EquitiesMarket noteThursday 8 October 2026, 08:22
Levi Strauss earnings: tariff refunds lifted profit, but US sales fell
Levi Strauss earnings rose on $79m of tariff refunds after the Supreme Court ruling. Without them, operating profit was flat on the year and US sales fell 1%.
By The Notebook Desk
Levi Strauss earnings rose sharply in the third quarter, but a one-off did most of the work. The jeans maker booked $79m of refunded import duties in the three months to 30 August, after the Supreme Court struck down the tariffs it had paid. Net income from continuing operations rose to $168.6m from $122.0m a year earlier, on revenue up 4% to $1.61bn, Levi Strauss reported on Wednesday.
Take out the refunds, and the extra spending they paid for, and operating profit was about the same as a year ago. Sales in the US fell. Levi Strauss still raised its forecasts for the year.
Where the tariff refunds came from
In February the Supreme Court ruled, by six votes to three, that the International Emergency Economic Powers Act (IEEPA) does not authorise the president to impose tariffs. That law was the basis for the drug-trafficking tariffs on Canada, Mexico and China, and for the “reciprocal” tariffs of at least 10% on imports from every trading partner. Importers now claim the duties back, with interest, through a customs system called CAPE, run by US Customs and Border Protection.
For Levi Strauss, the refunds came to $79m in cost of goods sold, plus $5m of interest income. They added 490 basis points to the gross margin, which rose to 66.2% from 61.7%, and $0.16 to earnings per share.
Without the refunds, a flat quarter
Levi Strauss did not keep all of the money. It spent $25m of it in the quarter on more promotions and marketing: $19m in the cost of goods and $6m in selling and administrative costs. The company said it had decided to put most of the refund back into the business in the third and fourth quarters, to support growth.
Operating income rose to $222.3m from $167.4m. Take out the $79m refund and add back the $25m it paid for, and operating income would have been about $168m, by our calculation. That is almost exactly last year’s figure.
The business underneath grew, but slowly. Organic revenue, which leaves out currency moves, rose 5%. Asia was strongest, up 10% on that basis, and Europe rose 5%. Wholesale revenue rose 6%. Sales direct to consumers, through Levi’s own shops and website, rose 2%, and comparable sales in those channels were flat. Online sales grew 10%.
The US is the weak spot
Sales in the US fell 1%, and direct sales there also fell 1%. The chief executive, Michelle Gass, said the direct business “fell short of our internal expectations”, and that the company had moved quickly to fix it. On recent trends, she expects direct sales to grow by a mid-single-digit percentage in the fourth quarter.
That matters because many US shoppers are under strain. The Federal Reserve raised interest rates in September, and the minutes of that meeting say low- and moderate-income households faced strains, as higher energy prices weighed on their income. The same minutes list tariff refunds among the things that supported business activity. Levi Strauss shows the effect in its results.
Levi Strauss raises its earnings forecast
Levi Strauss raised its forecast for the year to 29 November. It now expects adjusted earnings per share of $1.54 to $1.56, up from $1.46 to $1.52, and an adjusted EBIT margin, a measure of operating profit, of about 12.1%, up from 12%. It expects reported revenue to grow about 7%, the bottom of its earlier range of 7% to 7.5%, because of currency moves.
The forecast includes the refunds. The company plans to put about $60m of them back into the business this year, about $35m of it in the fourth quarter. It assumes that current tariff rates stay in place for the rest of the year.
It will also return cash to shareholders. It plans a $100m accelerated share buyback, and it declared a dividend of $0.16 a share, 14% more than a year earlier, payable on 4 November.
The refunds will not come again. Once they are spent, the margin rests on how many jeans Levi Strauss sells at full price. The results for the fourth quarter, after the year ends on 29 November, will show whether the US direct business has turned, and how much of the refund it took to turn it.
Disclosure
This is analysis and opinion, not investment advice.