Levi Strauss raises full-year revenue growth outlook to 4.5%-5.5% as DTC-first strategy accelerates
Jul. 10, 2025 10:16 PM ET
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Earnings Call Insights: Levi Strauss & Co. (LEVI) Q2 2025
Management View- Michelle D. Gass stated the company delivered another standout quarter, with sales, margins, and EPS all exceeding expectations. She highlighted, "We saw broad-based revenue growth across channels and categories as well as strong margin expansion driven by the consistent execution of our strategic priorities." Gass pointed to high single-digit organic net revenue growth of 9%, with direct-to-consumer (DTC) up 10% and wholesale up 7%, and emphasized that "our owned and operated channels represent over half of our business." She noted the company is transforming from a denim bottoms business to a full head-to-toe apparel lifestyle brand, narrowing its focus by selling Dockers and exiting Denizen and footwear, and embedding greater discipline across operations and supply chain. Gass also reported that the Levi's brand grew 9% overall, with 6% growth in men’s and 14% in women’s, while tops grew 16% for the quarter.
- Harmit J. Singh said, "We had a strong finish to the first half of '25. In quarter 2, we delivered upside on sales, gross margins, SG&A, EBIT margin and EPS." Singh described DTC EBIT margins increasing approximately 300 basis points in quarter 2 and approximately 400 basis points year-to-date. He added, "We arrive at the midpoint of 2025 in a very strong position with the confidence to raise our full year top and bottom line outlook." Singh called out a record gross margin of 62.6% for the quarter, an 8.3% adjusted EBIT margin, and adjusted diluted EPS of $0.22, up 37% year-over-year.
Outlook- Harmit J. Singh announced, "For the full year, we have increased our expectations for organic net revenue growth by 1 percentage point to 4.5% to 5.5%." He raised reported net revenue growth guidance to 1%-2% for the year, with gross margin expected to expand by 80 basis points to a new record. Full-year EBIT margin guidance was maintained at 11.4%-11.6%. Singh stated, "We are raising our adjusted diluted EPS by $0.05 to between $1.25 to $1.30."
- For the third quarter, Singh guided for organic net revenue growth of 4%-5%, gross margin flat to up 30 basis points, and adjusted EBIT margin in the range of 10.8%-11.2%. Adjusted diluted EPS guidance for Q3 is $0.28 to $0.30.
Financial Results- Net revenue grew 9% in Q2, with DTC up 10%, wholesale up 7%, e-commerce up 13%, and brick-and-mortar up 10%. International revenue was up 10%, while the U.S. rose 7%. Singh highlighted, "We generated a healthy mix of revenue growth with 2/3 driven by higher volume and 1/3 by higher AURs."
- Gross margin reached a record 62.6% of net revenues, expanding 140 basis points year-over-year, attributed to lower product costs and favorable channel mix. Adjusted SG&A expenses were 54.4% of total net revenues, a 50 basis point improvement. Adjusted EBIT margin was 8.3%, up 190 basis points, and adjusted diluted EPS was $0.22, up 37% from the prior year.
- The Americas segment saw net revenues up 9% with operating margin at 20.5%. Europe net revenues were up 15% and operating margin reached 17.2%. Asia net revenues were flat, with onetime actions impacting margins.
- Free cash flow for the quarter was $146 million, return on invested capital was 18%, and the dividend was increased by 8% to $0.14 per share. The company plans to return at least $100 million from the Dockers sale to shareholders via share repurchases.
Q&A- Matthew Robert Boss, JPMorgan: "Could you speak to drivers of the demand strength that you're seeing today? Have you seen any moderation of momentum for the Levi's brand globally to date? And maybe could you help size up market share gains relative to the industry?" Michelle D. Gass responded that the company is seeing broad-based growth across DTC and wholesale, international and U.S., women’s and men’s, with newness driving sales and the brand maintaining its #1 market share position.
- Christopher Michael Nardone, BofA: "Can you help us think about how the margin profile of your DTC business has evolved over the last couple of quarters and where it sits today?" Harmit J. Singh answered, "DTC...is not a drag on EBIT margins anymore. It is actually progressing well. Year-to-date is up 400 basis points to last year."
- Paul Lawrence Lejuez, Citi: "As it relates to the tariff assumptions, I think I heard you say 10% and 30%. Curious where you're planning Vietnam and maybe some of the other countries that we've heard about." Harmit J. Singh clarified the guidance assumes an additional 30% for China and 10% for every other country, quantifying a $0.02 to $0.03 EPS impact for the year.
Sentiment Analysis- Analysts expressed strong interest in growth drivers, margin durability, and the impact of tariffs and pricing, with a generally positive but probing tone, especially regarding sustainability of momentum and regional trends.
- Management maintained a confident and upbeat tone during both prepared remarks and Q&A, repeatedly emphasizing broad-based growth, margin expansion, and successful transformation to a DTC-first model. Gass stated, "The brand has just never been stronger," and Singh affirmed, "We're building a stronger, more focused, higher-performing company."
- Compared to the previous quarter, sentiment from both analysts and management has become more confident, supported by consistent overperformance and raised guidance.
Quarter-over-Quarter Comparison- Guidance was raised for both revenue and EPS, compared to the previous quarter when guidance was held steady amid tariff uncertainty.
- Strategic focus continues to shift toward DTC and lifestyle categories, with management calling out even greater progress in SKU rationalization, margin expansion, and operational rigor.
- The previous quarter included more caution regarding tariffs and macro uncertainty, while the current quarter features specific quantification of tariff impacts and mitigation strategies.
- Key metrics such as gross margin, DTC EBIT margin, and adjusted EPS showed further improvement from the prior quarter, and management’s tone has grown more assertive about sustaining growth.
- Analyst questions have shifted from immediate tariff impacts and supply chain agility to deeper inquiries about structural margin improvements and the durability of the growth algorithm.
Risks and Concerns- Singh addressed the risk of additional tariffs, noting the company’s internal task force and mitigation plans, including "promotion optimization, targeted pricing actions, vendor negotiations and further supply chain diversification."
- Management noted elevated inventory levels in part due to early buying ahead of tariff impacts and Red Sea disruptions, expecting inventories to normalize in line with revenue growth by year-end.
- Macro uncertainty, particularly around tariffs and consumer behavior, continues to be monitored closely.
Final Takeaway
Levi Strauss & Co. reports another quarter of strong sales and margin expansion, driven by DTC growth, international momentum, and progress toward a head-to-toe lifestyle brand. With raised guidance for revenue and EPS, management emphasizes continued discipline, operational rigor, and a robust product pipeline, while navigating tariff headwinds through targeted mitigation strategies. The company reaffirms its confidence in driving consistent, profitable growth and sustaining its market-leading brand position.
Read the full Earnings Call Transcript |
