Levi Strauss & Co. (NYSE:LEVI) shares declined 1.2% to $19.28 in pre-market trading on Thursday as investors assessed the company’s third-quarter fiscal 2026 results, which exceeded profit expectations but fell short of revenue forecasts and highlighted weakness in its US direct-to-consumer business.
The denim and apparel manufacturer reported adjusted earnings of $0.48 per share, comfortably above Wall Street’s consensus estimate of $0.36 per share.
However, approximately $0.11 of the earnings outperformance came from tariff refunds received under the International Emergency Economic Powers Act, raising questions about how much of the profit improvement reflected underlying business performance.
Levi Strauss received approximately $80 million in tariff refunds, with the estimated earnings contribution calculated after accounting for funds reinvested in promotional activities and marketing.
Excluding this benefit, the company’s adjusted earnings would have been considerably closer to analysts’ expectations.
Quarterly net revenue reached $1.61 billion, slightly below the market consensus of $1.62 billion, indicating that sales performance did not match the stronger reported profitability.
The company also revised its full-year revenue outlook, now expecting reported revenue growth towards the lower end of its previously announced guidance range.
Despite the more cautious sales forecast, Levi Strauss raised its adjusted earnings guidance to between $1.54 and $1.56 per share for fiscal 2026.
The contrasting revisions highlighted the difference between the company’s profitability outlook and its expectations for underlying sales growth.
US Direct-to-Consumer Weakness Affects Quarterly Performance
The US direct-to-consumer (DTC) business emerged as a particular area of concern following a weaker-than-expected back-to-school selling period.
Management acknowledged that the company’s seasonal marketing campaign failed to deliver the anticipated results, partly because its product assortment did not fully reflect changing consumer preferences.
Levi Strauss had placed greater emphasis on loose-fitting denim styles, while customer demand increasingly shifted towards low-rise designs.
The mismatch between merchandise positioning and consumer demand contributed to weaker performance in the US DTC channel.
Chief Executive Officer Michelle Gass acknowledged the disappointing results and indicated that the company had already implemented targeted measures to address the issues.
The performance of the direct-to-consumer business remains important to Levi Strauss as it seeks to strengthen customer relationships and improve profitability through its own retail stores and digital channels.
Investors will be monitoring whether the corrective actions lead to stronger sales without requiring additional promotional spending.
Tariff Refunds Raise Questions About Earnings Sustainability
Although Levi Strauss exceeded quarterly earnings expectations, the contribution from tariff refunds has prompted closer scrutiny of the sustainability of its profit performance.
The approximately $80 million refund provided a substantial benefit during the quarter, with the net impact accounting for most of the difference between reported adjusted earnings and analysts’ forecasts.
Because the refund is not a recurring source of operating income, investors may place greater emphasis on the company’s underlying sales trends and profitability in future reporting periods.
The weaker revenue performance and reduced full-year sales expectations have therefore weighed on sentiment despite the increase in adjusted earnings guidance.
The company’s ability to improve US direct-to-consumer sales and align its product offering with consumer demand will be important factors in determining its operating performance over the coming quarters.
Broader Market Weakness Adds to Pressure on Levi Strauss Shares
The decline in Levi Strauss shares occurred against a weaker backdrop for US equities, with major stock indices trading lower before the opening bell.
The S&P 500 fell 0.3%, the Dow Jones Industrial Average declined 0.6%, and the Nasdaq slipped 0.4%.
Investors were also assessing the outlook for US monetary policy following the Federal Reserve’s September interest rate increase, its first since 2023, and awaiting further details from the meeting minutes.
Uncertainty surrounding borrowing costs and consumer spending has contributed to cautious sentiment towards companies exposed to discretionary retail demand.
Short interest in Levi Strauss had also increased in recent weeks, indicating that more investors had positioned themselves for a potential decline in the share price ahead of the earnings announcement.
The stock had already fallen nearly 5% during Wednesday’s regular trading session before extending its losses in after-hours and pre-market dealings.
At $19.28, Levi Strauss shares were trading towards the lower end of their 52-week range of $17.72 to $25.70.
The combination of weaker-than-expected revenue, challenges in the US direct-to-consumer business and the significant contribution of tariff refunds to quarterly earnings has increased investor attention on the company’s underlying operating performance.
Further evidence of a recovery in US retail demand and improvements in product assortment will be important as Levi Strauss works towards its revised full-year financial targets.