Levi Strauss & Co. closed its third quarter of fiscal 2026 with a margin line that looked transformed and a demand line that did not. The denim maker reported net revenues of $1,609.7 million for the quarter ended August 30, 2026, up 4% as reported and 5% organic, alongside a gross margin of 66.2%. Almost all of the margin story traces to one non-operating item: roughly $80 million of tariff refunds returned by US Customs and Border Protection after the Supreme Court struck down the International Emergency Economic Powers Act duties earlier this year.
The company raised its full-year adjusted earnings guidance to $1.54–$1.56 per diluted share, up from $1.46–$1.52. It also trimmed the top of its reported revenue growth range. Investors read the second half of that sentence more carefully than the first: the stock closed at $19.51 on October 7, down 4.97%, and slipped a further 1.53% to $19.21 after hours, according to market data compiled from the earnings call coverage.
In short
- $80 million in tariff refunds landed in Levi’s third quarter, with about $79 million booked against cost of goods sold and roughly $5 million in other income, per the company’s results release.
- Gross margin reached 66.2%, up 450 basis points year over year. The company attributed about 490 basis points to the refunds before redeployment and roughly 370 basis points net of money spent back.
- Adjusted diluted EPS was $0.48 against a consensus near $0.36, a 33% beat. Of that, $0.16 came from the refunds and $0.11 was the net benefit after redeployment.
- Revenue missed at $1.61 billion versus about $1.62 billion expected, with direct-to-consumer up only 2% and comparable sales essentially flat at +0.4%.
- Roughly three-quarters of the windfall is being spent, not banked, split about evenly across marketing, distribution and logistics, and holiday promotions. A separate $100 million accelerated share repurchase was announced alongside the results.
What Levi Strauss reported for the third quarter
The headline numbers describe a company growing modestly and earning far more per dollar of revenue than it did a year ago. Net revenues of $1,609.7 million represented 4% reported growth and 5% organic growth over the comparable 2025 quarter. Nine-month net revenues reached $4,914.2 million, up 9% reported and 7% organic.
Profitability moved much faster than the top line. Operating margin expanded to 13.8% from 10.8%, and adjusted EBIT margin to 15.5% from 11.8%. Net income from continuing operations was $168.6 million against $122.0 million a year earlier, a 38% increase, while adjusted net income rose 39% to $188.9 million.
Adjusted SG&A grew 6.2% to $817.1 million, outpacing revenue growth. That gap matters: it means the margin expansion came entirely from the cost-of-goods line, not from operating discipline. Strip the refund out and the quarter reads as a company spending ahead of a demand recovery that has not fully arrived.
| Metric (Q3 FY2026, quarter ended Aug 30, 2026) | Q3 FY2026 | Q3 FY2025 | Change |
|---|---|---|---|
| Net revenues | $1,609.7m | about $1,548m | +4% reported, +5% organic |
| Gross margin | 66.2% | 61.7% | +450 bps |
| Operating margin | 13.8% | 10.8% | +300 bps |
| Adjusted EBIT margin | 15.5% | 11.8% | +370 bps |
| Adjusted SG&A | $817.1m | $769.3m | +6.2% |
| Net income (continuing ops) | $168.6m | $122.0m | +38.2% |
| Diluted EPS (continuing ops) | $0.43 | $0.31 | +38.7% |
| Adjusted diluted EPS | $0.48 | $0.34 | +41.2% |
| Adjusted EBITDA | $303.4m | $234.0m | +29.7% |
| Effective tax rate | 23.4% | 21.9% | +150 bps |
| Total inventories | $1,253.6m | about $1,292m | -3% |
Dockers no longer appears in any of these figures. The brand has been reclassified to discontinued operations following its divestiture, and the company said all guidance and non-GAAP measures now exclude it. The nine-month net loss from discontinued operations was $8.8 million.
Where the $80 million in tariff refunds came from
The refund is not a tax credit, a settlement or a one-off customs adjustment negotiated by the company. It is a repayment of duties Levi’s already paid at the border under tariffs that a court subsequently held to be unlawful. That distinction explains both the size of the number and why it arrived all at once.
The IEEPA refund machinery behind the number
The Supreme Court invalidated the IEEPA tariffs on February 20, 2026. Customs and Border Protection stood up a dedicated refund portal in April and began paying claims in tranches, working from the most recently filed entries toward the oldest. The agency had paid roughly $100 billion as of July 31, 2026, out of a pool reported at about $166 billion, and roughly $122 billion by September 11, according to figures compiled from agency disclosures and trade-press reporting.
