Shares of Levi Strauss & Co. (NYSE: LEVI), the San Francisco-based apparel company best known for its Levi's jeans, fell after the company reported higher third-quarter revenue alongside weaker-than-expected direct-to-consumer growth. LEVI closed at $19.51, down 4.97%, and slipped another 1.18% to $19.28 in after-hours trading. Stronger profit margins and a raised full-year profit outlook provided partial support against concerns over slowing U.S. and direct-to-consumer demand. The reaction underscored how closely the market now reads channel-level detail: with direct-to-consumer sales accounting for 45% of company revenue, softness in that single line can outweigh strength elsewhere in the business.

Q3 Revenue Reaches $1.6 Billion

Levi Strauss reported third-quarter net revenue of $1.61 billion, up 4% on a reported basis from a year earlier. Organic revenue increased 5%, supported by gains across Europe, Asia, wholesale, and the Beyond Yoga business. U.S. revenue, however, declined 1%, placing pressure on the company's largest regional market. The split left international markets setting the pace for the quarter while the home market contracted.

The Americas generated $839 million in revenue, a 4% increase from $806 million one year earlier. Europe produced $442 million and Asia $293 million, with reported sales rising 4% and 5%, respectively. Beyond Yoga, the company's activewear line, grew revenue 9% to $36 million during the quarter.

Profitability strengthened sharply. Operating margin reached 13.8%, compared with 10.8% a year earlier, while adjusted EBIT margin increased to 15.5%. Gross margin expanded 450 basis points to 66.2%. Tariff refunds contributed significantly to the margin improvement, although the company reinvested part of the benefit — a detail that makes the source of future margin gains a natural item to track as new quarters are reported.

DTC Growth Disappoints

Direct-to-consumer revenue increased only 2%, and comparable sales remained nearly flat during the quarter. Because DTC accounted for 45% of total company revenue, its slower pace stood out as a key concern in the report. The channel — company-operated stores and e-commerce — gives Levi Strauss direct control over pricing and the customer relationship, making its trajectory a core gauge of the company's strategy. The U.S. DTC business declined 1%, despite stronger performance in parts of Asia.

Asia DTC revenue rose 8% on a reported basis and 11% organically. European DTC revenue fell 2% as reported, with organic revenue down 1%. E-commerce provided the strongest momentum in the channel, increasing 10% on both reported and organic bases.

Wholesale moved in the opposite direction, revenue up 6% as every geographic segment posted growth. Europe and Asia delivered particularly strong wholesale performance, helping offset weaker direct sales trends. Management expects DTC growth to improve in the fourth quarter as holiday demand strengthens. That quarter spans the holiday shopping season — typically the busiest selling period of the year for apparel retailers — so the projection will be a focal point when the company reports its year-end results.

Full-Year Profit Guidance Raised

Levi Strauss posted net income from continuing operations of $169 million, up from $122 million last year. Adjusted net income increased to $189 million from $136 million, reflecting higher revenue and stronger operating margins. Adjusted diluted earnings per share reached $0.48, compared with $0.34 one year earlier.

The company raised its full-year adjusted EPS guidance to a range of $1.54 to $1.56, up from its previous outlook of $1.46 to $1.52. Levi Strauss also expects organic revenue growth of about 6% and reported growth near 7%.

Alongside the guidance raise, the company announced plans for another $100 million accelerated share repurchase under its existing authorization and declared a quarterly dividend of $0.16 per share, a 14% increase from a year earlier. Buybacks reduce the share count over time and dividends deliver recurring cash to shareholders, giving holders direct returns even while the growth mix remains uneven.

Still, the share-price decline showed that investors weighed the slower DTC trajectory more heavily than the stronger margins and improved full-year profit expectations. The next checkpoint is the fourth-quarter report, where management's call for a holiday-driven DTC acceleration will be measured against actual results.

Source: Blockonomi