Levi Strauss & Co. (LEVI) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates solid financial performance, with strong DTC momentum and broad-based growth. The Q&A section reveals confidence in sustaining growth despite macro uncertainties, with conservative guidance due to prudence. The company's strategic focus on AI, loyalty programs, and premiumization supports positive sentiment. Although some management responses were vague, the overall sentiment remains positive, driven by growth in key segments and channels, and a strong product pipeline. The absence of a market cap suggests a neutral market reaction, but the positive outlook suggests a 2% to 8% stock price increase.
Key Financial Performance
Organic net revenue growth Up 9% year-over-year, driven by double-digit growth in Europe and Asia, and 7% growth in the Americas. Reasons include strong demand across regions and channels.
DTC channel growth Up 10% year-over-year with comp sales up 7%. Reasons include strong underlying demand and improved retail execution.
Wholesale channel growth Up 8% year-over-year, fueled by strength across segments.
Women's growth Up 13% year-over-year. Reasons include accelerated growth in women's categories.
Men's growth Up 7% year-over-year. Reasons include strong performance in men's categories.
Tops growth Up 13% year-over-year. Reasons include the evolution into a head-to-toe lifestyle brand.
Adjusted EBIT margin 12.5% for the quarter, exceeding expectations. Reasons include improved flow-through and disciplined cost management.
Adjusted diluted EPS $0.42, up 11% year-over-year. Reasons include higher revenue and improved profitability.
Gross margin 61.9%, contracting 20 basis points year-over-year. Reasons include tariffs, partially offset by pricing actions and lower promotional activity.
Inventory Up 4% year-over-year. Reasons include preparation for the spring season.
International business growth Up 12% year-over-year. Reasons include strong performance in Europe and Asia.
E-commerce growth Up 17% year-over-year. Reasons include an elevated online experience and younger consumer engagement.
Loyalty program membership 46 million members globally, up 17% year-over-year. Reasons include increased consumer engagement.
Signature brand growth Up 16% year-over-year. Reasons include revitalization through product and brand reset.
Beyond Yoga growth Up 23% year-over-year. Reasons include strong DTC momentum and broader product offerings.
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Operating Highlights
New Product Launches: Introduced modern interpretations of iconic 501 jeans, including 501 '90s, 501 Curve for her, 501 Loose, and 501 Thermodapt. Expanded fashion-forward fits like Cinch Baggy and Baggy Barrel Fit. Tops and dresses also saw growth with new styles like polos, button downs, and quarter zips.
Lifestyle Expansion: Continued push into categories beyond denim, with tops contributing to 1/3 of growth. Dresses and lifestyle pieces like shorts and jorts were emphasized for spring and summer.
Premium Denim: Blue Tab premium denim line expanded with more women's products and lifestyle pieces, targeting the $10 billion premium denim market.
International Growth: Europe and Asia delivered double-digit growth, with Europe up 10% and Asia up 12%. Italy revenues nearly doubled since 2021, and Levi's strengthened its #1 share in denim bottoms in the region.
U.S. Wholesale: U.S. wholesale grew 4%, with LatAm showing 14% growth. Wholesale channel exceeded expectations globally, up 8%.
Digital Engagement: E-commerce grew 17%, with 70% of new U.S. e-commerce orders from Gen Z and millennials. Loyalty program reached 46 million members globally, up 17% year-over-year.
Operational Efficiencies: Improved in-stock positions, better assortment planning, and a new global selling model enhanced retail execution. AI initiatives and tighter SG&A discipline improved productivity.
Distribution Network: U.S. distribution network transformation progressing, with costs expected to normalize by midyear. European distribution center ramp-up impacted timing of shipments.
DTC-First Strategy: Direct-to-consumer (DTC) business grew 10%, marking the 16th consecutive quarter of positive comps. DTC now represents about half of the business.
Portfolio Focus: Sale of Dockers brand completed to sharpen focus on Levi's and Beyond Yoga. Beyond Yoga grew 23%, narrowing operating losses and expanding gross margins.
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Risk or Challenges
Leadership Transition: The planned retirement of Harmit Singh, the Chief Financial and Growth Officer, could pose risks related to leadership continuity and strategic execution during the transition period.