Levi’s described the quarter’s receipt as substantially all of the refunds it expects to collect. That is a meaningful qualifier. It tells investors not to model a repeat in the fourth quarter, and it implies the company’s entries were processed inside the earlier CBP phases rather than left to the finally liquidated backlog.
That backlog is the part still in motion. CBP’s third processing phase, which opened on October 6, covers entries that had already been finally liquidated and therefore sat outside the ordinary refund path. Readers tracking the residual claims can follow the mechanics in our coverage of CBP’s Phase 3 refund deployment, which also covers the Justice Department’s jurisdictional appeal against the Court of International Trade order behind it.
Why apparel importers sat near the front of the queue
Apparel is a high-duty, high-velocity import category. Finished garments move through formal entry in large, frequent consignments, and the duty paid per entry is large relative to the value of the goods. That combination produced unusually clean refund claims for clothing importers.
It also means the refunds landed as a percentage of cost of goods rather than as a rounding error. For Levi’s, roughly $79 million against a quarter in which gross profit was about $1.07 billion is enough to move the reported margin by hundreds of basis points. A grocer with the same dollar refund against a far larger cost base would barely notice it.
The tax line took a bite. The company reported roughly $20 million of tax expense associated with the refunds, which is why the pre-tax and per-share benefits diverge. The quarter’s effective rate rose to 23.4% from 21.9%, and the company now guides to about 23% for the full year, two percentage points above fiscal 2025.
How the refund flattered the margin line
Gross margin of 66.2% is the number most likely to be quoted out of context over the next several weeks. Taken at face value it suggests a structural step change in Levi’s pricing power or sourcing cost. The company’s own disclosure argues against that reading.
Of the 450 basis points of reported expansion, the refunds accounted for roughly 490 basis points before accounting for the money redeployed, and about 370 basis points net of it. Arithmetic that produces a larger contribution than the total expansion implies the underlying business lost ground on margin, offset by the one-time credit. The same pattern repeats at the EBIT line, where the refunds contributed about 490 basis points gross and roughly 330 basis points net against 370 basis points of total expansion.
The useful comparison is therefore not 66.2% against 61.7%. It is 66.2% minus the net refund benefit, which lands close to the prior-year level. Anyone building a fiscal 2027 model from the reported figure will overstate the base by several hundred basis points.
Why the stock fell on a 33% earnings beat
A 33% EPS beat that trades down 5% is not a market error. It is the market pricing the quality of the beat and the revised revenue path, both of which pointed the other way.
The revenue line that missed
Revenue of $1.61 billion came in about 0.6% below the roughly $1.62 billion consensus. Small in absolute terms, but it broke the pattern of top-line beats that had supported the stock through the first half. Direct-to-consumer revenue of $727.4 million grew only 2%, and comparable sales were essentially flat at +0.4%.
Within DTC the regional picture was uneven. The Americas were up 2% reported but flat organic, with the United States down 1%. Europe DTC fell 2% reported and 1% organic. Asia was the exception at +8% reported and +11% organic, and e-commerce grew 10% globally.
Wholesale carried the quarter. Net revenues of $882.3 million rose 6%, with growth across every segment. For a brand that has spent several years pushing a DTC-first transformation, a quarter where the legacy channel outperforms the strategic one is an awkward result to present.
The guidance arithmetic
The revision cuts in two directions, and the headline obscures the split. Reported net revenue growth guidance moved to about 7.0% from a 7.0–7.5% range, a trim at the top. Organic growth guidance moved up to about 6.0% from 5.5–6.0%, a raise at the bottom.
Gross margin guidance jumped the most, to up 130 basis points for the year from up 10 basis points previously, which is almost entirely the refund flowing through. Adjusted EBIT margin guidance went to about 12.1% from 12.0%. The adjusted EPS range rose to $1.54–$1.56 from $1.46–$1.52, which the company said absorbs roughly $0.04 of headwind from the higher tax rate.
| FY2026 guidance item | Previous | Updated (Oct 7, 2026) | Direction |
|---|---|---|---|
| Reported net revenue growth | 7.0–7.5% | about 7.0% | Top of range cut |
| Organic net revenue growth | 5.5–6.0% | about 6.0% | Bottom of range raised |
| Gross margin vs prior year | +10 bps | +130 bps | Raised on refunds |
| Adjusted EBIT margin | 12.0% | about 12.1% | Marginally raised |
| Adjusted diluted EPS | $1.46–$1.52 | $1.54–$1.56 | Raised, range narrowed |
| Effective tax rate | not separately guided | about 23% | Two points above FY2025 |
Narrowing the EPS range to two cents in the final quarter of the year is itself a signal. It says the company has high confidence in the earnings outcome, which is easier to hold when a large share of the improvement is a cash item already received rather than a forecast of consumer behavior.
