tailwinds that give me confidence in not only delivering a strong finish to 2025 but also another strong year in 2026,” pointing to the brand’s ability to capture demand across diverse consumer segments and geographic markets. The company aims to balance growth initiatives with disciplined cost management as it navigates a shifting retail landscape.

Key Insights from Management’s Remarks

Levi's management credited broad-based sales gains in DTC, robust international performance, and successful product launches as pivotal to third quarter results, while also outlining ongoing efforts to manage cost pressures and supply chain complexity.

• DTC and e-commerce acceleration: Strong DTC channel growth, up 9%, was fueled by both in-store and online sales, with e-commerce up 16%. Management highlighted higher full-price selling and reduced promotions, supported by new lifestyle assortments and improved store experience.
• International momentum, especially Asia: Nearly 60% of total revenue now comes from international markets. Asia led growth with double-digit gains, driven by investments in brand positioning and a strategic shift towards DTC in countries like Japan.
• Women's and tops expansion: The women's business outpaced overall growth, up 9% in Q3, while the tops category grew 9%. Management emphasized the opportunity to increase tops' share of sales and drive higher units per transaction (UPT).
• Margin drivers and headwinds: Gross margin reached a record 61.7%, aided by favorable mix, targeted pricing, and FX, but partially offset by tariff costs. CFO Harmit Singh noted that supply chain transformation and higher distribution expenses remain near-term margin headwinds.
• SKU rationalization and productivity: The company reduced SKUs by 15% year-over-year, driving 20% improvement in SKU productivity. This simplification, along with tighter global assortments, supports better inventory management and higher profitability.

Drivers of Future Performance

Levi's outlook centers on sustaining DTC and international growth while managing macro and tariff risks, with margin improvement hinging on continued product mix and operational discipline.

• DTC-first expansion: Management aims to further grow DTC sales, targeting increased store count and digital penetration, with e-commerce expected to reach 15% of total business. Enhanced store productivity and consumer engagement remain focal points.
• Tariff and supply chain mitigation: The company is countering tariff headwinds through pricing actions, supply chain diversification, and vendor negotiations. While gross margins are projected to expand in the long run, near-term pressure from tariffs and distribution transformation is expected.
• Product innovation and assortment strategy: New product launches, premium offerings like Blue Tab, and lifestyle-focused assortments are intended to drive demand across genders and categories. Management sees these as levers to attract new customers and boost average unit retail (AUR) without relying on deep promotions.

Catalysts in Upcoming Quarters

Moving forward, the StockStory team will be monitoring (1) the pace of DTC expansion and e-commerce penetration, (2) the effectiveness of tariff mitigation and supply chain transformation efforts on margins, and (3) sustained international growth, particularly in Asia and Europe. New product launches, especially in tops and women’s categories, as well as performance during the holiday season, will also be critical indicators of Levi's execution and future trajectory.

Levi's currently trades at $22.65, down from $24.53 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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