Tariffs and Regulatory Uncertainty: The company faces risks from incremental U.S. tariffs on imports from China and other regions, which could impact costs and profitability. The uncertainty around the Supreme Court ruling and potential reimposition of tariffs adds to this challenge.
Macroeconomic Environment: The company remains cautious about the external macroeconomic environment, which could impact consumer demand and overall business performance.
Distribution Network Transformation: The ongoing transformation of the U.S. distribution network involves execution risks and additional costs, which could affect operational efficiency and profitability in the short term.
Inventory Management: While inventory levels are currently deemed comfortable, any mismanagement or shifts in consumer demand could lead to excess inventory or stockouts, impacting financial performance.
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Guidance & Outlook
Revenue Growth: For the full year, Levi Strauss & Co. expects reported growth to be up 5.5% to 6.5% and organic revenue to be up 4.5% to 5.5%. For Q2, reported revenues are expected to increase by 4% to 5%, with organic growth of 3% to 4%.
Gross Margin: Gross margin for the full year is now expected to be flat to slightly up compared to the prior year. For Q2, gross margin is expected to be slightly down due to unfavorable foreign exchange.
Adjusted EBIT Margin: The company expects adjusted EBIT margin for the full year to be approximately 12%, up from the previous expectation of 11.8% to 12%. For Q2, adjusted EBIT margin is expected to be in the range of 8% to 9%.
Adjusted Diluted EPS: Full-year adjusted diluted EPS is now expected to be approximately $1.42 to $1.48, up from the previous guidance of $1.40 to $1.46. For Q2, adjusted diluted EPS is expected to be approximately $0.22 to $0.24.
H2 Margin Expansion: The company anticipates accelerated margin expansion in the second half of the year due to normalization of A&P expenses, higher fixed cost leverage from increased volume, realization of pricing actions, and lower distribution expenses.
Wholesale Channel: Global wholesale is now expected to grow low single digits for the full year, driven by stronger-than-expected performance in the U.S. wholesale channel.
DTC Growth: The direct-to-consumer (DTC) business continues to grow, with 10% growth in Q1 and expectations for it to remain a significant growth driver.
International Markets: Europe is expected to grow mid-single digits in the first half of the year, with prebook for the fall and winter season up high single digits. Asia showed strong growth in Q1, and China is beginning to show early progress under new leadership.
Tariff Impact: The guidance assumes incremental U.S. tariffs on imports from China at a 30% rate and the rest of the world at 20%. If the current 10% tariffs remain, there could be an incremental benefit of approximately $35 million to COGS and $0.07 to EPS.
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Shareholder Return Plan
Dividend Declaration: In Q2, a dividend of $0.14 per share was declared, marking an 8% increase year-over-year.
Share Repurchase: Shareholder returns through share repurchases totaled $214 million in Q1, reflecting a 163% increase.
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Key Q&A
Q:What is driving the momentum in the business and how confident are you in sustaining it, especially with the uncertain macro backdrop in Europe and North America?
A:The momentum is driven by strong execution of strategies, including a pivot to denim lifestyle and becoming a best-in-class DTC retailer. Growth was broad-based across segments, channels, genders, and categories. The company is confident in sustaining momentum due to consumer response to innovation, newness, and value, despite the uncertain macro environment.
Q:How should we think about distribution expenses and overall expenses for the balance of the year to achieve the 1H, 2H operating margin?
A:SG&A as a percentage of revenue is expected to be around mid- to high 49%, lower than a year ago. Distribution costs are expected to taper off as the year progresses, with improvements in flow-through and profitability conversion.
Q:Why wasn't the guidance higher given the momentum and better numbers posted?
A:The guidance is conservative due to prudence early in the year and the uncertain environment. The company has not incorporated potential tariff reductions, which could provide a cushion if the environment changes.
Q:What drove the beat in U.S. wholesale and do you expect the momentum to continue?
A:The beat was driven by strong growth in women's and tops categories, with wholesale partners buying more of these products. The company sees a long runway for growth in underpenetrated areas like women's and tops in wholesale.
Q:What are your thoughts on denim momentum and how are loyalty, AI, and personalization being leveraged?