What Levi’s is doing with the money
The capital allocation answer is the part of this story with the longest tail, because it tests a question the whole sector has been asked since the refunds began: does the money reach shoppers, shareholders, or the income statement?
Marketing, logistics and promotions in equal thirds
CFO Harmit Singh told analysts the company is “redeploying roughly three-quarters of the benefit back into the business to support future growth.” He described the allocation as roughly one-third to marketing, one-third to distribution and logistics, and one-third to promotional activity.
The cash profile is explicit: about $25 million spent in the third quarter and roughly $35 million planned for the fourth, for a total near $60 million against the $80 million received. Singh also characterized the timing as favorable, saying the refunds “were timely” given where the company stood on demand.
What this is not is a price cut. Promotional spending in a holiday quarter lowers some shelf prices temporarily and clears specific inventory, but it is a different commitment from the everyday price reductions that Walmart funded with its $2.9 billion refund or the produce and meat reductions Costco routed from its reported $184 million. Levi’s is buying traffic and demand signal, not a lower price point.
The $100 million accelerated share repurchase
Alongside the results, the company announced a new $100 million accelerated share repurchase program. It had already settled an earlier ASR during the first quarter, retiring 1.6 million shares, with the full nine-million-plus share program totaling $200 million. Remaining authorization stands at about $240 million.
Shareholder returns continued through the dividend as well. Levi’s paid $0.16 per share in the third quarter, returning $61.6 million, and declared another $0.16 per share payable November 4, 2026. Nine-month adjusted free cash flow of $427.3 million against $92.5 million a year earlier gave the company room for both.
The sequencing is what analysts will note. A $100 million buyback announced in the same release as an $80 million refund invites the obvious comparison, even if the cash is fungible and the authorization predates the windfall. It is also exactly the pattern we flagged when arguing that the tariff-refund windfall would end in buybacks rather than price cuts.
The practical test arrives in weeks rather than quarters. Roughly $35 million of redeployed spend is scheduled for the fourth quarter, which covers the entire Black Friday and December promotional calendar. A company that spends that money and still posts flat comps has a harder story to tell in January than it did in October.
How Levi’s refund compares with the rest of US retail
In absolute dollars, $80 million places Levi’s in the middle of the pack. In margin impact it sits near the top, because the refund is large relative to the company’s cost base and because apparel gross margins amplify any cost-of-goods credit.
| Company | Reported tariff refund | Period | Stated use of proceeds |
|---|---|---|---|
| Walmart | about $2.9bn | Q2 FY2027 | Price cuts; about 0.5% of annual US net sales |
| Target | $994m pre-tax | Q2 2026 | Margin; now facing consumer class actions |
| Amazon | about $640m | Q2 2026 | Described as substantially all expected refunds |
| TJX | $331m | Q2 FY2027 | Partially offset by supply chain investment |
| Costco | about $184m (reported) | FY2026 Q4 | Produce and meat price reductions |
| PVH | about $100m (reported) | Q2 2026 | Carried the quarter’s earnings beat |
| Levi Strauss | about $80m | Q3 FY2026 | Three-quarters redeployed to marketing, logistics, promotions |
| Burlington | about $55m | Q2 FY2027 | Price investment; Q3 guidance still missed |
The closest read-across is PVH, the other large listed US apparel group to post a refund-driven quarter. Its roughly $100 million credit produced a similar optical beat, and the market response followed a similar arc: a strong headline, a quick interrogation of what the underlying business did, then a re-rating on the demand line. Our earlier look at how PVH’s $100 million refund carried its second quarter set out that template.
One structural difference separates Levi’s from the discounters. Walmart and Costco operate on single-digit net margins where a refund can credibly fund permanent price reductions and still leave the P&L intact. A branded apparel company with a 66% gross margin has no comparable pricing lever to pull, because its problem is not price, it is product and traffic.
The demand problem the refund does not solve
Every operational weakness in the quarter sits in the direct-to-consumer channel, and none of it is tariff related. Management was direct about the causes, which is a reasonable sign that the diagnosis is real rather than a hedge.
