Levi Strauss & Co. has been leaning into the direct-to-consumer business for more than a decade, shaking off the constraints of being a men’s jeans brand sold through other retailers.
But after a marketing misstep in the third quarter, chief executive officer Michelle Gass has been reminded anew of the value of a little wholesale diversification.
DTC accounted for 45 percent of Levi’s business in the quarter, but was not as strong as the company expected, growing by just 2 percent — a big step down from organic growth of 8 percent in the second quarter. Within the division, e-commerce sales increased by 10 percent, but comparable sales growth was flat.
Instead it was the wholesale business that carried the quarter with a 6 percent increase.
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While Levi’s had been making a lot of noise about being a DTC-first retailer, in an interview with WWD, Gass emphasized the importance of a broad base and didn’t flinch away from what went wrong in DTC.
The CEO said store traffic waned in both Europe, where the heat waves kept shoppers away, and the U.S., where Levi’s messaging to consumers missed the mark.
“In the U.S., I’d say our back-to-school campaign did not meet our expectations and it didn’t drive the level of traffic and demand we anticipated,” Gass said. “The environment has gotten a lot more competitive. We’ve got a lot of people talking about denim these days, but we take accountability, I think we were out there talking about our loose fits, which still do extremely well, where there was a lot of energy and excitement around low rise for women.
“We just did not have as many big brand driving moments,” she said. “The message was not as relevant as it needed to be. So we acted very quickly. And so toward the end of the quarter leading into this quarter, we pivoted. First, we said, let’s lean into what’s really winning here, which is our low-rise fits. So we put the priority in store in our marketing and messaging around some of our key core fits that are low, low loose, super low, low straight. We increased our media spend. We needed to break through. The tariff refund money has allowed us to do that.”
In 2025, Levi’s went big on the marketing front, wrapping up a yearlong partnership with Beyoncé Knowles-Carter that reframed some of the brand’s best known ads from the past.
Now the brand is rethinking again just how much star power it should have.
Gass said the slowdown in the quarter had the company going back over its marketing strategy for the rest of this year and next.
“We want to make sure that we’ve got the right messages, the right talent. This was just a bit of a speed bump, but I’m confident that we’re going to emerge even stronger as we look at 2027. The consumer moves quickly. We have to move quickly too.”
Looking to turn some lemons into lemonade, Gass said, said the timing was “great because we’re doing it as we get into our most important quarter, which is the holiday season.”
Already the DTC business rebounded in Europe and the switch in marketing emphasis has helped the U.S., leading to a forecast of midsingle-digit growth in the current quarter.
Despite the DTC setback, Levi’s held together well in the third quarter.
Net income from continuing operations rose 38.5 percent to $169 million, factoring out the impact of the Dockers’ business, which was sold to Authentic Brands Group in February.
Levi’s adjusted earnings per share increased to 48 cents from 34 cents a year earlier, coming in 12 cents better than the 36 cents analysts forecast, according to Yahoo Finance.
Gross margins expanded by 450 basis points to 66.2 percent, boosted by a 490 basis point increase from tariff refunds.
Total revenues for the three months ended Aug. 30 increased 4 percent to $1.6 billion, a 5 percent boost on an organic basis.
Harmit Singh, Levi’s outgoing chief financial and growth officer, said: “We made the decision to redeploy a majority of our tariff refund benefit back into the business during [the third and fourth quarters] to support future growth. Reflecting confidence in our outlook, we are raising our full-year profit guidance and plan to initiate a $100 million accelerated share repurchase program.”
Organic revenues are now expected to rise about 6 percent this year, leaning toward the top end of the 5.5 percent to 6 percent gain previously forecast. The adjusted EPS outlook was increased to $1.54 to $1.56 from the $1.46 to $1.52 previously forecast.
While sales continue to grow, Levi’s is being more careful with how much stock it keeps on hand as its inventories were down 3 percent at the end of the quarter.
Investors took the update in stride, trading shares down 2.2 percent to $19.09 in after-hours trading on Wednesday.
