Business Context and Reporting Period
Company: Levi Strauss & Co.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Second Quarter and Six Months Ended May 31, 2026
Business Overview: The Company designs, markets, and sells apparel under the Levi's, Levi Strauss Signature, and Beyond Yoga brands. The Dockers business was sold in 2025 and 2026 and is reported as discontinued operations.
Key Financial Metrics
| Metric (in millions) | Q2 2026 | Q2 2025 | 6 Months 2026 | 6 Months 2025 |
|---|---|---|---|---|
| Net Revenues | $1,562.0 | $1,446.0 | $3,304.5 | $2,972.8 |
| Gross Profit | $979.1 | $905.8 | $2,057.4 | $1,853.4 |
| Gross Margin | 62.7% | 62.6% | 62.3% | 62.3% |
| Operating Income | $122.2 | $108.0 | $320.9 | $299.6 |
| Operating Margin | 7.8% | 7.5% | 9.7% | 10.1% |
| Net Income (Continuing Ops) | $94.8 | $79.6 | $271.9 | $219.8 |
| Net Income (Total) | $87.3 | $67.0 | $263.1 | $202.0 |
| Diluted EPS (Continuing Ops) | $0.24 | $0.20 | $0.69 | $0.55 |
| Operating Cash Flow (6 Mo) | $482.3 (2026) vs $238.0 (2025) | |||
| Long-Term Debt | $1,043.0 (May 31, 2026) | |||
| Cash & Equivalents | $849.3 (May 31, 2026) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 8.0% in Q2 and 11.2% year-to-date (YTD) compared to the prior year. Organic revenue growth was 5.7% in Q2 and 7.5% YTD. Growth was driven by the Americas and Asia segments and both Direct-to-Consumer (DTC) and wholesale channels.
- Profitability: Net income from continuing operations rose 19.1% in Q2 and 23.7% YTD. Operating margin improved to 7.8% in Q2 (from 7.5%) but declined slightly YTD to 9.7% (from 10.1%) due to higher SG&A and taxes.
- Unusual Items: YTD results included a $33.0 million gain from a legal settlement regarding trademark infringement. Restructuring charges increased to $21.4 million YTD (from $13.5 million prior year) due to cost reduction initiatives and technology project discontinuations.
- Discontinued Operations: The Company completed the sale of the remaining Dockers operations in Q1 2026. Discontinued operations resulted in a net loss of $8.8 million YTD 2026, compared to $17.8 million in the prior year.
Guidance, Outlook, and Risks
- Capital Allocation: The Company aims to return 55-65% of Adjusted Free Cash Flow to shareholders via dividends and share repurchases. A $200 million Accelerated Share Repurchase (ASR) was initiated in January 2026, with final settlement expected in Q3 2026. A quarterly dividend of $0.16 per share was declared in July 2026.
- Strategic Focus: Continued execution of the "DTC First" strategy, with DTC representing 52% of total net revenues YTD. The Company is transitioning distribution centers to third-party logistics providers, which may cause temporary disruptions.
- Tariff and Trade Risks: A U.S. Supreme Court ruling in February 2026 invalidated certain IEEPA tariffs. The Company estimates it paid approximately $80 million in these tariffs and is pursuing refunds, though recovery is not yet recognized as probable for all phases. New prospective tariffs remain a risk to cost of sales and margins.
- Macroeconomic Factors: Risks include global economic volatility, inflation, currency fluctuations (favorable impact on revenue in Q2), and geopolitical conflicts affecting supply chains and consumer demand.
Investor Verification Checklist
- Legal Settlement Gain: Verify the sustainability of the $33.0 million legal settlement gain included in YTD "Other income."
- Tariff Refund Status: Monitor the progress of the $80 million IEEPA tariff refund claim and the likelihood of recognition under ASC 450.
- Restructuring Costs: Track the execution of ongoing restructuring initiatives and the associated cash outflows for severance and contract terminations.
- Share Repurchase Settlement: Confirm the final share count and average price of the $200 million ASR upon settlement in Q3 2026.
- Logistics Transition: Assess the impact of the transition to third-party logistics providers on fulfillment speed and distribution costs.