Back-to-school and the loose-fit miss
CEO Michelle Gass told analysts that “our back-to-school campaign did not drive the level of traffic and demand we had anticipated.” Back-to-school is a load-bearing season for denim, and a soft August leaves limited time to recover before the holiday quarter.
The product read was more specific. The company had weighted its assortment toward loose fits while consumer demand shifted toward low-rise styles. Gass said Levi’s is “increasing investment behind areas of strong consumer demand, particularly low-rise fits,” and credited the team with reacting quickly once the signal was clear.
Fit cycles in denim run long. An assortment decision made for the back half of 2026 was locked in months earlier, and correcting it is a two-to-three-quarter exercise across design, sourcing and allocation. That is the honest timeline for this fix, and it extends past the holiday quarter.
Europe’s heat and the DTC drag
Europe produced the quarter’s most contradictory numbers. Segment net revenues of $442.1 million rose 4% reported and 5% organic, driven by wholesale, while European DTC fell 2% reported and 1% organic. Management attributed the store weakness partly to an extreme summer heat wave that suppressed footfall and shifted demand away from denim.
Gass pushed back on reading that as a brand problem, telling analysts that “the trends are very robust, very positive” in Europe and that “the brand is very healthy there.” The wholesale growth supports that claim. Weather-driven store weakness alongside healthy sell-in is a recognizable, recoverable pattern.
Asia was the clean positive. Net revenues of $292.8 million grew 5% reported and 10% organic, with DTC up 11% organic. That is the one region where the direct channel is working as the strategy intends.
What the New York Fed study says about who paid
The refund story has a counterpart that landed in the same week and frames who bore the cost in the first place. The Federal Reserve Bank of New York published research on tariff pass-through to consumer prices, summarized on its Liberty Street Economics blog on October 6, 2026.
The paper, authored by Mary Amiti, Sebastian Heise and David Weinstein, examines 67 non-oil goods categories weighted by 2022 consumer spending. It finds that a one percentage point increase in average tariffs raises consumer goods prices by roughly 0.25% after a year, with about two-thirds of the effect coming directly from higher import prices and one-third arising indirectly through US producer costs and markups.
The headline finding is the peak: the tariff effect on the consumer goods price level reached close to 3% in February 2026, contributing about 2.9 percentage points to goods inflation by that month. Without the tariffs, the researchers estimate goods prices would have fallen slightly over the same period rather than risen. The administration has publicly disputed the study’s conclusions.
Read against the refund data, the asymmetry is stark. Consumers absorbed the duty through higher shelf prices over roughly a year, while the repayment went to importers of record in large single-quarter lumps. Whether any of it returns to shoppers is a discretionary corporate decision, which is precisely the question the Target and Costco class actions are now litigating.
The indirect channel also explains why the price effect is slow to unwind. Direct import price effects pass through quickly, but the producer-cost component takes six to twelve months to move through supply chains in either direction. Refunds received in mid-2026 will not show up as lower shelf prices on anything like the same timetable.
What the refund says about apparel duty exposure
The size of the credit relative to Levi’s cost base is a measure of how duty-exposed branded apparel sourcing had become. That exposure does not disappear because one tariff program was struck down.
The duty bill behind an $80 million refund
A refund of roughly $79 million against cost of goods sold implies a comparable volume of IEEPA duty paid on entries over the covered period. For a company running about $6.5 billion of annual net revenue, that is a material share of landed cost concentrated in a single, since-invalidated tariff line.
The surviving tariff architecture is unaffected by the ruling. Section 301 duties on Chinese goods, Section 232 measures, ordinary most-favored-nation rates on apparel and the textile quota arrangements all continue to apply. Only the IEEPA layer was removed, and only that layer generated refunds.
That matters for fiscal 2027 modeling. The cost relief in these results is retrospective, not forward-looking: it returns money already spent rather than lowering the duty Levi’s pays on goods crossing the border next quarter. Nothing in the quarter reduces the company’s ongoing tariff run rate.
Why sourcing diversification still carries the weight
Apparel importers responded to the 2025 tariff wave by shifting production mix, renegotiating supplier terms and re-engineering country-of-origin footprints. Those programs were built to survive tariffs, not to be unwound when one program fell. Most remain in place.
Levi’s margin profile reflects that work. A 66% gross margin, even stripped of the refund benefit, sits well above the apparel sector median and gives the company more absorptive capacity than most peers if duty rates move again. The constraint on this business is demand, not landed cost.