A:The denim category remains healthy and is accelerating in the U.S. The company is leveraging AI tools for consumer engagement and has acquired 2 million consumers through its loyalty program in the quarter.
Q:Can you clarify the commentary on Europe in the second quarter and expectations for the remainder of the year?
A:Europe's Q2 revenue is expected to be flat due to a $30 million wholesale shift from Q2 to Q1. For the first half, Europe is guided to mid-single-digit growth, with strong prebook trends for fall and winter.
Q:What is the expectation for distribution costs for the remainder of the year and the timeline to reduce them to 5% of sales?
A:Distribution costs are expected to taper off in the second half of the year. The company is committed to improving flow-through and reducing costs over time, but no specific timeline for reaching 5% of sales was provided.
Q:What are the plans for the World Cup and its impact on SG&A?
A:The company has plans for World Cup activations, which are included in the 7% annual SG&A spend. The peak spend occurred in Q1 and will normalize for the rest of the year.
Q:How is pricing and markdown strategy being approached for the rest of the year?
A:The company is focused on premiumization, full-price selling, and pricing for innovation. No significant impact on demand has been observed from price increases. Markdown reductions are supported by improved allocation systems and supply chain leadership.
Q:What is the split between unit growth and AUR growth in the revenue guidance for fiscal year '26?
A:The split is expected to be even between unit growth and AUR growth, driven by an expanded addressable market and new store openings.
Q:How did the first quarter perform on a monthly basis and what are the quarter-to-date trends?
A:Q1 performance was consistent across months, with January and February slightly higher due to timing factors like Chinese New Year. Quarter-to-date trends remain positive and support the guidance.
Q:What is the macro view by region and where is the most growth acceleration seen?
A:Asia has shown strong growth, with China turning positive. Europe and the U.S. are consistent, with resilience in consumer demand and newness driving growth.
Q:How does the go-to-market strategy differ by region?
A:In the Americas, there is a balance between DTC and wholesale. Asia focuses on DTC (60%) and wholesale (40%), with most new stores opening there. Europe has a higher DTC mix with Tier 1 and Tier 2 products.
Q:Are there discussions about vendors passing through price increases despite locked rates for ocean freight and cotton?
A:No significant vendor price increases have been observed. The company is leveraging SKU rationalization, globally directive assortments, and lower cotton futures to manage costs.
Q:Review of Unclear Management Responses
A:Management avoided providing a specific timeline for reducing distribution costs to 5% of sales, using vague language about long-term commitments and improvements. Additionally, they did not provide detailed regional breakdowns for quarter-to-date trends or elaborate on macro views by region beyond general statements.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
DTC
Europe
Harmit
IR
Italy
Loose
Nike
Signature
Strauss Co
Super Bowl
Today
basis digit
center culture
collection
denim bottom
denim market
engagement
fashion style
foundation
game
head toe
lifestyle piece
market example
measure
member
music
newness lifestyle
role
search
share denim
storytelling
strategy brand
strength segment
tee
woman top
LEVI Transcript
Levi Strauss & Co. (LEVI) Q1 2026 Earnings Call Transcript
Positive4-7
The earnings call summary indicates solid financial performance, with strong DTC momentum and broad-based growth. The Q&A section reveals confidence in sustaining growth despite macro uncertainties, with conservative guidance due to prudence. The company's strategic focus on AI, loyalty programs, and premiumization supports positive sentiment. Although some management responses were vague, the overall sentiment remains positive, driven by growth in key segments and channels, and a strong product pipeline. The absence of a market cap suggests a neutral market reaction, but the positive outlook suggests a 2% to 8% stock price increase.
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Neutral3-11
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Levi Strauss & Co. (LEVI) Q4 2025 Earnings Call Transcript
Positive1-28
The earnings call reveals strong business momentum, evidenced by raised revenue growth expectations and optimistic guidance. Despite Q4 margin challenges, full-year metrics show expansion. The Q&A highlights strategic initiatives in DTC growth, international expansion, and product diversification, with positive analyst sentiment. Management's confidence in sustaining growth and improving margins further supports a positive outlook. Although some guidance details were withheld, the overall sentiment remains optimistic, suggesting a positive stock price reaction in the short term.
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