Levi Strauss & Co raised its fiscal 2026 adjusted diluted EPS guidance to $1.54–$1.56, up from $1.46–$1.52, after tariff refunds drove a 450-basis-point jump in third-quarter gross margin to 66.2%.

Net revenues for the quarter ended 30 August rose to $1.6bn, with international and wholesale strength offsetting a 1% revenue decline in the US. Operating margin reached 13.8%, up from 10.8% a year earlier, while adjusted EBIT margin expanded to 15.5% from 11.8%.

Net income from continuing operations climbed to $169m from $122m, with the company attributing much of the improvement to tariff refunds and the redeployment of those funds into business initiatives. Diluted EPS rose to $0.43 from $0.31; adjusted diluted EPS improved to $0.48 from $0.34.

Where is the growth coming from?

The revenue picture was uneven across channels and regions. By segment:

• Americas: revenues up 4% reported, but US revenue slipped 1%
• Europe: up 4%
• Asia: up 5% reported, 10% organic
• Beyond Yoga: up 9%
• Wholesale: up 6%, with notable gains in Europe and Asia
• DTC: up 2%, with e-commerce up 10%; comparable DTC sales flat

DTC accounted for 45% of total quarterly revenues. LS&Co president and CEO Michelle Gass acknowledged the channel underperformed: "While our direct-to-consumer business fell short of our internal expectations, we moved quickly to address the shortfall and are encouraged by the strength we are seeing heading into the holiday season, including in the US."

She added: "Based on the acceleration in recent trends, our DTC business is on track to deliver mid-single-digit growth in the fourth quarter." That Q4 recovery in DTC remains management's projection rather than a measured result, and it carries weight for a company where the channel now approaches half of revenues.

What do the tariff refunds change?

The IEEPA tariff refunds function as a one-off cash and margin boost that LS&Co is recycling into the business rather than banking. Selling, general and administrative expenses rose to $836m, which the company said reflected higher selling and distribution costs plus reinvestment of the refund benefits.

For the full year, approximately $60m of refund proceeds will be redeployed into the business, including roughly $35m earmarked for the fourth quarter. Sourcing and finance teams should read the margin expansion accordingly: part of the 66.2% gross margin reflects a temporary benefit, not a structural cost reset.

The company now forecasts significant gross margin expansion of 130 basis points for FY26 versus prior year — a substantial upgrade from its earlier estimate of a 10-basis-point increase.

How did the FY26 revenue outlook move?

On a reported basis, LS&Co now expects net revenue growth of approximately 7%, narrowing its earlier range of 7.0%–7.5% because of continued foreign exchange pressures. Organic revenue growth is forecast at around 6%, the top end of the previous 5.5%–6.0% projection.

The Q3 report extends a pattern set earlier this year, when Q2 results showed growth in both revenue and profitability and prompted an initial increase to the FY26 outlook.

Heading into the holiday quarter, the open questions for supply-chain and channel planners are whether the projected mid-single-digit DTC rebound materialises and how much margin holds once the remaining refund-funded reinvestment of roughly $35m lands in Q4.