The inventory position supports the same conclusion. Total inventories of $1,253.6 million were down 3% year over year against 4% revenue growth, which is the profile of a company managing supply tightly rather than one caught with tariff-era overstock. Nine-month adjusted free cash flow of $427.3 million against $92.5 million a year earlier is the cash expression of that discipline, flattered by the refund but not created by it.
What to watch next
Four things will determine whether this quarter reads as a trough or a warning when Levi’s reports its fourth quarter and full year.
First, the DTC comparable sales line. Management guided to mid-single-digit DTC growth in the fourth quarter, a clear acceleration from +0.4% comps. Hitting it would validate the low-rise pivot and the promotional spend; missing it would make the refund look like it funded an unsuccessful traffic push.
Second, the clean gross margin. With the refunds described as substantially complete, the fourth quarter should show what the underlying cost base actually does. A margin that lands near the prior-year level without the credit would confirm the underlying erosion implied by this quarter’s math.
Third, the wholesale-versus-DTC mix. Wholesale growing at three times the DTC rate is good for revenue and worse for margin and customer data. Sustained for several quarters it starts to reverse the brand’s stated strategy.
Fourth, the residual refund litigation. The Justice Department’s appeal over whether the Court of International Trade can compel refunds on finally liquidated entries affects the tail of the refund pool rather than companies like Levi’s that have already been paid. The full results release and its reconciliation tables are filed with the SEC as an exhibit to the company’s third-quarter 8-K.
The broader read for retail is simpler. The refunds are close to fully distributed among large importers, the earnings flattery they provided is a 2026 phenomenon, and from fiscal 2027 every retailer in this sector has to grow on product and traffic alone. Levi’s third quarter is an early look at what that comparison will feel like.
Frequently asked questions
How much did Levi Strauss receive in tariff refunds?
Approximately $80 million in the third quarter of fiscal 2026. The company booked about $79 million against cost of goods sold and roughly $5 million in other income, with about $20 million of associated tax expense. Its quarterly filing recorded $78.6 million in the cost-of-goods component.
Why did Levi Strauss get a tariff refund at all?
The Supreme Court invalidated the tariffs imposed under the International Emergency Economic Powers Act on February 20, 2026. Duties already collected at the border under those tariffs became refundable, and US Customs and Border Protection opened a dedicated claims portal in April 2026 to return them to importers of record.
Will Levi Strauss pass the tariff refund on to customers as lower prices?
Not as everyday price reductions. CFO Harmit Singh said roughly three-quarters of the benefit is being redeployed into the business, split about evenly between marketing, distribution and logistics, and holiday promotional activity. Shoppers may see temporary promotions, but the company has not announced permanent price cuts.
Why did the stock fall if earnings beat expectations?
The beat was driven by a one-time refund rather than operations, and the revenue line missed at $1.61 billion against roughly $1.62 billion expected. Direct-to-consumer growth of 2% with flat comparable sales, plus a trim to the top of the reported revenue growth guidance, outweighed the raised profit outlook. Shares closed down 4.97% at $19.51 and fell a further 1.53% after hours.
What is Levi’s new full-year guidance?
Adjusted diluted EPS of $1.54–$1.56, up from $1.46–$1.52. Reported net revenue growth of about 7.0%, organic growth of about 6.0%, gross margin up about 130 basis points year over year, and adjusted EBIT margin of about 12.1%. The effective tax rate is guided to about 23%.
Should investors use the 66.2% gross margin as a baseline?
No. The refunds contributed roughly 490 basis points before redeployment and about 370 basis points net, against total reported expansion of 450 basis points. Excluding the net benefit, gross margin lands near the prior-year level, so a fiscal 2027 model built on the reported figure would overstate the starting point by several hundred basis points.
How does Levi’s refund compare with other retailers?
Walmart reported about $2.9 billion, Target $994 million pre-tax, Amazon about $640 million and TJX $331 million. Costco and PVH have reported figures around $184 million and $100 million respectively, with Burlington near $55 million. Levi’s $80 million is mid-sized in dollars but large relative to its cost base, which is why it moved reported margin so sharply.
What happened to Dockers in these results?
Dockers has been reclassified to discontinued operations following its divestiture. It is excluded from all revenue, margin, earnings and guidance figures discussed here. The nine-month net loss from discontinued operations was $8.8 million.
Are more tariff refunds coming to US retailers?
Only a residual tail. Customs and Border Protection had paid roughly $122 billion by mid-September 2026 out of a pool reported near $166 billion, and its third processing phase for finally liquidated entries opened on October 6. Levi’s described its receipt as substantially all of what it expects, and most large importers are in a similar position.