Profits are up at Levi's—and price hikes might be why. But here's where it gets controversial: the iconic denim brand is raising prices at a time when costs from tariffs are mounting, and somehow, it's still outperforming Wall Street's forecasts.
On Thursday, Levi Strauss reported stronger-than-expected earnings for its fiscal third quarter, revealing that strategic price increases, reduced reliance on wholesalers, and sharper focus on direct sales have lifted profitability despite economic headwinds.
Gains in gross margin told part of the story. Levi's saw margins widen to 61.7%—up from 60.6% last year—beating analyst expectations of 60.7%. CEO Michelle Gass explained in a CNBC interview that the company has been selectively increasing the prices of jeans and apparel, with plans to keep doing so in the U.S. and overseas markets next year. "We've implemented targeted changes without seeing a drop in demand," Gass noted, emphasizing that Levi’s treats its reputation for quality and value as something to earn daily.
CFO Harmit Singh backed up the optimism, stressing that strong demand remains the primary driver of revenue gains—not just price increases. In fact, Levi’s is discounting less and selling a greater share directly through its own stores and website, securing higher margins compared to wholesale.
These strategies have been enough for Levi’s to boost its full-year outlook, albeit with what Singh called a "prudent" stance amid unpredictable macroeconomic conditions.
Quarterly results vs. expectations:
- Earnings per share: $0.34 adjusted vs. $0.31 expected
- Revenue: $1.54 billion vs. $1.50 billion expected
Despite the earnings beat, Levi’s stock dropped over 6% in after-hours trading. This comes after the share price surged approximately 42% year-to-date.
Net income for the three months ending Aug. 31 soared to $218 million (55 cents per share) from $20.7 million (5 cents per share) last year. Adjusted earnings, excluding various one-time charges, landed at $0.34 per share. Revenue rose 7% year-over-year to $1.54 billion.
Looking ahead, Levi’s now projects full-year sales growth of 3%, compared to a previous forecast of 1%–2%, smashing analyst expectations for a 2.9% decline. Adjusted full-year EPS is guided between $1.27 and $1.32, with the upper range matching Wall Street’s $1.31 estimate.
Operating margins are expected between 11.4% and 11.6%, in line with consensus, while gross margins are pegged to rise by 1 percentage point—returning to Levi’s original forecast prior to factoring in tariff impacts. That guidance assumes U.S. import tariffs from China hold at 30% and duties from other regions stay at 20%.
Under Gass’s leadership, Levi’s has expanded beyond jeans, targeted female shoppers, and ramped up direct-to-consumer sales. This quarter, those direct purchases climbed 11%, led by strong U.S. demand. Sales to women rose 9%, while tops—now nearly 40% of the company’s business—also jumped 9%, offering a buffer if denim trends ever falter.
The big debate: Are Levi’s calculated price hikes a smart strategy in preserving brand value, or could they eventually alienate loyal customers in the face of economic pressures? What’s your take—should heritage brands lean into price power or play it safe with affordability?
